Under Radar Stocks to Profit from India's Electronics Revolution 

Smartphones were not even on the radar when my generation crossed teenage.

I remember my first electronic possessions...calculator, walkie talkie and digital camera.

Most of them made in Japan.

Japan then had a stronghold in the electronic manufacturing space.

Cameras and calculators were not the only mainstay of Japanese electronics. It was the preferred choice for semiconductor manufacturing equipment too. Giant electronics manufacturers like Sony and Toshiba were based in Japan.

Even within the aerospace segment, Japan was known for the veracity and quality. To the extent that the country had become a trusted supplier of aerospace products for the United States.

Eventually Japan began competing with the United States in electronics and aerospace production dominance.

As Japan prioritized manufacturing semiconductor chips over supplying to other countries, there arose conflict of interest.

China bridged the gap for most of last decade. It offered a relatively low cost, high bandwidth electronics production destination.

But since the pandemic the compass of global electronics supply chain hub is pointing to India. And there are not one but several reasons for this.

First, China is no longer the hot favourite outsourcing destination.

A recent survey by Gartner states that almost 33% of electronics supply chain leaders have already moved their businesses out of China. Or at least are planning to. The increased tariffs imposed by the Chinese and the US government have resulted in rising business costs.

Of course, India has begin reaping the benefits. Smartphone and premium electronics maker Apple, for instance, is set to triple its production in India in the next three years.

Second, the narrative that subcontracting to China is easy and cost-effective is no longer valid.

Recurring issues with intellectual property violations bordering on unethical business practices have been one of the prime reasons behind this paradigm shift.

Many believed that the US would rather make Mexico an electronics sourcing hub than give preference to India.

Heard of the Maquiladoras? They are factories in Mexico that have been crucial in helping firms in the United States with their manufacturing needs.

Maquiladoras offered a range of benefits to US firms. This included duty-free benefits, exemptions on tariffs and more. Additionally, factors such as inexpensive labour costs, geographical benefits and ease of doing business are why American companies preferred having their outsourcing units in Mexico.

However, Maquiladoras have hit a roadblock due to several challenges they faced in recent years.

Unsafe and unethical working conditions, weak labour laws, environmental factors, and health risks have made US companies skeptical about outsourcing to Mexico.

Finally, growing geo-political tensions further strain the world's sub-contracting relationship with China. Even countries like Taiwan which have the world's largest chip making capacities are at loggerheads with China. They have already expressed interest in technology collaborations with Indian semiconductor makers.

The shortage of semiconductor chips during Covid lockdowns brought about an alarming situation. Then the Russia-Ukraine war made the situation acute.

The semiconductor shortages affected many industries all over the world. In India too, auto firms were badly affected by supply constraints.

India now aims to achieve electronics manufacturing worth US$ 300 billion by the end of 2026.

The Economic Survey of 2023 called the country's electronics production and export targets over next few years as key yardsticks towards India's progress to a trillion-dollar economy.

But the golden hook for making India an electronics production hub has been the PLI.

The government has for the first-time initiated policy decision to make India the go-to destination for electronic subcontracting.

With schemes such as PLI (production-linked incentive) the attempt is to promote the production of high-end smartphone components, electronics hardware and semiconductors in India.

Naturally, more original equipment manufacturers (OEMs) are choosing India for their manufacturing needs. India has become the second-largest mobile phone manufacturer.

Do not assume that the tax incentives are the only reason why electronics producers are making a beeline for India.

Indian companies also offer a host of competent resources, i.e., engineering skills, and design proficiency at cheaper labour costs. India also offers affordable, skilled, English-speaking customer service executives, making it a more lucrative choice for OEMs.

Finally, production of electronics needs sourcing of rare earth minerals, clean water (especially for chips) and sand. Indian companies that are able to procure these resources smoothly can combat the global competition in electronics and semiconductor supply chain.

The US itself has passed the Chips and Science Act to dedicate funds towards semiconductor research, fabrication and workforce training. The act provides roughly US$ 280 billion in new funding to boost domestic research and manufacturing of semiconductors in the United States.

Therefore, American companies will continue to remain stiff competitors for India in the semiconductor space.

So, India's electronics manufacturing revolution is certainly underway. However, establishing credibility in supply chain and fetching big orders will take time.

So, it will be foolish to bet on any and every potential semiconductor or electronics manufacturer without studying the ecosystem carefully.

For instance, there are several under-the-radar companies that are direct beneficiaries of the electronics supply chain in India.

One such company that I have been researching now has over 290 leading electronics brands as partners in 38 emerging markets. Its subsidiaries offer logistics, warehousing (over 7 m sq feet of warehouse space) and after sales services.

The company got its credibility in the past decade by being an early participant in the global smartphone supply chains. With its help the early brand of smartphones saw nearly 15 times jump in volume terms in three years.

But the company did not rest on its laurels.

In recent years the company has become an important cog in the wheel of smartphone behemoth Apple's supply chain.

In other words, the company is now a proxy to Apple's growth prospects in India over the coming decade.

Similarly, you do not always need to buy semiconductor fabricators to profit from the semiconductor.

The global semiconductor landscape can be divided into two parts -semiconductor manufacturing and chip designing.

The manufacturing side of this segment has seen some supply chain challenges, But the demand for semiconductor design and engineering services has been steady and consistent.

Turns out Indian has so far not had much exposure on the semiconductor manufacturing side. But few companies here are already amongst the leading companies engaged in semiconductor design related projects for marquee global clientele.

One such company has witnessed a continuously rising demand for its semiconductor design services in recent years. As a result, it now

has a dedicated team of more than 2,000 engineers and state-of-the-art R&D infrastructure, catering to the semiconductor vertical.

So, like for every other megatrend, I will keep updating you about the opportunities and downside risks in India's electronics and semiconductor revolution too. I firmly believe that India can be in global electronics supply chain where Japan was a few decades back.

However, selecting stocks in this electronics ecosystem must be with sufficient diligence. Going with under the radar stocks that offer long term upside is the best way to go about it.