MAGNUM Blog

The specialty chemicals market in India has been flourishing, owing to the rise in demand from various end-user industries. The specialty chemicals market in India was valued at INR 2,650.92 Bn in FY 2019 and is expected to reach INR 4,527.36 Bn by FY 2024, expanding at a compound annual growth rate (CAGR) of ~11.9% during the FY 2019-FY 2024 period. Unlike basic chemicals, the price of specialty chemicals is determined depending on their unique features and utilities rather than composition.

Despite of uncertainties environmental concerns and sharpening cost focus, the sector has sufficiently sustained the growth as demand for this product from end-user industries, Demand from export and import substitution opportunities due to the clampdown on chemicals manufacturing in China. While these drivers create a conducive.

However, current scenario may impact the growth for limited time span. Structural positivity & right chemistry & involution of new chemicals, we remain positive bias on this sector An increase in demand in end-user industries like food processing, personal care, and home care is propelling the development of the different segments of the Indian specialty chemicals market.

Due to busy work schedules, people lack the time to cook and prefer consuming processed and packaged foods. Edible oils find application in the food processing market.

Therefore, growing consumption of processed and packaged food is leading to the rise in demand of edible colours, flavours and Agents. The premium home care and personal care segments also see lot of demand for non-greasy detergent, Skin friendly Hygiene etc

Road Ahead

Rising demand for better Homecare solutions, Food Industry, Perfumeries, Oil Substitute etc. would remain, thus giving opportunity for this sector to grow at rate of 11-13% Y-o-Y.

India Sourcing would be the key advantage for this sector as china will be choice for later with importer around the globe.

BENEFICIARIES: PIDILITE, AARTI IND, GALAXY SURFACTANT, SUMITOMO.

Hydraulic oils and transmission fluids transmit power in hydraulic equipment and are used in power transmission applications. They are incompressible fluids that are used as the power transmitting media in hydraulic systems. Hydraulic power systems involve a series of tubes or elastomeric hoses for transmitting pressurized fluid, a pump (as a power source), and some type of control (typically a series of valves, actuators, or cylinders) as the power transmission media, hydraulic fluids are indispensable in these systems. Transmission oils are essential to clean and protect the surface, condition gaskets, rise temperature range, increase rotational speed, and improve cooling function, and reduce high temperatures. They are used to lubricate, transfer energy, ensure smooth transmission in motor vehicles, agriculture equipment, construction, and mining equipment. Hydraulic fluids are used as a medium for transferring power and energy in hydraulic systems. Additionally, they are used for heat transfer, sealing, contaminant removal, and lubrication. The majority of the hydraulic fluids are based on mineral oils. The applications of these fluids include excavators, hydraulic brakes, lifts, flight control systems, power steering systems, excavator booms, dippers, hydraulic brakes, power steering systems, mechanical transmission systems, lifts, and general industrial machinery.

The Indian lubricants market

  Product Type :

֍ Engine Oil

֍  Transmission and Hydraulic Fluid

֍ Metalworking Fluid

֍ General Industrial Oil

֍ Gear OilGrease

֍ Process Oil

  Application:

֍ Power Generation Automotive and Other Transportation

֍ Heavy Equipment

֍ Food and Beverage

֍ Metallurgy and Metalworking

֍ Chemical Manufacturing

Automotive and Other Transportation:

India is the second largest lubricant consumer in the region and third in the world, after the United States and China. The country is the fourth and sixth largest producer of commercial vehicles and passenger cars, respectively. The country’s automotive industry accounts for around 7.1% of the country’s GDP, in which the two-wheeler segment accounts for a share of around 81% share, owing to the growing young and middle-class population. Additionally, the government’s initiatives, such as the Make in India campaign, are helping the local and state-owned manufacturers to provide their products to consumers and offer stiff competition to the international players. However, India’s automotive industry has been declining from the past one year due to a continuous slump in demand, slowing economic activity, and an increase in vehicle ownership costs. The outbreak of COVID-19 has further affected the economy at present, as all the manufacturing sectors has been stopped due to lockdown. Thus, the aforementioned factors are expected to impact the automotive industry, which in turn will affect the growth of the lubricants demand in the country.

Road Ahead

We expect growth to remain stable for now but would increase going further. The Growth rate of 4-5% YoY can be forecasted for this sector.

BENEFICIARIES: CASTROL, BPCL, HPCL, IOC, GULF OIL.

The Indian E-commerce market is expected to grow to US$ 200 billion by 2026. Industry growth been triggered by an increase in internet and smartphone penetration.

