The global chemicals industry, which outperformed broader capital markets on returns to shareholders for most of the past two decades, is no longer an outperformer. Fundamental shifts reshaping the landscape have caused a downturn in growth and profitability that could persist in this new era, stemming from lower demand, overcapacities, and global macroeconomic conditions.
At this time, the Indian chemicals industry has delivered over 10 to 12 percent total shareholder return (TSR) between January 2020 and January 2025. TSR flattened, however, in the last two years, so while still an outperformer, India’s chemicals industry is not performing as before. In a global context full of uncertainties and change, what will it take for Indian chemicals companies to sustain performance and drive the next wave of growth? A few themes could pave the way.
A new period for the global chemicals industry
After record highs during the COVID-19 pandemic, the global chemicals industry saw a TSR of –3.6 percent between January 2023 and January 2025. This poses a contrast to the 22.8 percent TSR seen for the MSCI World Index, and stems from several fundamental shifts in the chemicals landscape, such as commodity shocks, supply chain disruptions, slower demand recovery, the push for regional self-sufficiency, fluctuating interest rates, and inflation. The differing performance of various chemical value chains indicates that some segments seem to thrive on innovation and adaptability, while others are impacted by economic volatility, regulatory shifts, and changing demand patterns. For example, while specialty chemicals outperformed over the long term with a TSR of 5.3 percent versus 3 percent for base chemicals, diversified chemicals outperformed in the near term, with a TSR of 3.2 percent (versus –0.7 percent for specialty chemicals).
Regionwise, too, performance has varied between January 2020 and January 2025, as Europe grapples with high costs and strong regulations, recording a TSR of 0 to 1 percent. Relatively, the United States and Canada seem stable with a TSR of 4 to 5 percent. India led value creation in Asia with a TSR of 10 to 12 percent while China and the rest of Asia delivered flat TSR growth in the same period.
India’s chemicals industry: Potential for resilience and high growth
The leading contributor to the TSR of the Asian chemicals industry over the past five years, India’s chemicals industry has also seen TSR flatline between January 2023 and January 2025, compared to 10 to 12 percent TSR between January 2020 and January 2025. Fluctuating EBITDA margins—that rose from approximately 16 percent in fiscal year 2018 to a peak of about 17.5 percent in fiscal year 2021, then dropped to around 13 percent in fiscal year 2024—have been the core driver of declining shareholder returns.
While specialty chemicals has performed relatively better than petrochemicals with a substantially lower decline in margins, the outcomes for various subsegments vary. For example, food and nutrition, flavors and fragrances, and adhesives and sealants have seen strong growth, while agrochemicals and plastic additives have struggled with weak revenue and EBITDA performance.
Despite the varying performance, Indian chemicals companies have some common tailwinds: Strong macroeconomic fundamentals, abundant talent, and India’s low-cost manufacturing position the industry for future growth.
The way forward for Indian chemicals companies
Against the backdrop of dynamic global realities and domestic demand, profitable growth will remain a priority for Indian chemicals companies, especially to attain a step change in TSR. They could concentrate on six imperatives while focusing on their core: building on growing domestic demand, expanding their global footprint, strengthening their muscle for mergers and acquisitions (M&A) to go beyond existing patterns, targeting “in the money” opportunities in sustainability, improving project execution for better capex management, and tapping digital technologies for functional excellence.
- Build new platforms to address domestic and global demand. With rising household consumption, investment in infrastructure, and growing disposable income in India, domestic demand for various chemicals and segments warrants setting up global-scale manufacturing capacity. Some value chains in food and nutrition, inorganic chemicals, and plastics, have already reached critical scale while demand for others is not immediately large but could rapidly accelerate. For example, electronic chemicals is expected to grow in India as semiconductor fabrication units are set up, supported by manufacturing incentives and commitments by major players.
- Grow global presence. While India’s chemicals exports have grown substantially in the past decade, there is room to build a truly global business. Not too many Indian chemicals companies have a physical presence in major markets outside the country. This could change if companies look to expand their profile on the world stage, from being only channel-led to shaping the market with a stronger on-ground presence across specific parts of the value chain, for example, application development, sales offices, and warehouses, fostering deeper customer relationships in foreign geographies.
- Pursue programmatic M&A. Indian chemicals companies have used M&A to largely diversify and scale operations domestically, accounting for more than 70 percent of deals in the last five years. While this has been an effective approach, there is immense potential in pursuing programmatic M&A, especially as deal activity is expected to pick up with companies restructuring amid margin pressure. This could help Indian companies to build specific capabilities across the value chain, acquire advanced technology or R&D platforms, and fuel their global aspirations.
- Accelerate toward macro sustainability goals. As the need for sustainability intensifies, it will be important for chemicals companies to identify avenues that could help to deliver near-term impact, such as decarbonizing through a thrust on green energy and building new platforms through a focus on bio-based chemicals that could be cost-competitive. For example, for any upcoming expansions, a hybrid solution (renewable energy plus grid-based power) could reduce energy costs by 8 to 10 percent versus a new captive power plant.
- Ensure strategic capex planning and execution. India’s chemicals industry has a planned capital expenditure (capex) of approximately $11 billion across chemical value chains over the next two to three years. However, delayed project execution impacts most companies, with cost overruns at an average of 19 percent. Targeting top quartile capex management could help improve performance, preventing delays and cost escalations.
- Attain functional excellence through digital interventions. Digital interventions remain underutilized in the chemicals industry. Companies could leapfrog from the traditional approach to functional excellence to the new, analytics- and digital-driven way of delivering value in India, which could help to de-bottleneck capacities, improve conversion rates, and reduce costs. This could possibly unlock an annual EBITDA boost of around six to eight percentage points across manufacturing, supply chain, commercial, and R&D functions and ensure competitiveness—a critical attribute with the current macroeconomic environment pressuring margins.
With a focused approach to enhancing resilience and performance, Indian chemicals companies could rise above headwinds to deliver relatively strong returns, helping them to spur the industry toward global leadership and contribute to India’s economic growth.
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