Hindcon Chemical Management Discussions


Global economic overview

Overview: The global economic growth was estimated at a slower 3.2% in 2022, compared to 6% in 2021 (which was on a smaller base of 2020 on account of the pandemic effect). The relatively slow global growth of 2022 was marked by the Russian invasion of Ukraine, unprecedented inflation, pandemic-induced slowdown in China, higher interest rates, global liquidity squeeze and quantitative tightening by the US Federal Reserve.

The challenges of 2022 translated into moderated spending, disrupted trade and increased energy costs. Global inflation was 8.7% in 2022, among the highest in decades. US consumer prices decreased about 6.5% in 2022, the highest in four decades. The Federal Reserve raised its benchmark interest rate to its highest in 15 years. The result is that the world ended in 2022 concerned that the following year would be slower.

The global equities, bonds and crypto assets reported an

markets; 2022 was the only year when the S&P 500 and 10-year US treasuries delivered negative returns of more than 10%.

Gross FDI inflows – equity, reinvested earnings and other capital – declined 8.4% to $55.3 billion in April-December. The decline was even sharper in the case of FDI inflows as equity: these fell 15% to $36.75 billion between April and December 2022. Global trade expanded by 2.7% in 2022 (expected to slow to 1.7% in 2023).

The S&P GSCI TR (Global benchmark for commodity performance) fell from a peak of 4,319.55 in June 2022 to 3495.76 in December 2022. There was a decline in crude oil, natural gas, coal, lithium, lumber, cobalt, nickel and urea realisations. Brent crude oil dropped from a peak of around USD 120 per barrel in June 2022 to USD 80 per barrel at the end of the calendar year following the enhanced availability of low-cost Russian oil.

Regional growth (%) 2022 2021

World output 3.2 6.1

aggregated value drawdown of USD26 trillion from peak,

equivalent to 26% of the global gross domestic product (GDP). In 2022, there was a concurrently unique decline in bond and equity

Advanced economies 2.5 5

Emerging and developing economies 3.8 6.3

Performance of major economies

[Source: PWC report, EY report, IMF data, OECD data]


The global economy is expected to grow 2.8% in 2023, influenced by the ongoing Russia-Ukraine conflict. Concurrently, global inflation is projected to fall marginally to 7%. Despite these challenges, there are positive elements within the global economic landscape. The largest economies like China, the US, the European Union, India, Japan, the UK and South Korea are not in a recession. Approximately 70% of the global economy demonstrates resilience, with no major financial distress observed in large emerging economies. The energy shock in Europe did not result in a recession and significant developments, including Chinas progressive departure from its strict zero-Covid policy and the resolution of the European energy crisis, fostered optimism for an improved global trade performance. Despite high inflation, the US economy demonstrated robust consumer demand in 2022. Driven by these positive factors, global inflation is likely to be still relatively high at 4.9% in 2024. Interestingly, even as the global economy is projected to grow less than 3% for the next five years, India and China are projected to account for half the global growth (Source: IMF).

Indian economy

Overview: Even as the global conflict remained geographically distant from India, ripples comprised increased oil import bills, inflation, cautious government and a sluggish equity market. Indias economic growth is at 7.2% in FY 2022-23. India emerged as the second fastest-growing G20 economy in FY 2022-23. India overtook UK to become the fifth-largest global economy. India surpassed China to become the worlds most populous nation (Source: IMF, World Bank)

Growth of the Indian economy

Real GDP growth (%) 3.7 -6.6% 8.7 7.2

Growth of the Indian economy quarter by quarter, FY 2022-23

Real GDP growth (%) 13.1 6.3 4.4 6.1

(Source: Budget FY24; Economy Projections, RBI projections)

According to the India Meteorological Department, the year 2022 delivered 8% higher rainfall over the long-period average. Due to unseasonal rains, Indias wheat harvest was expected to fall to around 102 million metric tons (MMT) in 2022-23 from 107 MMT in the preceding year. Rice production at 132 million metric tons (MMT) was almost at par with the previous year. Pulses acreage grew to 31 million hectares from 28 million hectares. Due to a renewed focus, oilseeds area increased 7.31% from 102.36 lakh hectares in 2021-22 to 109.84 lakh hectares in 2022-23.