The ongoing digital transformation in the country is expected to increase India’s total internet user base to 829 million by 2021, India’s E-commerce revenue is expected to jump to US$ 140 billion by 2021, growing at an annual rate of 45%, the highest in the world.

Online retail sales in India primarily led by Flipkart, Amazon India and Paytm Mall has seen significant growth. In August 2020, Reliance Industries (RIL) acquired 60% stake in Netmeds, an online pharmacy, for Rs 620 crore (US$ 84.61 million). This acquisition gives RIL’s retail unit, Reliance Retail, entry into a vertical e-commerce space.

In January 2020, Divine Solitaires launched its E-commerce platform, Future Retail also acquired by Reliance Industries. Government e-Marketplace (GeM) signed a Memorandum of Understanding (MoU) with Union Bank of India to facilitate a cashless, paperless and transparent payment system for an array of services in October 2019.

In order to increase the participation of foreign players in E-commerce, Indian Government hiked the limit of FDI in E-commerce marketplace model to up to 100% (in B2B models).

E-commerce segment is also growing in terms of Foods business, grocery supply & small vendors like Retail vegetable seller, Manufacturer of Designer clothes, Furniture vendors are also joining the chain.

Indian E-commerce industry has been on an upward growth trajectory and is expected to surpass the US to become the second largest E-commerce market in the world by 2034.

Road Ahead

E-commerce growth can be projected at more than 20% going forward.

E-commerce sector will also boost employment, increase revenues from export.

BENEFICIARIES: RELIANCE INDUSTRIES, V MART RETAIL, D MART, TRENT.

India becomes the second-largest steel producer in the world, overtaking Japan, with a growth rate of 4.9%. India is also expected to become the world number two in steel consumption. The sector would be driven by strong government thrust for infrastructure development and housing for all. Government initiatives such as ‘Smart Cities’ and ‘Affordable Housing’ as well as building of industrial corridors will boost India’s steel demand. Rail Infra, Supply Chain Management, Heavy Engineering & Defence, Gas Pipelines etc would also add to demand of this sector.

Transforming India into a global manufacturing hub for pharma, with sectors along the industrial and freight corridors. To set up automotive and ancillary industries to make India global hubs for manufacturing & exporting cars & Two wheelers.

Further improving Steel demand as China becomes net importer of Steel. Moody’s changing “steel outlook” for all regions which include the US, Europe, Russia, Brazil and Asia to stable. Increase in price of around 3000-4000 per tonne added advantage. vSteel-making capacity is expected to reach 300 million tonnes per annum by 2030–31. vCrude steel production is expected to reach 255 million tonnes by 2030–31, at 85% capacity utilisation. vProduction of finished steel to reach 230 million tonnes, assuming a yield loss of 10% for conversion of crude steel to finished steel – that is, a conversion ratio of 90%. vWith 24 million tonnes of net exports, consumption is expected to reach 206 million tonnes by 2030–31. (source PWC report)

Port connectivity through the Sagarmala programme envisages port-led industrial development covering all major maritime zones in India. Oil and gas sector, the Urja Ganga Gas Pipeline Project aims to develop a 15,000-km gas pipeline network. Advance Warehousing & Logistic Hubs. National Investment and Manufacturing Zones (NIMZs) are being developed across the country, with 14 NIMZs already receiving in-principle approval. In addition, eight investment regions along the Delhi–Mumbai Industrial Corridor Project (DMIC)have also been announced as NIMZs.

Road Ahead

Overall demand visibility remains steady going forward. Industry Growth of around 4-6% can be assumed.

Government’s focus on infrastructure and restarting road projects is aiding the demand for steel. Also, further likely acceleration in rural economy and infrastructure is expected to lead to growth in demand for steel.

BENEFICIARIES: TATA STEEL, JSW STEEL, JINDAL STEEL, KALYANI STEEL, SAIL

Non-Banking finance companies with assets of over Rs 50,000 crore that meet the RBI’s size criteria to get Bank licenses for corporates or NBFCS owned by large corporates. However, it has left the door open for NBFCs that are owned by corporates if they have been around for 10 years. Payment banks can convert to small finance bank after three years,  A big challenge for the NBFCs to convert into banks will be the cost of investment in technology and setting up branch network. They will also have to face additional cost for complying with the SLR of 18% and the CRR of 4% and not all NBFCs can meet this cost of compliance.

Conversion to a bank could help many NBFCs in terms of sustainability and growth, but would also mean that they would have to follow more regulatory and compliance norms. Many NBFCs have deeper penetration in teir-2 & 3 cities and also in rural India, It could be more advantageous to convert to bank as broader regulations are coming in line with banking norms for NBFCs.

