Current Dynamics in the Global Chemicals Market

The global chemicals sector, which historically provided substantial returns to shareholders, is undergoing a significant transformation. Following a period of remarkable performance during the COVID-19 pandemic, the industry has now entered a challenging phase, experiencing a total shareholder return (TSR) of –3.6% from January 2023 to January 2025. This downturn is stark when compared to a robust TSR of 22.8% for the MSCI World Index during the same period, highlighting the sector’s struggle against multiple economic pressures such as commodity shocks, supply chain interruptions, and intensified inflation.

Performance is highly variable across different chemical segments. For instance, specialty chemicals have delivered a long-term TSR of 5.3%, significantly outperforming base chemicals at 3%. Conversely, recent trends show diversified chemicals experiencing short-term success with a TSR of 3.2%, in contrast to specialty chemicals’ –0.7% TSR.

Regional Performance Insights

Varied performance is also evident when analyzing geographical contexts. Europe, facing high operational costs and stringent regulations, recorded a modest TSR of 0 to 1%. In comparison, the U.S. and Canada maintained a more stable trajectory with a TSR ranging from 4 to 5%. However, India has emerged as a leader in value creation in Asia, achieving a remarkable TSR of 10 to 12% between January 2020 and January 2025.

The Resilience and Growth Potential of India’s Chemicals Industry

Despite witnessing a flatlining TSR from January 2023 onwards, India’s chemicals industry has been a key driver of TSR in Asia over the past five years, maintaining a level of resilience with a range of 10 to 12%. Factors contributing to this stabilization include fluctuating EBITDA margins, which peaked at approximately 17.5% in fiscal year 2021 before declining to around 13% in fiscal year 2024.

Differentiated performance is seen across various subsectors: while specialty chemicals have fared better than petrochemicals, subsegments like food and nutrition are thriving, contrasting with the struggles faced by agrochemicals and plastic additives.

Strategic Pathways for Growth

Amidst these shifting dynamics, the future for Indian chemicals companies depends on their ability to execute strategic initiatives aimed at driving profitable growth. Here are six key imperatives for navigating the path forward:

1. Enhance Domestic and Global Platforms: With increasing household consumption in India, there is a notable opportunity to establish large-scale manufacturing capacities to meet growing domestic demand.
2. Expand Internationally: While exports have risen, many Indian companies lack a physical market presence abroad. Establishing a more substantial global footprint will be vital for fostering deeper customer relationships.
3. Adopt Programmatic M&A Strategies: Increasing the focus on targeted mergers and acquisitions can help firms gain specific capabilities and broaden their market reach, especially as companies restructure under margin pressures.
4. Prioritize Sustainability: As sustainability becomes paramount, companies should embrace opportunities for decarbonization and focus on bio-based chemicals to meet environmental goals.
5. Improve Capital Expenditure Planning: With $11 billion earmarked for upcoming capital projects, optimizing planning and execution is crucial to minimize delays and cost overruns, which currently average around 19%.
6. Leverage Digital Technologies: Companies should accelerate the adoption of digital tools to drive operational excellence, potentially yielding an EBITDA increase of six to eight percentage points across various functions.

Conclusion

By adopting a structured and focused approach, Indian chemicals companies can not only navigate the current challenges but also position themselves for substantial growth. Successfully implementing these strategies will enable them to enhance shareholder returns and contribute significantly to the broader economic landscape of India.