Indias auto industry grew 21% in FY23; passenger vehicle (UVs, cars and vans) retail sales touched a record 3.9 million units in FY23, crossing 3.2 million units in FY19. The commercial vehicles segment grew 33%. Two-wheeler sales fell to a seven-year low; the three-wheeler category grew 84%.

Till the end of Q3FY23, total gross non-performing assets (NPAs) of the banking system fell to 4.5% from 6.5% a year ago. Gross NPA for FY23 was expected to be 4.2% and a further drop is predicted to 3.8% in FY2023-24.

As Indias domestic demand remained steady amidst a global slowdown, import growth in FY23 was estimated at 16.5% to

$714 billion as against $613 billion in FY22. Indias merchandise exports were up 6% to $447 billion in FY23. Indias total exports (merchandise and services) in FY23 grew 14 percent to a record of

$775 billion in FY23 and is expected to touch $900 billion in FY24. Till Q3 FY23, Indias current account deficit, a crucial indicator of the countrys balance of payments position, decreased to

$18.2 billion, or 2.2% of GDP. Indias fiscal deficit was estimated in nominal terms at ~ Rs 17.55 lakh crore and 6.4% of GDP for the year ending March 31, 2023. (Source: Ministry of Trade & Commerce)

Indias headline foreign direct investment (FDI) numbers rose from US$74.01 billion in 2021 to a record $84.8 billion in 2021-22, a 14% Y-o-Y increase, till Q3FY23. India recorded a robust $36.75 billion of FDI. In 2022-23, the government was estimated to have addressed 77% of its disinvestment target (Rs 50,000 crore against a target of Rs 65,000 crore).

Indias foreign exchange reserves, which had witnessed three consecutive years of growth, experienced a decline of approximately $70 billion in 2022, primarily influenced by rising inflation and interest rates. Starting from $606.47 billion on April

1, 2022, reserves decreased to $578.44 billion by March 31, 2023. The Indian currency also weakened during this period, with the exchange rate weakening from H75.91 to a US dollar to H82.34 by March 31, 2023, driven by a stronger dollar and increasing current account deficit. Despite these factors, India continued to attract investable capital.

The countrys retail inflation, measured by the consumer price index (CPI), eased to 5.66% in March 2023. Inflation data on the Wholesale Price Index, WPI (calculates the overall price of goods before retail) eased to 1.3% during the period. In 2022, CPI hit its highest of 7.79% in April; WPI reached its highest of 15.88% in May 2022. By the close of the year under review, inflation had begun trending down and in April 2023 declined below 5%, its lowest in months.

Indias total industrial output for FY23, as measured by the Index of Industrial Production or IIP, grew 5.1% year-on-year as against a growth of 11.4 percent in 2021-22.

India moved up in the Ease of Doing Business (EoDB) rankings from 100th in 2017 to 63rd in 2022. As of March 2023, Indias unemployment rate was 7.8 percent.

In 2022-23, total receipts (other than borrowings) were estimated at 6.5% higher than the Budget estimates. Tax-GDP ratio was estimated to have improved by 11.1 percent Y-o-Y in RE 2022-23.

The total gross collection for FY23 was Rs 18.10 lakh crore, an average of Rs 1.51 lakh a month and up 22% from FY22, Indias monthly goods and services tax (GST) collections hit the second highest ever in March 2023 to H1.6 lakh crore. For 2022–23, the government collected Rs 16.61 lakh crore in direct taxes, according to data from the Finance Ministry. This amount was

17.6 percent more than what was collected in the previous fiscal.

Per capita income almost doubled in nine years to Rs 172,000 during the year under review, a rise of 15.8 percent over the previous year. Indias GDP per capita was 2,320 USD (March 2023), close to the magic figure of $2500 when consumption spikes across countries. Despite headline inflation, private consumption in India witnessed continued momentum and was estimated to have grown 7.3 percent in 2022-23.


