India's Top 5 Semiconductor Stocks and how They are Faring in 2022

Editor's note: The semiconductor industry is a structural megatrend in the making.

Earlier, countries across the globe were excessively dependent on China for semiconductor needs. But the situation is slowly changing as companies are adopting a China plus one strategy.

At present, there are only a few companies in the world that make semiconductors.

In India, the companies involved in this space directly or indirectly are still very few. But this can change very quickly, and the right pick could be the x-factor for your portfolio.

In the future, we could also see penny stocks foraying into semiconductor industry owing to strong growth prospects.

In July this year, we wrote to you about India's popular semiconductor stocks and how they are faring on the bourses.

Semiconductor Stocks in India and their Performance in 2022

Company Name	CMP (Rs)	Performance in 2022 (%)
ASM Technologies Ltd.	522.30	-25%
Dixon Technologies (India) Ltd.	4297.35	-22%
MIC Electronics Ltd.	12.22	-48%
Moschip Technologies Ltd.	69.50	-20%
Rajesh Exports Ltd.	565.65	-23%
Ruttonsha International Rectifier Ltd.	202.20	-1%
SPEL Semiconductor Ltd.	56.55	23%
Surana Solar Ltd.	22.90	-23%
Tata Elxsi Ltd.	8312.80	42%
Vedanta Ltd.	268.30	-21%

Source: Equitymaster

As can be seen from the table above, most of the stocks have fallen this year. This is because companies involved in this space are considered high growth stocks.

The thing with growth stocks is they tend to underperform when interest rates rise.

Continue reading to know more about these companies and how they are taking India a step closer to become a chip making powerhouse.

India's Top Semiconductor Stocks and How They are Faring in 2022

In December 2021, we were quick to identify opportunities in the semiconductor space. We wrote to you about the top semiconductor stocks.

Since then, semiconductor stocks have been the talk of the town, and for good reason.

Technological advancements like the EV revolution and 5G rollout have sent the demand for semiconductors soaring in the last couple of years.

A rise in the use of devices like smartphones and smart TVs in the pandemic further aided demand.

However, the pandemic also caused disruptions that throttled supply.

The demand-supply mismatch resulted in semiconductor stocks seeing a sharp rally and touching their all-time highs.

Although the buzz started due to a shortage of chips, the Indian government's effort is another driving factor for the industry.

The government has announced a PLI scheme to encourage local manufacturing of semiconductors and setting up display units.

This scheme is worth a whopping Rs 760 bn to be invested over the next 5-6 years.

Global semiconductor giants are also showing interest to set shop in India. This gives the government's plan a much-needed push.

So how have stocks of semiconductor companies performed in 2022 so far? Let's find out.

#1 Vedanta

Mines and metal conglomerate Vedanta has formed a joint venture (JV) with Taiwan's Foxconn to manufacture semiconductor chips in the 28 nm category.

The JV will look at setting up a semiconductor manufacturing plant in the next two years.

To become India's first chip maker, Vedanta is seeking 1,000 acres of free land, water, and power at concessionary and fixed prices, among other incentives.

In a recent development, the government asked the companies to provide more details on how they plan to acquire the required expertise or get a third partner with demonstrated technical capability.

The companies haven't yet disclosed the location of the manufacturing plant.

This is the first joint venture in electronics manufacturing after the government announced the PLI scheme.

Vedanta group is planning to invest US$ 15 bn in a phased manner over the next 5-10 years to make displays and semiconductor chips in India.

Vedanta has also proposed setting up a display fab on its own.

Note this isn't Vedanta's first attempt at foraying into the semiconductor space. Although, none of these attempts took off, the company is ready for another go.

Shares of the company have come under pressure in the past few months and have fallen over 33% in 2022 so far.

Update: Vedanta has selected the state of Gujarat for its semiconductor project. It will invest Rs 1.5 tn in Gujarat to set up a fabrication plant with Rs 945 bn and a semiconductor fabrication and outsourced semiconductor assembly and test plant with Rs 600 bn.

According to Anil Agarwal, Vedanta's chairman, they need two such plants to meet the global demand of semiconductors. Hence after setting up a plant in Gujarat, Vedanta is also looking into setting up another plant. For this, it has received interesting plans from Andhra Pradesh and Maharashtra.

It is expected that the Gujarat plant will start operating from 2024.

To know more about this plant, read our detailed editorial on Vedanta and its semiconductor plant in Gujarat.

#2 Rajesh Exports

Rajesh Exports is investing US$ 3 bn to set up the country's first electronic-display plant in the state of Telangana. The company is also an applicant for the government's PLI scheme.

Announcing the investment, Telangana Industries Minister KT Rama Rao said:

• What was hitherto possible only in Japan, Korea, and Taiwan, will now happen in Telangana.
  
  The creation of a large-scale ecosystem of partners and ancillaries supplying world-class television, smartphone, and tablet makers. .