The panel also suggested that the current rule of the promoters of a bank has to hold a minimum of 40% in the lender for the first five years, should continue. The panel, while proposing a hike in promoter holding in private banks to 26% also said that the promoters could voluntarily choose to bring down their holding further after lock-in of five years. Promoters not allowed to pledge bank shares during lock-in period.

Road Ahead

To make definite road map for NBFCs and also NBFCs could penetrate as India grows to 5 trillion Economy Increased corporate involvement into the banking sector may also translate to greater concentration of financial, economic or political might within select business houses.

Overall NBFCs would benefit from internal working group of the Reserve Bank of India (RBI)

BENEFICIARIES : INDIABULL HOUSING FIN, BAJAJ FINANCE, SHRIRAM TRANSPORT FINANCE, LT FINANCE, M&M FINANCE.

Indian pharmaceutical sector supplies over 50% of the global demand for various vaccines, 40% of the generic demand for US and 25% of all medicines for UK. India contributes the second largest share of pharmaceutical and biotech workforce in the world. Pharmaceutical sales grew more than ~9% y-o-y in 2020.

Indian drugs are exported to more than 200 countries in the world, with US being the key market. Generic drugs account for 20% of the global export in terms of volume, making the country the largest provider of generic medicines globally. It is expected to expand even further in the coming years. Pharmaceutical export from India, which include bulk drugs, intermediates, drug formulations, biologicals, Ayush & herbal products and surgical instruments.

With new Production Linked Incentive (PLI) Scheme for promotion of domestic manufacturing of critical Key Starting Materials (KSMs)/ Drug Intermediates and Active Pharmaceutical Ingredients (APIs) In India and Scheme for Promotion of Bulk Drug Parks. Production Linked Incentive Scheme for Promoting Domestic Manufacturing of Medical Devices and Scheme for Promotion of Medical Device Parks. We envisage more FDI investment and new projects & expansion in capacities. The country’s pharmaceuticals exports are on course to cross US$ 23 billion for the first time this fiscal year after rising 14.85% yoy at US$ 11.78 billion in the first half. The growth is driven by drug formulations and biologicals, whose shipment grew a record 21.85% year-on-year to US$ 8.99 billion in the April-September period as countries around the world turned to India to meet a rise in demand in the midst of the Covid-19 pandemic that in many parts of the world triggered lockdowns and production disruptions.

Indian pharmaceutical industry’s export to the US will get a boost as branded drugs will become Off Patent by 2021-23. Companies are launching Generics version as getting approvals from USFDA. Recently India plans to set up a nearly Rs 1 lakh crore (US$ 1.3 billion) fund to provide boost to companies to manufacture pharmaceutical ingredients domestically by 2023.

Road Ahead

Medicine spending in India is projected to grow 9 12% over the next five years, leading India to become one of the top 10 countries in terms of medicine spending. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies.

BENEFICIARIES : VIVIMED LABS LIMITED, GRANULES INDIA, MARKSANS PHARMA, SOLARA ACTIVEPHARMA, DISHMAN CARBOGEN

The civil aviation industry in India has emerged as one of the fastest growing industries in the country. Growth due to COVID came to stand-still and Industry faced debt issue. India has become the third largest domestic aviation market in the world and is expected to overtake UK to become the third largest air passenger market by 2024.

India’s passenger traffic is slowly picking up and currently passenger load factor is increasing. Low cost carrier SpiceJet announced the launch of its seaplane service between Ahmedabad (Sabarmati riverfront) and the Statue of Unity in Kevadia, Gujarat. The flights will be operated by SpiceJet’s fully-owned subsidiary, Spice Shuttle using a 15-seater Twin Otter 300 aircraft, the airline adding that it has secured 18 seaplane routes under UDAN. In an attempt to connect small cities of India with each other, the Government of India launched a Regional Connectivity Scheme, Udan (Ude Desh Ka Aam Nagrik). The scheme reached its fourth stage as the aviation ministry gave nod to 78 fresh routes under UDAN 4.0 to enhance connectivity to remote and regional areas of the country. In this stage, north east states, hilly areas and islands of India have been given priority. The fresh routes will encourage tourism & local travel in these areas and help strengthen their economies.

Freight is one more vertical of this industry, the freight traffic seems to be slow but gathering pace. The government has allowed 100% FDI under the automatic route in scheduled air transport service, regional air transport service and domestic scheduled passenger airline. However, FDI over 49% would require government approval. Government introduced Krishi Udan scheme on both domestic and international routes to help farmers in transporting agricultural products and improve the product value.