There are green shoots of economic revival, marked by an increase in rural growth during the last quarter and appreciable decline in consumer price index inflation to less than 5 percent in April 2023. India is expected to grow around 6-6.5 percent (as per various sources) in FY2024, catalysed in no small measure by the governments 35% capital expenditure growth by the government. The growth could also be driven by broad-based credit expansion, better capacity utilisation and improving trade deficit. Headline and core inflation could trend down. Private sector investments could revive. What provides optimism is that even as the global structural shifts are creating a wider berth for Indias exports, the country is making its largest infrastructure

investment. This unprecedented investment is expected to translate into a robust building block that, going ahead, moderates logistics costs, facilitates a quicker transfer of products and empowers the country to become increasingly competitive. This can benefit Indias exports in general, benefiting several sectors. The construction of national highways in 2022-23 was 10,993 kilometres; the Ministry of Road Transport and Highways awarded highway contracts of 12,375 km in the last financial year (Source: IMF).

The global landscape favours India: Europe is moving towards a probable recession, the US economy is slowing, Chinas GDP growth forecast of 4.4% is less than Indias GDP estimate of 6.8% and America and Europe are experiencing its highest inflation in 40 years.

Indias production-linked incentive appears to catalyse the downstream sectors. Inflation is steady. India is at the cusp of making significant investments in renewable energy and other sectors and emerging as a suitable industrial supplement to China. India is poised to outpace Germany and Japan and emerge as the third-largest economy by the end of the decade. The outlook for private business investment remains positive despite an increase in interest rates. India is less exposed to Chinese economic weakness, with much less direct trade with China than many Asian peers.

Broad-based credit growth, improving capacity utilisation, governments thrust on capital spending and infrastructure should bolster investment activity. According to our surveys, manufacturing, services and infrastructure sector firms are optimistic about the business outlook. The downside risks are protracted geopolitical tensions, tightening global financial conditions and slowing external demand.

Union Budget FY 2023-24 provisions

The Budget 2022-23 sought to lay the foundation for the future of the Indian economy by raising capital investment outlay by 33% to H10 lakh crores, equivalent to 3.3% of GDP and almost three times the 2019-20 outlay, through various projects like PM Gatishakti, Inclusive Development, Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition and Climate Action, as well as Financing of Investments. An outlay of H5.94 lakh crore was made to the Ministry of Defence (13.18% of the total Budget outlay). An announcement of nearly H20,000 crores was made for the PM Gati Shakti National Master Plan to catalyse the infrastructure sector. An outlay of H1.97 lakh crore was announced for Production Linked Incentive schemes across 13 sectors. The Indian government intends to accelerate road construction in FY24 by 16-21% to 12,000-12,500 km. The overall road construction project pipeline remains robust at 55,000 km across various execution stages. These realities indicate that a structural shift is underway that could strengthen Indias positioning as a long-term provider of manufactured products and its emergence as a credible global supplier of goods and services

Global construction chemicals market

The global construction chemicals market was valued at USD 49.9 billion in 2022 and is projected to reach USD 88.1 billion by 2032, at a CAGR of 6% from 2023 to 2032. This growth is likely to be driven by population growth, urbanization, increased demand for infrastructure and technological advancements. Population growth and urbanization have led to a higher demand for housing and buildings. The surge in infrastructure investments worldwide has also contributed to the growth of the construction industry, creating a need for skilled workers. Technological advancements, including new construction materials and methods, as well as innovations like building information modelling (BIM) and virtual reality (VR) have propelled the industry forward. However, challenges such as rising material costs, labor shortages and supply chain disruptions may impact short-term growth. The construction chemical market is segmented by type, end-use industry and region, including categories such as concrete admixtures, water proofing and roofing, repair and rehabilitation and residential, industrial/commercial, infrastructure and repair applications across North America, Europe and Asia-Pacific.

Cities worldwide are implementing initiatives to enhance their infrastructure as the urban population is projected to surpass two-thirds of the global population by 2050. The most significant urban growth is expected to occur in underdeveloped regions, particularly in Africa and Asia, where urbanization is relatively lower compared to other areas. Africas urban population is predicted to rise from 40% to 56% by 2050, while Asias urban population is anticipated to increase from approximately 48% to 64%.