Industry body ICEA estimates demand in India for displays will be nearly US$ 60 bn between 2021 and 2025.

Rajesh Exports, which has no prior experience in electronics manufacturing, is making the investment through subsidiary company Elest.

Elest was incorporated for diversifying into the EV segment along with display manufacturing.

Shares of the company have come under pressure in the past few months and have fallen nearly 20% in 2022 so far.

Update: While there have been no new developments with respect to Rajesh Exports' semiconductor biz, the company has been selected for production of advanced chemistry cells for the Rs 181-bn PLI scheme.

However, despite the company's increased focus towards high growth sectors such as EV batteries and semiconductor, its stock price remains under pressure and trades near its 52-week low.

#3 Ruttonsha International Rectifier

Established in 1969, Ruttonsha manufactures semiconductor devices, power rectifiers assemblies, and semiconductor diodes.

When the government invited bids for semiconductor fab units, Ruttonsha was the only company to register for making compound semiconductors.

Compound semiconductors are different from silicon ones. Around 20% of the world's semiconductors come under this category.

In 2005, Ruttonsha was taken over by the promoters of Silicon Power Corporation, USA, giving it access to developmental and technological expertise.

Silicon Power Corporation is a leading corporation that provides high power semiconductor devices.

Visicon Power Electronics is a wholly owned Indian subsidiary of Silicon Power Corporation. It's in the business of manufacturing silicon carbide (SiC) wafers and power electronic devices through the epitaxial process.

Ruttonsha has big plans for manufacturing SiC based products in India. It's setting up a fab unit.

Shares of the company have fallen heavily in the past few months, erasing gains from January. They are down 2% in 2022 so far.

#4 ASM Technologies

ASM Technologies has formed a 50:50 JV with Hind High Vacuum (HHV). This is to undertake design led engineering and manufacturing of tools, sub-systems, sub-system components, and components for the semiconductor and solar industries.

Speaking on the JV, Mr. Rabindra Srikantan, Managing Director, ASM Technologies said:

• We are encouraged by the recent incentives announced by the Government of India for semiconductors, electronics, and packaging.
  
  This JV enables us to add the best-in-class semiconductor manufacturing capabilities to our existing semiconductor engineering expertise.

ASM Technologies provides consulting and product development services in the areas of engineering services and product R&D.

The main clients of ASM Technologies include reputed customers involved in manufacturing of semiconductor equipment and network devices.

ASM Technologies has recently forayed into areas of virtual reality (VR), internet of things (IoT), and open edX platform management.

In line with other semiconductor stocks, shares of ASM Technologies came under pressure after the Russia-Ukraine war. The stock is down close to 40% in 2022 so far.

Update: In a recent interview, the company's MD Rabindra Srikantan said that India has a lot of ground to cover and should focus on manufacturing of semiconductors.

Here's an excerpt:

• I think many states have given a lot of templates along with the PLI, and I'm sure that in the next maybe 18 months-24 months, or even sooner, we will see some of these getting into production. .

#5 SPEL Semiconductor

SPEL Semiconductor is engaged in offering electronic integrated circuits (ICs). Its products are used mostly in cell phones, computers, notebooks, and personal digital assistants.

Its facility, Natronix, is India's first and only semiconductor IC assembly & test facility.

SPEL Semiconductor was the only company to register for semiconductor packaging under the government's PLI scheme.

Packaging is an essential part of semiconductor manufacturing and design. It's usually done by an outsourced semiconductor assembly and test (OSAT) vendor.

It affects power, performance, and cost on a macro level, and the basic functionality of all chips on a micro level.

As semiconductor production booms in the country, the company is set to benefit from being the only OSAT in the country.

The company's existing customers are some of the biggest integrated device manufacturers (IDMs) and fabless companies in the US, Asia, and Europe.

It is the only company on the list to have performed well in 2022. Shares of the company are up over 12%.

The road ahead...

If you're looking for growth stocks, you might want to get bullish on semiconductor stocks. As industries rush towards digitisation, demand for semiconductors will only grow more.

So, if you think the semiconductor theme is just temporary and might be over soon, think again. The demand-supply mismatch is here to stay, and semiconductor stocks will make headlines yet again.

While these stocks have the potential to deliver huge gains, you should be very careful about which semiconductor stocks to invest in.

There are only a handful of companies that are currently involved in this space. The right pick could be the x-factor for your portfolio turning into the next Titan or Wipro.

Co-head of Research at Equitymaster, Tanushree Banerjee, has identified a tech company in India, having a dominant role in semiconductor chip designing.

The company has set up management teams in Taiwan, South Korea, and Vietnam in recent months seeing the growth potential of this business.

With its disruptive capabilities, Tanushree believes the company's future seems far more promising than its past.

We recommend you watch the below video where Tanushree shares her views on India's top semiconductor stocks.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...