The September 2026 report, titled “Indian Chemicals: The Reset,” said signs of recovery are now visible in company earnings, although the improvement in profitability has so far been stronger than the recovery in asset utilisation.

“We see the sector on a path to recovery, with occasional speed bumps and the odd nitro boost along the way,” Equirus said. It added that “the margin recovery has started showing, though the return on capital will lag,” as investments made over the past few years are yet to contribute meaningfully to earnings.

Equirus expects this process to play out over the next two to three years as recently commissioned plants scale up and utilisation improves.

The recovery became more visible in the first quarter of FY27. Across Equirus’ universe of 72 listed Indian chemical companies, median revenue grew 22 per cent year-on-year, while 83 per cent of companies reported revenue growth. The aggregate sector margin improved to 17.4 per cent from 15.5 per cent in the previous quarter.

However, the report cautioned that part of the improvement came from higher realisations linked to movements in crude oil and freight costs rather than purely from stronger volumes. Agrochemicals, the largest sub-segment, continued to see weak revenue trends, making volume growth an important indicator over the coming quarters.

A key challenge remains the utilisation of capacity built during the earlier boom. Established specialty chemical plants are currently operating at around 60-75 per cent utilisation, while newly commissioned facilities are running at only 20-30 per cent. Equirus said the pace at which these plants fill up will be the biggest determinant of how quickly sector returns recover.

The brokerage views the 2023-25 downturn as largely cyclical and capacity-driven rather than a structural weakening of India's chemical industry. Excess Chinese capacity, aggressive pricing, weak global demand and customer destocking had weighed on margins and returns, even as Indian companies continued to invest.

Longer-term demand drivers remain intact. India’s specialty chemicals market, estimated at around USD 36 billion in 2025, is projected to grow at about 11 per cent annually to nearly USD 61 billion by 2030, faster than the broader domestic chemicals industry and the global specialty chemicals market.

Equirus said the sector is now “finding its footing”, with the bulk of capital expenditure behind it, while improved utilisation, domestic demand, import substitution and differentiated chemistry are expected to drive the next phase of growth.