(Source: allied market research, precedenceresearch)

Indian construction chemicals industry overview The construction chemicals market in India, valued at USD 1617.8 million in 2023, is expected to exhibit a significant compound

annual growth rate (CAGR) of 13.1% and reach a market value of

USD 5541.8 million by 2033.

The construction industry in India is experiencing notable growth due to substantial investments in the infrastructure sector and the expansion of building construction and real estate businesses. Government initiatives such as smart cities, Make in India and housing for all are generating significant opportunities for the construction industry. These, in turn, are expected to drive the sales of construction chemicals in India.

The Indian governments National Infrastructure Pipeline (NIP) entails a substantial investment of ~Rs. 24 lakhs lakh crore in infrastructure projects by 2025. Corporate tax restructuring and incentives for foreign investors are expected to attract funds in healthcare, education, housing, transportation and water infrastructure sectors, fueling the growth of the construction chemicals industry. Organized construction chemical companies hold a market share of around 55-60% in India, with the entry of global players boosting their presence. These companies offer a diverse product range to meet the demand for high-quality

construction chemicals, while complexities in manufacturing and limitations in technical assistance and after-sales service have hindered the entry of unorganized players. Concrete admixtures are witnessing increased demand due to rapid project execution and government initiatives such as ‘Housing for all by 2022, with unorganized companies dominating the market with a market share of approximately 55-60% by value.

The chemical sector in India is expected to experience significant growth, with projected annual rates of 11 to 12 percent from 2021 to 2027 and seven to ten percent from 2027 to 2040. This expansion is expected to triple Indias global market share by 2040.

India is projected to contribute over 20 percent of the global increase in chemical consumption in the next two decades, with domestic demand expected to rise from USD 170 billion to USD 180 billion in 2021 to USD 850 billion to USD 1,000 billion by 2040. As the global demand for environmentally friendly and biofriendly products grows, India, as a major producer of chemicals used in such products, stands to benefit Moreover, companies are actively seeking to establish resilient supply chains in response to changing geopolitical dynamics; Indias attractive value proposition positions it as a preferred destination for this supply chain reconfiguration.

(Source: future market insights, digital journal, Mckinsey)

Growth drivers

Urbanisation: The population of India is expected to reach 1.6 billion by 2048, with urban population likely to reach 675 million by 2035. This rapid urbanisation could accelerate the demand for affordable housing, connected transport systems, other infrastructure and commercial units, catalysing the construction chemicals industry.

Interest rates: The interest rate set by RBI on home loans was 8.60% in May 2023. This could drive acquisitions in the real estate sector, accelerating the demand for construction chemicals.

GDP per capita: Indias GDP per capita was USD 2,601.36 in 2023 compared with USD 2,739.21 in 2022 and is anticipated to reach USD 2,802.53 in 2024.

Increase in nuclear families: The average household size of India in 2021 was 4.44 people per household. This is a prime factor in the growing demand of the Indian real estate sector, strengthening th construction chemicals market.

Smart City Mission: Under this mission, by 2030, urban areas are predicted to accommodate 40% of Indias population and contribute 75% to the GDP. With an increase in population, there would be an increase in infrastructure, which could result in an increasing demand for construction chemicals.

Demographic dividend: India accounts for the largest population cluster in the world with a median age of 28 years, a sweet spot for more three decades of an active economic life for each.

Availability of raw materials: As raw materials like additives, cement and sand etc. are economical, they are expected to raise the demand of the construction chemicals industry.

In infrastructure projects, concrete and admixtures are used in growing quantities.

(Source: The Wire, Economic Times, Trading Economics, Yahoo finance, Hindustan Times, india.gov.in, Global Data, Statista, Forbes India, Indian Express, Tribune India)

Michael Porters Five Forces Analysis

Risk of potential competitors entering the market: The industry has experienced an influx of new players, leading to increased competition. Barriers to entry in the construction chemicals market include marketing, research and development (R&D) and distribution, which serve as obstacles for prospective competitors.

Competition among existing players: There is a competitive environment in the construction chemical segment, with both small and large companies vying for market share. This intense rivalry poses a threat to profitability.