Road Ahead

Lot of Scope available in this sector as huge opportunity untapped, considering that air transport is still expensive for majority of the country’s population.

India would be well placed to achieve its vision of becoming the third-largest aviation market, would push growth automatically. The growth rate of more than 10% could be seen over next 2-3 years.

BENEFICIARIES : INDIGO, SPICEJET.

Oil and gas sector among the eight core industries in India and plays a major role in influencing decision making for all the other important sections of the economy. The need for oil and gas is projected to grow more as expansion in gas-based plant are finding more traction and cheap productivity, thereby making the sector quite conducive for investment.

India’s oil refining capacity stood at 249.9 million metric tonnes (MMT), making it the second-largest refiner in Asia. Private companies own about 35.29% of the total refining capacity in FY20. India’s consumption of petroleum products is almost come back to Pre-Covid levels. Export of petroleum products from India has shown tick down due to current environment.

State run energy firms, Bharat Petroleum, Hindustan Petroleum and Indian Oil Corporation, plan to spend US$ 20 billion on refinery expansions to add units by 2022. Disinvestment in BPCL is ongoing. With 8,748 kms of refined products pipeline in India, IOC was leading the segment with 51.25% of the total length of product pipeline network as on March 01, 2020The Government is planning to set up around 5,000 compressed biogas (CBG) plants by 2023. The Government is planning to invest US$ 2.86 billion in the upstream oil and gas production to double natural gas production to 60 bcm and drill more than 120 exploration wells by 2022. Government of India is planning to invest Rs 70,000 crore (US$ 9.97 billion) to expand the gas pipeline network across the country.

The energy trade between India and US is likely to cross US$ 12 billion in FY22. As on April 01, 2020, there were 24,670 LPG distributors (of PSUs) in India. The total number of OMC retail outlets at 66,817 at the beginning of April 2020.Private players like Reliance Essar are also expanding their foot print day by day to compete with OMCs.

Road Ahead

Energy demand of India is anticipated to grow faster than energy demand of all major economies on the back of continuous robust economic growth.

India’s energy demand is expected to double by 2035. Primary energy consumption is projected to increase by two-fold by 2035Growth of 7-8% can be projected going forward.

BENEFICIARIES : IOC, BPCL, HPCL, ONGC, RELIANCE, GAIL

Telecom equipment forms a critical and strategic element of building a secured telecom infrastructure and India aspires to become a major original equipment manufacturer of telecom and networking products. The PLI scheme is expected to attract large investments from global players and help domestic companies seize the emerging opportunities and become big players in the export market. The PLI scheme announced on 11th Nov 2020 approved financial outlay of Rs 12195 cr. over five year period.

Telecom Products

1.Core Transmission Equipment

2.4G/5G, Next Generation Radio Access Network and Wireless Equipment

3.Access & Customer Premises Equipment (CPE), Internet of Things (IoT) Access Devices and Other Wireless Equipment

4.Enterprise equipment: Switches, Router.

India is the world’s second-largest telecommunications market. The Indian mobile economy is growing rapidly and will contribute substantially to India’s Gross Domestic Product (GDP). With situation of lockdown the sector saw highest usage of data & digital economy. India’s active internet user base to hit 639 mn by Dec 2020, Rural user base to hit ~300 mn by Dec’20. India has the world’s highest data usage per smartphone at an average of 9.8 GB per month. In March 2020, the government approved the Production Incentive Scheme (PLI) for Large- scale Electronics Manufacturing. The scheme proposes production-linked incentive to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components including Assembly, Testing, Marking and Packaging (ATMP) units. The policy intended to attract investments worth US$ 100 billion in the sector by 2022.The Department of Information Technology intends to set up over 1 million internet-enabled common service centres across India as per the National e-Governance Plan. FDI cap in the telecom sector has been increased to 100% from 74%; out of 100%, 49% will be done through the automatic route and the rest will be done through the FIPB approval route. FDI of up to 100% is permitted for infrastructure providers offering dark fibre, electronic mail and voice mail. The Government of India has introduced Digital India programme under which all the sectors such as healthcare, retail, etc. will be connected through internet. Telecom tower sector driven by 5G and IoT will boom in India. Indian telecom tower companies are well placed to tap in on new opportunities that represent a revenue potential of Rs 200 bln – Rs 300 bln in 2023.

Road Ahead

Growth rate of 8-10% expected for next 5 years Country could become major manufacturing Hub in many sectors like Pharma, Auto Ancillaries, Electronics, Defence, Logistic & Transport.

BENEFICIARIES : Bharti Infratel, ITI ltd, Route Mobile, Nelco Ltd