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Partial Cost Pass-through & Inventory Gains Drive Q1FY27 (As anticipated in our May 2026 Channel Check, click here to read)

West Asia-led feedstock price volatility and supply disruption impacted the quarter, while underlying demand remained intact. Margin improved, aided by proactive price increases and carry-over of lower-cost inventory; however, Q2FY27E margin are expected to normalise as higher-cost inventory flows through. HF spread, for instance, remained around their twoyear average despite HF price rising ~28% YoY. Near-term commodity and feedstock volatility anticipated to remain manageable for companies with strong pass-through mechanism, effective inventory management and differentiated product portfolios. We remain positive on the chemicals sector; India’s chemicals industry is forecast to rise at ~8.4% CAGR to ~USD 351 Bn by FY31E, driven by China+1 diversification, increasing outsourcing of higher-value specialty chemicals, rising battery-chemical demand and favourable fluorochemical dynamics.

Our top investment ideas for the sector are: Tanfac Industries and Fineotex Chemical

R-32 Spread to Normalise; Structural Demand Remains Strong

HFC companies reported a healthy volume growth and improved realisation in Q1FY27. As of July 2026, R-32 realisation reached ~INR 939/kg and we estimate a gross spread of ~INR 700/kg, which is significantly above the two-year average. Six major producers are planning to add ~67 KTPA of R-32 capacity by CY27-end as compared to the existing installed base of ~46 KTPA. We remain constructive on the medium-term outlook, underpinned by a strong refrigerant export demand and quota-constrained supply. Within our coverage, TANF remains well-positioned to outperform, supported by longterm contracted capacities and a backward integrated facility.

Specialty Chemicals: Growth Varies Based on End-use Industries

Applications across oilfield, pharma, nutrition, battery, personal care and flavours & fragrances remained resilient, supported by customer-specific formulations and contract-led business. In contrast, dyes & pigments, polymers and parts of agrochemicals remained softer, impacted by weak downstream demand and customer resistance to elevated input-linked price increases. Oilfield activity in the US is showing early sign of improvement, with frac spreads recovering materially from the February 2026 lows. Within our coverage, FTXC’s US-based oilfield chemicals capacity has expanded from 80 KTPA to ~148 KTPA in Q1FY27, providing a meaningful headroom for volume growth.

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