The chemicals sector is currently facing significant challenges, said Sanjeev Prasad of Kotak Institutional Equities, pointing to the rising inventory levels and reduced profitability seen across various companies.

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However, the underlying, long-term fundamentals for the chemical sector remain unchanged, he said.

“The sector is facing a lot of headwinds, namely two. One, at a global slowdown resulting in volumes getting impacted, and second, a temporary problem of high inventory with customers that affected volumes in quarter one of FY 24, that could be sustained into the second quarter,” Prasad said in an interview with CNBC-TV18.

Back in July, there was a slew of profit warnings from global chemical companies as well, highlighting the weak demand environment, inventory de-stocking by customers, and falling prices as well. One of the chemical majors even called the situation 'Lehman-like'.

Around the same time, Centrum broking’s Rohit Nagraj had also highlighted challenges for chemical companies in India, projecting an export challenge for the entire fiscal year 2024. This anticipated hurdle is expected to have a significant impact on earnings for Indian chemical companies, signaling a tough road ahead.

The industry has been facing challenges with China reopening and dumping their products in global markets at lower prices. Despite China re-opening, there is not enough demand in their own country leading to exports at cheaper prices.

Firms in the chemical industry have been seeing strong growth for a few years, however, the 2023-24 fiscal, shall see a bit of subdued earnings growth, Ranjit Cirumalla, Vice President-Research Agri, Chemicals and Midcaps at IIFL said on July 17.

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(Edited by : Shweta Mungre)