I don’t buy into the valuation argument. If company could get back to its pre 2021 profitability, p/e will come down to 20 something. Market has already derated all the chemical companies and current metrics price in that derating so downside is very limited. Whatever the sectoral risks are, market has known them for last two years and market prices in risk in a matter of couple of days. It won’t keep doing that for 2 years.
Regarding your sector commentary, India has a minuscule percentage in global chemical market and many forecasts put our future growth at 9-10%, for next 20 years, which is very healthy. So I don’t believe that there is no more growth left for Indian companies.
Current sector rut is mainly contributed by slowdown in the US and Europe markets due to high interest rates and cheap dumping from China due to their own slow economy. I don’t believe these conditions will last forever.
Nothing has changed in company’s business model fundamentally or its competitiveness. It used to be the darling of the stock market till 2021 as people hailed its market leadership, superior valuation proposition.
Now that sector cycle has changed I can understand reason why people might be bearish on the stock or for that matter a SRF or a Deepak Nitrate which have been massive wealth creators for their investors but have fallen out of favor in last 3 years (same arguments go for them as for Aart Industries). Take a look at the valuation metrics for them and you will think they are expensive as p/e looks artificially high due to depressed earnings.
My investing style is to get into a sector at the bottom of its business cycle as that allows me to capture maximum upside when the cycle turns.
I did the same with IT stocks in 2022 at peak pessimism (same arguments such as high valuations, competition etc). Looking back I think I made the right call generating healthy returns.
Whether I will be able to repeat the same performance with my bets in chemical sector, I’d let the time be judge.
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