My Indian Semiconductor Index: 2 Promising Smallcaps for Your Watchlist 

Dear viewers,

In this video, I'm going to talk about two semiconductor industry stocks that I believe should be on your watchlist.

But before that, here's a primer on this component.

With circuits that are a thousand of a width of human hair, chips more than make up for their miniature size with huge capital investments they require.

As per an article in Wall Street Journal, an advanced chip plant could cost more than a modern aircraft carrier or nuclear power plant.

China is the world's largest semiconductor manufacturer and supplier. With China plus one gaining trend and the growing need of chips and self-reliance, the governments in US and Europe are allocating more funds to incentivize and ensure self-reliance in the industry.

Global chip giants like TSMC in Taiwan, Samsung Electronics of South Korea, and Intel are having aggressive plans to meet the growing long-term demand for chips.

So why have semiconductor chips, rather their shortage, taken a centre stage in the post Covid economies?

You see, semiconductor chips are some of the key components in electronics, digital, and tech industry.

When the world was in pandemic grip and virtual was the only way to exist, the demand for chips soared. The supply amid lockdowns never matched up and fell short of drastic surge in demand.

However, this was not just a temporary phenomenon.

With the penetration of IoT, 5G, automation, robotics, EVs, and semi-autonomous vehicles, the demand for is likely to rise exponentially.

Well, to be honest, at present, India's semiconductor industry is still at a nascent stage. A good way to look at it is that it has a huge runway ahead of it. And early investors in the theme could benefit.

In India, the semiconductor industry is expected to grow 4x in next 4 years. The policymakers have realised its importance and are taking steps to develop it, including PLI schemes.

Semiconductor fab units, display units, and designing companies have been offered subsidies of 30-50% of project cost and incentives, based on sales and product deployment. India's SEMICON programme is estimated to be worth Rs 760 billion.

So are there any stocks in semiconductor space that could ride these trends?

I believe the viewers interested in this theme should start making a list of companies that are playing this theme directly or indirectly and track their own semiconductor Index.

Here are a few companies that I can think of putting on India's Semiconductor Index

The list includes well-known names like Tata Elxsi, HCL Tech, Dixon Technologies and for its JV with Foxcon and plan to set up chip making plants.

However, I'm sure you are familiar with mainstream names. For today's video, there are two specific companies that I would like to draw your attention to.

Their fundamentals seem healthy and valuations, not so expensive. And while I would strongly recommend you to not treat them as recommendation, I believe it would be good to have these two microcaps on your watchlist.

The first is Chemcon Specialty, a chemical manufacturing company.

It is the only Indian company and the third largest in the world to make a chemical HMDS. High purity HMDS has potential use in the semiconductor electronics industry, among other end applications.

The company derives close to 50% revenues from it. The product is sold in both domestic and export markets.

It is also the largest global manufacturer of CMIC, which is used in pharma industry for anti-AIDS, anti-hepatitis, and other anti-viral drugs. The company derives 26% of its revenue from the same.

The company stands to gain from China plus one as these chemicals are primarily imported for now. The rest of the revenue comes from oil well completion chemicals.

The second on the watchlist is ASM Technologies. The company is into ER&D, i.e. Engineering, Research, and Design space.

It is in the process of expanding its service offerings and has recently forayed into areas of Virtual Reality (VR), Internet of Things (IoT), and open edX platform management.

The company has a 50:50 JV with HHV group. It's going to be country's first state of art semiconductor focused equipment manufacturing facility. This will include services in designing and manufacturing semiconductor tools, sub-systems, systems components, and providing field support. The management considers it a key growth vertical.

Apart from semiconductors, it caters to hi-tech, medical equipment, automotive, aerospace, enterprising storage and networking, consumer electronics, etc.

Through its arm ASM Ventures, it also makes strategic minority investments in early-stage tech companies in India and abroad.

The reasons I focused on these two are their decent financial performance and valuations that do not look too expensive.

However, I would strongly recommend you to keep a track of all names of the index I shared on the first slide.

With this, I have come to the end of the video.

I hope you found it useful. Do let me know through your likes, feedback, and comments.

Thank you for watching. Goodbye.