India’s chemical sector started recovering from the downturn of the past few years. However, returns on capital may take another two to three years to improve, as companies work to increase utilisation of the large capacities commissioned during the previous investment cycle, according to a sector report by Equirus Capital. The September 2026 report, Indian Chemicals: The Reset, noted that recovery is becoming visible in company earnings. However, profitability has improved faster than asset utilisation. Equirus expects recently commissioned plants to gradually scale up, allowing capacity utilisation and returns on capital to improve over the next two to three years.
Chemical Sector Margins Improve in FY27
The recovery became more evident in the first quarter of FY27. Across Equirus Capital’s coverage universe of 72 listed Indian chemical companies, median revenue increased 22% year-on-year, while 83% of the companies reported revenue growth. Meanwhile, the sector’s aggregate margin improved to 17.4% from 15.5% in the previous quarter. Nevertheless, Equirus cautioned that higher realisations linked to movements in crude oil and freight costs contributed to part of the improvement. Therefore, sustained volume growth will remain important in determining the strength of the recovery. Agrochemicals, the largest chemical sub-segment, continued to report weak revenue trends. Consequently, investors and industry participants will closely track volume growth over the coming quarters.
Capacity Utilisation Remains a Key Challenge
Despite improving margins, capacity utilisation remains a major concern for the Indian chemical industry. Established specialty chemical plants are currently operating at around 60–75% utilisation, while recently commissioned facilities are running at only 20–30%. According to Equirus, the speed at which these new and underutilised plants reach higher operating levels will largely determine how quickly returns on capital recover. As utilisation improves, companies can spread fixed costs across higher production volumes, which should support profitability and improve returns on the capital already invested.
Downturn Seen as Cyclical Rather Than Structural
Equirus views the 2023–25 chemical industry downturn as largely cyclical and capacity-driven, rather than a structural deterioration in India’s chemical sector. During this period, excess capacity in China, aggressive pricing, subdued global demand and customer destocking put pressure on margins and returns. At the same time, Indian chemical companies continued to invest in new manufacturing capacity, creating a gap between installed capacity and actual utilisation. However, the brokerage believes the underlying growth drivers for India’s chemical industry remain intact.
Specialty Chemicals Market Offers Long-Term Growth
India’s specialty chemicals market was estimated at around $36 billion in 2025 and is projected to grow at approximately 11% annually to nearly $61 billion by 2030. This growth is expected to outpace both the broader domestic chemicals industry and the global specialty chemicals market. Rising domestic demand, import substitution and growing opportunities for differentiated chemistry could therefore support the next phase of expansion.
Utilisation and Demand to Drive the Next Growth Cycle
Equirus believes the Indian chemical sector is now “finding its footing”, with much of the major capital expenditure cycle behind it. Going forward, improved capacity utilisation will be crucial for converting these investments into stronger earnings and returns. At the same time, domestic demand, import substitution and differentiated chemical products are expected to support growth. As reported by tribuneindia.com, if utilisation improves as anticipated, the sector could gradually move from margin recovery to a broader recovery in return on capital over the next two to three years.
