India's chemical industry is preparing to take advantage of recent opportunities. How private companies plan their own priorities may shape the future of the industry and contribute to transaction performance.
India's chemical industry is an outstanding and promising industry. The chemical industry has always been a value creator, and even in the global uncertain environment, it is still an attractive opportunity center. Global trends affecting the global chemical industry are likely to bring near-term opportunities for Indian chemical companies. How chemical manufacturer gives priority to and tap this potential for value creation will determine the future of India's chemical industry and the country's trade performance.
Indian chemical industry: consistent value creators and positive prospects
India is an attractive center for chemical enterprises. In terms of total shareholder return (TRS), the chemical industry has performed well in the world, which leads to high expectations for sustained and sustained growth. India's macro outlook shows that, while the short-term outlook is challenging, the country's long-term growth story remains positive.
Until 2014, TRS growth was mainly supported by revenue growth. In the past five years, the triple effect of profit margin expansion, multiple increase and continuous revenue growth has improved trs.
From 2006 to 2019, the compound annual growth rate (CAGR) of TRS is 15%, much higher than the 8% CAGR of global chemical industry and the 6% CAGR of global stock market. Even in 2016-2019, India's economy is facing a headwind, and the chemical industry still maintains a compound annual growth rate of 17%.
Despite the economic challenges leading to India's GDP growth rate falling to 4.5% in the third quarter of 2019, this growth is likely to continue. In the long run, India's GDP has grown at an average annual rate of 7% over the past 30 years. The country is also trying to become a $5 trillion economy. This optimistic long-term outlook bodes well for chemical manufacturers, especially given the long investment cycle. Chemical manufacturers can also benefit from growing domestic demand in the chemical end use industry, India's attractiveness as a manufacturing destination, and improved ease of doing business.
Global trends: the uncertainty of the world, the possibility of India
Six trends are shaping the global chemical industry. While they mean uncertainty in a global context, they could open up near-term opportunities in India.
Several global oil and gas giants are turning to the downstream chemical industry. This could increase India's focus on the petrochemical industry, and increased investment in the industry could ease raw material challenges and promote self-sufficiency.
The structure of China's chemical industry is changing due to stricter environmental regulations, stricter financing and integration. Although these changes may benefit some large enterprises in the long run, they may also bring uncertainty to international enterprises purchasing chemicals from China. This may create opportunities for Indian chemical manufacturers in certain value chains and segments, especially in the short term.
Trade conflicts break out all over the world, especially between China, the United States and Western Europe. This has led to changes in the global supply chain, affected bilateral trade between China and the United States, and may have an impact on other economies. In this case, the large chemical market that can still be accessed may provide opportunities for Indian chemical companies.
From the perspective of the whole industry, it seems that there is a trend to give priority to core business and carry out larger-scale integration, usually through large-scale mergers and acquisitions. For Indian companies, scale will be more important because it helps to consolidate their competitive advantage.
Digital technology has become a lever to improve efficiency and productivity. Many companies around the world are embracing the potential of digital; Indian companies can also take advantage of this opportunity to expand their profit margins.
Sustainability is becoming a necessity, not a buzzword, and all stakeholders are paying attention to it. Chemical manufacturer can give priority to environmental sustainability to protect long-term shareholder value while continuing to comply with local regulations.
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