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The chemical sector is expected to grow at 1.2x-1.3x of the GDP multiplier in FY22, India Ratings and Research (Ind-Ra) said.

Accordingly, the ratings agency has assigned the sector an improving outlook for FY22. It expects favourable market conditions across the broad chemical subsectors, along with a healthy rebound in end-user industries, following the Covid-19 led business disruptions in 1HFY21.

"Ind-Ra expects GDP growth to rebound to 10.4 per cent in FY22, and the chemical sector to grow at 1.2x-1.3x of the GDP multiplier. Chemical sector participants are impacted by a varying degree of end-market demand pressure," the agency said in a report.

According to the report, issuers catering to the auto, textiles and construction sectors and in the certain bulk commodities space are expected to witness an extended recovery cycle throughout FY22, whereas those catering to pharma, agrochemicals and personal care are already witnessing a demand surge.

"Most companies benefited from stable and lower feedstock prices, even as the prices of final products increased during 2HFY21, supporting margins. India's push for self-sufficiency coupled with efforts towards supply chain diversification away from China is enabling large capex, which remains a monitorable," the report said.

In addition, the agency expects chemical producers to generate strong cash flows from operations, given the volume uptick across end-user industries, higher realisations and stable feedstock prices.

"This would help limit the use of external debt for large capital budgets, as cash flows will be directed towards business expansions, leading to only moderate deterioration in credit metrics during the expansion phase, largely within the rating headroom available for most issuers," it said.