India’s semiconductor story is moving from policy to production, but the stock prices of the related companies have been moving in the opposite direction.
Semicon 2.0 was approved in July, with the government’s commitment set at ₹1.275 trillion, up from ₹76,000 crore under the 2021 scheme. The market had enthusiastically priced in this opportunity: since Semicon 1.0, stocks like MosChip, SPEL Semiconductor and RIR Power Electronics had gained up to 400%. Kaynes had surged 850% since its 2022 listing. But over the past year, they have fallen as much as 71% – a sharp reality check after the initial hype.
That's because India’s semiconductor strategic opportunity does not directly translate into semiconductor stock opportunities.
Of the three broad stages in the semiconductor value chain - design, fabrication, assembly and testing, the strongest commercialization so far has been in assembly and testing. “Near-term, ATMP/OSAT is where the investable opportunity actually is,” said Tanvi Kanchan, associate director at Anand Rathi Shares & Stock Brokers. ATMP is assembly, testing, marking, and packaging, OSAT is outsourced assembly and testing.
CG Power’s semiconductor JV has already started commercial production, while Kaynes is building its own OSAT facility. But Kaynes’ recent earnings misses have weighed on the stock.
In terms of design, nearly a fifth of the global semiconductor chip design workforce is estimated to be in India. But the listed opportunity in the space appears priced to perfection. MosChip, for example, provides design services and develops ASICs and IP, rather than owning a dominant product franchise like the Nvidias of the world. Its Ebitda margin stood at around 10% last quarter, against Nvidia’s 66%. Still, MosChip trades at over 150 times its trailing twelve-month earnings, while Nvidia trades at 33x.
Further scope
The fabrication stage is strategically crucial, but there is no listed pure-play Indian fab. Fabs are capital and technology-intensive, with commercial viability several years down the line. The first major silicon fab is targeted for commissioning only in 2028, but by a private player – Tata Electronics.
Another set of semiconductor stock opportunities lies one step up the value chain. Semicon 2.0 explicitly provides incentives for domestic manufacturing of semiconductor equipment, materials, chemicals and gases. Deloitte estimates that over the next five years, India’s semiconductor industry can attract an additional $50 billion in capital investment, of which $30-35 billion is expected to be for OSAT, and $15-20 billion for the upstream value chain, including input materials, gases and chemicals and manufacturing equipment.
This includes businesses such as ASM Technologies, Gujarat Fluorochemicals, Jubilant Ingrevia, Navin Fluorine, and Linde India. Jubilant Ingrevia boasts of 10+ active semiconductor customers, and Gujarat Fluorochemicals is investing in high-purity electronic specialty chemicals.
The benefit of investing in the value chain is that these companies can potentially supply multiple semiconductor projects, thus diversifying the execution risk. Another question is whether semiconductors are a meaningful contributor to the company’s overall revenue or earnings. This is particularly relevant while the theme is new, and semiconductor exposure is an evolving metric.
Risks remain significant too: execution delays, weak utilisation, technology obsolescence, supply-chain dependence, and the possibility that government subsidies do not translate into attractive returns on capital. And ultimately, even the most promising semiconductor opportunity can disappoint if the stock is already priced to perfection.