Expensive valuations may cap near-term upside in chemical stocks: Analysts

The breathtaking rally in chemical stocks may be heading towards a short-term breather as valuations turn expensive and financial performance plateaus, caution analysts. However, they remain positive on the sector’s long-term growth story on the back of ramp-up in China’s environmental inspections and specialty chemical players having a healthy margin of safety.

An analysis of March quarter results of leading chemical companies such as Tata Chemicals, Navin Fluorine, and SRF show contraction in margins, “possibly reflecting full/partial exhaustion of low cost inventories and influx of high priced raw material”, say analysts.

“During earlier quarters, operating costs remained low aided by