China virus scare: Indian chemical stocks likely to gain

Mumbai: India’s chemical manufacturers are likely to benefit if the coronavirus crisis continues to spread and impacts production in Hubei region of China, said JM Financial. The brokerage said dye intermediate companies like Aksharchem, Meghmani, Kiri Industries and Bhageria Industries could benefit.

“The Coronavirus, which if it continues to spread, could impact production in Hubei (Wuhan is the largest city in Hubei) region which has a large chemical industry,” said JM Financial in a note.

Several stocks in the chemical space are gaining on expectation of benefiting from the crisis in China. Fine Organic Industries ended up 5.2 per cent at Rs 2,418.7 on Wednesday and Navin Fluorine International gained 3.2 per cent at Rs 1,244.5.

In 2016, when Hubei Chuyuan, which had 30 per cent global production capacity, was shut-down on environmental concerns, dyestuff prices had rallied and stocks had also gained multifold. Currently, none of the Hubei industries seems to have been impacted and channel checks indicate that dye intermediate prices have also not rallied, said JM Financial.

“However, with people movement restricted, if Coronavirus continues to spread, it could impact production and we could see dyestuff prices rally,” said JM Financial.
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Aarti Industries could be an indirect beneficiary, said JM Financial. The brokerage tracks Galaxy Surfactants, Fine Organics, SRF, PI Industries, Navin Fluorine and UPL from the chemical/agrochemical space. The brokerage is bullish on Galaxy Surfactants at the current valuations and said that the company is unlikely to be impacted by volatility in China.

“…while it faced challenges over the last year in Egypt, we believe that given likely revival of the Indian economy and the current valuations, Galaxy should outperform,” said JM Financial, maintaining the ‘buy’ rating on Galaxy stock.
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