What's behind the bounce in speciality chemical stocks?
The chemical theme is here to stay, not only as a China plus one theme but also because other economies are doing better, says Mihir Vora, CIO, Max Life Insurance. Edited excerpts:Metals are always a tactical trade, especially in steel, aluminium and copper where supply and demand can catch-up in the medium term. Having said that, there are still supply bottlenecks in various parts of the world. You have supply disruptions in iron ore. China is continuing with its cleaner manufacturing policy. After such a sharp rise, a correction was due. But I would not say that it is going to back to where it was 8-9 months ago.The industry dynamics have changed for the better. The direction towards ethanol is now much more clearer than what it was last year. The economics also seem to be quite attractive. Having said that, the political angle continues because sugar and sugarcane are consumer and pharma-oriented commodities. So if there are extreme movements, there are going be political as well as social reactions. While this segment may not get the valuations that other segments get because of the inherent political and other risks, but the fundamental story is much better than what it was earlier. We have a good policy tailwind in the segment now.For me, auto is also sort of an opening up trade. We have had disruptions on the demand side in the last few months because of the second wave. It is in the essential category as people are not going to stop travelling. If one were to take a one to three year view, this segment makes sense.Coming to the EV cycle, I think the story can be much more disruptive than what people are expecting. One should keep eyes and ears open for disruptions in this segment over the next five years.The valuations are no longer as comfortable as they were six months ago. Our thesis has been that the Indian economy will take a little longer to recover. The Western economies are recovering much faster because of the faster rollout of vaccine and the much larger stimulus packages. So external facing sectors like IT, auto ancillaries, chemicals and pharmaceuticals, which are more outward looking, are doing well.The demand from China and the rest of the world is growing at a much faster rate. The chemical theme is here to stay, not only as a China plus one theme but also because of the external market economies doing better.