Speciality chemicals is that one space which was hardly affected by the global cues or liquidity crisis in the last one year. The sector is thriving well and has given some tremendous returns during this year. The key triggers behind the sector rally were earnings growth and healthy domestic demand.

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Indian chemicals market was pegged at $190 billion in FY18, one of third of which is speciality chemicals (including pharma and agrochemicals). According to a Crisil report on the sector, it said that the capital expenditure of speciality chemical manufacturers is expected to jump 70 percent to almost Rs 13,000 crore during fiscal 2018-20.

In fact, the global tension between US and China is beneficial for this sector in particular as most of the supplies arrive from China. Tariffs imposed by the US have affected the Chinese imports and have reduced the input prices. This brings down the input prices for Indian chemical manufacturers, who can generate higher revenues.

Speciality chemical stocks like Vinati Organics, SRF, PI Industries, Aarti Industries and a couple of others have seen tremendous growth in the last one year. Vinati Organics surged by 117 percent and SRF rose by 78 percent in last one year.

The largest player in the speciality chemicals space i.e. United Phosphorus Limited (UPL) rose by 47 percent in the last year. The least growth was seen in Deepak Nitrite, with a growth of only 13 percent in the last year.

"US-China trade war should not have a big impact on the Indian speciality chemicals industry since the large part of the demand is driven by the domestic market. Shutdown in China has led to supply constraint forcing domestic companies to set up their own manufacturing capacities. With domestic demand expected to be robust, Indian companies will benefit from the reduction in imports," said Pratik Tholiya, assistant vice president of Institutional Equity Research of Elara Capital.

He further said the sector is likely to register a growth of 10-12 percent over next 3-5 years. Large bets can be applied to stocks like SRF, Aarti Industries, Atul and Vinati Organics.

In its research report, Anand Rathi said, “The free-cash-fuelled capex drive in Indian speciality chemicals is continuing its momentum. Trade and anti-dumping duties by the US on Chinese imports have been ramped up, demand for Indian chemicals has been robust in the home market as well as in abroad. In the next two years, Aarti Industries (Rs 16 billion), Atul (Rs 10 billion) and Sudarshan Chemicals (Rs 3 billion) are on a major capex overdrive."

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