Global brokerage Morgan Stanley unleashed a flurry of ratings downgrades on chemical stocks anticipating pain to linger for the sector in the near-term. The firm believes that the chemicals sector is still not out of the woods and will remain on the sidelines for some more time until an earnings upgrade cycle makes its way.
On that account, the brokerage downgraded its ratings for Tata Chemicals, Aarti Industries and SRF factoring in the weak growth outlook for these companies.
While SRF and Aarti Industries were downgraded to an 'equal-weight' rating from the previous 'overweight' call, Tata Chemicals was moved down to an 'underweight' recommendation.
The firm attributed its downgrade on Aarti Industries to the stock's sharp run-up since early November. The stock has nearly doubled in that tenure. Despite a rating downgrade, Morgan Stanley raised its price target for the stock by over 6 percent to Rs 613, which still leaves the room open for a slight downside from its current price.
The price target for SRF was also cut by over 17 percent to Rs 2,115 as Morgan Stanley sees uncertainty over recovery and competition along with an extended downturn in its packaging business as key risks for the company. The current price target for SRF also reflects a downside potential of over 9 percent from the previous close.
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As for Tata Chemicals, Morgan Stanley attributed the oversupplied soda ash market as the major factor behind its downgrade. The firm also lowered its price target for the stock by around 7 percent to Rs 843. The target price assigned by Morgan Stanley is nearly 21 percent lower than Tata Chemicals' previous closing price.
Alongside these downgrades, Morgan Stanley also slashed its price target for another specialty chemical stock Navin Flourine to Rs 2,633 but retained its 'underweight' call on the stock.
Weighed by the harsh conditions in the global chemical industry due to the influx of Chinese inventory and weak demand, Navin Flourine, Aarti Industries and SRF posted an 11-48 percent drop in their Q4 net profits.
On the other hand, Tata Chemicals recorded a net loss of Rs 841 crore in Q4FY24 as against a net profit of Rs 692 crore in the same period last fiscal.
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