Why Deepak Nitrite Remains Morgan Stanley's Sole Preferred Chemical Stock

Morgan Stanley has named Deepak Nitrite as its only preferred stock in the chemical sector. This comes as investors grapple with concerns over earnings recovery and pricing challenges in the market, the firm said in its note on Thursday.

Key challenges include sustainability of recent volume increases and the potential risks that may hinder a robust recovery. Companies like Aarti Industries have already retracted their fiscal guidance for 2025, citing a challenging environment, which has raised concerns about further earnings surprises across the sector.

"With multiple companies poised to monetise new projects over F2H25-26, investors debated risks to stated timelines if demand and pricing conditions continue to disappoint. While recovery expectations were measured across-the-board, some investors did cite the difficulty in timing the bottom of the current downturn", the firm's note said.

Deepak Nitrite stands out despite these headwinds due to its strong domestic presence and strategic advantages. Morgan Stanley analysts emphasised the company's capacity to leverage import substitution, positioning it favorably compared to its competitors.

Looking ahead, several factors could drive potential upside for Deepak Nitrite in the coming year. Analysts as per Morgan Stanley suggest that consistent demand greenshoots, a gradual decline in interest rates, and easing supply constraints could serve as catalysts for growth. The company's ability to effectively manage execution risks and capitalize on new projects is critical as investors seek reassurance in a volatile market.

Shares of Deepak Nitrite rose as much as 0.41% to Rs 2,840.95 apiece. But, they gave up gains to trade 0.92% lower at Rs 2,803.30 apiece, as of 09:59 a.m., compared to a 0.21% advance in the NSE Nifty 50.

The stock has risen 32.98% in the last 12 months. But, it has declined 0.51% in the last one month and 0.58% in last one week. Total traded volume so far in the day stood at 0.14 times its 30-day average on NSE. The relative strength index was at 38.

Out of 19 analysts tracking the company, eight maintain a 'buy' rating, five recommend a 'hold' and six suggest 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 2.3%.