The Indian chemical sector witnessed a robust rally today, fueled by a strong and optimistic report from Morgan Stanley. Several chemical stocks surged, with PI Industries emerging as the top gainer in futures trading

Morgan Stanley's report begins on an upbeat note, stating that the “green shoots” seen in the agrochemical sector are here to stay. These positive signals, rather than being fleeting, are expected to hold and strengthen over time.

One of the core drivers of this optimism is the clearing of inventory destocking across the agrochemical supply chain. The report notes that channel inventories have now been reset to a clean slate, indicating a fresh beginning for the industry. In addition, demand sentiment, which had been muted for the past two years, is now showing signs of recovery. Pricing pressures, which were a significant challenge, are now normalizing, suggesting that the bottom has been reached.

Global demand trends are also turning favorable, creating additional tailwinds for the sector. Specifically for the Indian agrochemical industry, Morgan Stanley projects double-digit volume growth through FY27. The earnings CAGR (compound annual growth rate) for the Indian chemical industry is expected to be around 20%, with return on capital employed (ROCE) improving by approximately 200 basis points.

The report emphasizes that stock selection in the sector will now be valuation-driven. PI Industries stands out as Morgan Stanley’s top pick due to its attractive valuation levels. The rating for PI Industries has been upgraded from “Equal Weight” to “Overweight,” and the target price has been raised from ₹3,524 to ₹5,000, implying a potential upside of around 20% even after today’s strong rally.

For PI Industries, the report expects a 7% growth in the agrochemical segment in FY26. Although the pharmaceutical segment may remain under some pressure, the company is expected to continue outperforming the broader sector. The company's focus on launching new molecules and expanding its export portfolio is expected to significantly boost its custom synthesis segment. By FY28, one-third of the exports from the custom synthesis division are projected to come from these new molecules.

Another key insight from the report is that PI Industries still has valuation headroom. If the company can improve its export efficiency, its valuation could see an additional 20% increase.

Apart from PI Industries, Morgan Stanley also upgraded its view on Navin Fluorine. The stock rating has been raised from “Underweight” to “Equal Weight,” with a revised target price of ₹4,160. Although the target price is currently below the prevailing market price, the stock remains one of the preferred picks in the chemical segment.

In conclusion, Morgan Stanley’s bullish outlook has injected fresh energy into the Indian chemical sector, particularly agrochemical stocks. With inventory levels reset, demand picking up, and pricing stabilizing, companies like PI Industries and Navin Fluorine are well-positioned to benefit from the sector’s ongoing transformation and global growth trends.

Disclaimer:
The information provided in this article is for informational and educational purposes only and should not be construed as financial or investment advice. The views and projections mentioned are based on publicly available reports and data, specifically from Morgan Stanley, and do not represent the opinion of this website or its authors. Readers are advised to consult with a certified financial advisor or conduct their own due diligence before making any investment decisions. Stock markets are subject to risks, and past performance is not indicative of future results.