Brokerage firm Morgan Stanley has revised its rating and price target for various chemical companies while cautioning that earnings for the sector are not fully de-risked yet. As a result, the brokerage believes that most stocks in the chemical sector are not yet ready for upgrades.
However, the exception is PI Industries, which Morgan Stanley upgraded to 'equal-weight' while raising its price target by 28 percent to Rs 4,300. Despite this increase, the new price target suggests a potential downside of over 5 percent from the previous close.
As for other chemical stocks, Morgan Stanley downgraded shares of Aarti Industries to an 'underweight', also slashing its price target by over 7 percent to Rs 568. Meanwhile, Morgan Stanley chose Deepak Nitrite as its top pick from the sector, retaining its 'overweight' call on the stock while lifting its target price by 11 percent to Rs 3,295.
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Back in June as well, Morgan Stanley had issued a flurry of ratings downgrades chemical stocks as it anticipated continued challenges for the sector in the near term. The firm believed at the time that the chemicals sector was still not out of the woods and would remain on the sidelines for some time until an earnings upgrade cycle began.
While some players in the chemical space are slowly emerging from the harsh conditions in the global chemical industry due to the influx of Chinese inventory and sluggish demand, others are yet to catch up.
Morgan Stanley's stock choices within the chemical sector also seem to rely on the earnings recovery of these companies. For context, the brokerage has a more positive stance on stocks like PI Industries and Deepak Nitrite, both of which reported strong double-digit year-on-year growth in their bottom lines.
PI Industries recorded a 17.2 percent year-on-year spike in net profit to Rs 448.8 crore, while revenue grew 8.3 percent to Rs 2,068.9 crore in the June quarter. Similarly, Deepak Nitrite reported a 35.1 percent year-on-year jump in net profit to Rs 202.5 crore, along with a revenue growth of 22.5 percent to Rs 2,166.8 crore.
In contrast, Aarti Industries delivered subdued earnings and has also suspended its guidance for FY25 due to ongoing market uncertainties, suggesting potential further pressure on growth.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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