Buyer power: The accessibility of construction chemicals has made it easier for buyers to exercise their bargaining power, by increasing their influence.

Supplier power: Raw material suppliers in the global construction chemicals industry are price-conscious, which enhances their bargaining power and affects the industrys dynamics.

Threat of substitutes: The availability of substitute products for construction chemicals in the global market is limited, resulting in a reduced threat from substitutes.

(Source: Researchdive)

Commercial sector

Indias commercial real estate market demonstrates a high level of organization and intense competition. The sector has witnessed increased demand for commercial space due to several factors, including a growing economy, digitalization, the expansion of the IT/ITeS sector and various government initiatives such as industrial corridors, the FDI policy, RERA and REITs. The relaxation of FDI regulations by the government has attracted substantial global investment, particularly in the development of malls and other organized retail spaces. The rise of the digital economy and e-commerce has created a need for co-working office spaces, smart warehousing and logistics hubs.

Real estate housing sector

The Indian residential real estate sector experienced remarkable growth in 2022, achieving a significant increase in sales by

68 percent compared to the previous year. This impressive performance highlights the industrys position as one of the fastest-growing sectors in India. Additionally, the strong domestic

economy and stable macro-economic fundamentals of the country played a crucial role in ensuring the stability of the real estate market.

Government initiatives

Pradhan Mantri Awas Yojana (Urban) (PMAY) (U): The scheme was introduced to offer affordable housing to the weaker sections of society, including lower income groups, urban and rural poor. The Yojana aims to construct approximately 20 million affordable houses. In the Budget of 2023, the allocation for the Pradhan Mantri Awas Yojana was increased by 66% to over H79,000 crore. This is responsible for the growth of the real estate sector and is also anticipated to boost the construction chemicals market.

Reduction in GST: Homebuyers in India are required to pay Goods and Services Tax (GST) when purchasing under-construction properties such as apartments and bungalows. The GST rate for affordable housing, which falls within specific price brackets and carpet area criteria, is set at 1%. For non-affordable housing properties that do not meet the criteria for affordable housing, the GST rate is 5%. The GST is also applicable to the purchase of developable plots in the real estate sector.

Alternative Investment Fund: An alternative investment fund (AIF) of Rs 25,000 crore (US$ 3.58 billion) was sanctioned by the Union Cabinet to restore approximately 1,600 stagnant housing projects across the top cities in the country.

Affordable Housing Fund: The government established an Affordable Housing Fund (AHF) of H10,000 crore (US$ 1.43 billion) within the National Housing Bank (NHB). The fund is designed to address the shortfall of banks and financial institutions in providing micro financing to Housing Finance Companies (HFCs).

Special Window for Completion of Construction of Affordable and Mid Income Housing Projects (SWAMIH): Since its establishment in 2019, the Special Window for Affordable and Mid Income Housing (SWAMIH) Investment Fund has successfully completed the construction of 20,577 homes. Over the next three years, SWAMIH aims to complete more than 81,000 homes across 30 Tier-1 and Tier-2 cities. With a focus on providing priority debt financing, the fund has raised H15,530 crores to support the completion of stressed, brownfield and Real Estate Regulatory Authority (RERA)-registered residential projects in the affordable and mid-income housing category. SWAMIH granted approval to approximately 130 projects, amounting to over H12,000 crore in sanctioned funds.

Special Economic Zones (SEZs): As of June 30, 2022, the government granted formal approvals to 425 Special Economic Zone (SEZ) developers, out of which 268 are currently operational. These SEZs attracted approximately H6.5 lakh crore in investments and provide employment opportunities for around 27 lakh individuals.

(Source: IBEF, Economic Times)


Strengths: India has established a state-of-the-art chemical manufacturing value chain, leading to a rise in the production of innovative and high-quality products.

Weaknesses: The construction chemicals market lacks organisation and primarily comprises small-scale suppliers, resulting in a fragmented industry.

Opportunities: The growth of the construction chemicals market is expected to be driven by the demand for restoration and reconstruction projects.

Threats: Organised players in the Indian construction chemicals market face challenges due to the increasing imports from China and the overall lack of organisation in the industry.