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How to Invest in Semiconductor Stocks

Semiconductor stocks are big news.

Why do we say this? Over the past two years, post March 2020, stocks with even remote connection to the semiconductor industry rallied big time.

Semiconductor powerhouse companies like South Korea and Taiwan were the big beneficiaries.

This is because the semiconductor industry is experiencing huge growth trajectory, all thanks to the increased use of chips across a variety of applications.

These little chips are components needed for manufacturing cars, televisions, refrigerators, washing machines, personal computers, laptops, mobiles, etc.

In fact, most emerging technologies have high dependence on semiconductors. Technological advancements like the EV revolution and 5G rollout have sent the demand for semiconductors soaring. India's top EV stocks need these chips if they want to ride the EV megatrend.

These components are made from silicon and fit into microcircuits that power various electronic goods and components.

Semiconductor chips are so important that tens of thousands of workers must get lines that are a millionth of a meter, i.e., one micron wide, exactly right. Or else it won't work. The semiconductor chips fail.

Making a semiconductor is a 1,500-step process and takes up to 6 months. The amount of R&D involved is massive.

Companies in the industry have consistently increased sales over the past two years and are expected to continue to do so amid the strong chip demand. As industries rush towards digitization, demand for semiconductors will only grow more.

So the all important question now is how to invest in semiconductor stocks?

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.

Investors looking to invest in semiconductor stocks can:

  • Invest in companies that are building a semiconductor ecosystem in India.
  • Invest in companies have direct or indirect exposure to the semiconductor sector.
  • Invest in companies offering raw materials or design or technology services to the semiconductor industry.

For starters, keep an eye out on the below companies:

Please note, these are not recommendations by any stretch.

The semiconductor industry is a structural megatrend in the making, so don't invest from a short-term perspective.

Keep a long term investing approach in mind if you wish to invest in semiconductor stocks in India.

To further elaborate on why we believe the opportunity is going to be huge, here's an excerpt from Co-head of Research at Equitymaster Tanushree Banerjee who keeps a close watch on the stocks from this space:

    Currently, India imports almost all semiconductors.

    Its demand is estimated to reach around US$100 bn by 2025 from about US$24 bn in 2021.

    Previous efforts to get companies to invest in the semiconductor space had failed. The complex manufacturing processes requires heavy investments, apart from need for supply of uninterrupted clean water and electricity.

    India is seen as strong player in chip design. But the companies here have failed to get chip foundries into the country.

    The investments in India's semiconductor capacity are, expected to grow 4-fold in the next few decades.

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