Introduction
As an investor in India's growing economy, you are likely watching a particular sector on the verge of explosive growth. One such sector that will be a real game-changer is the semiconductor industry. The Indian semiconductor industry, backed by the India Semiconductor Mission, is shaping up to be a substantial vehicle for growth. Semiconductors, or chips, are in everything from our smartphones to our ability to make advanced AI systems, and India's vision of becoming a semiconductor powerhouse presents great opportunities. With proactive policies in place and an expected demand surge, positioning in semiconductor shares is likely to be one of the best investment decisions for long-term gains. Here's what you need to know.
Why Will Daily Semiconductor Matter to You?
You cannot think about modern technology without thinking about semiconductors. As this sector drives innovations like 5G, electric vehicles, and IoT, we have seen how problems with semiconductor supplies can pose challenges for the world's largest economies. India imports $24 billion of varying components, making up 84% of total chips, with $4.4 billion valued for consumer electronics. There were huge chip issues during the pandemic, which brought some of these vulnerabilities to light. The India Semiconductor Mission's stated goal of reducing India's dependency on semiconductors to support innovation and other industries and targeting a market of $63 billion in value by 2026 is quite substantial. This presents the opportunity to invest in a sector that plays a key role in national security, economic security, and global development, which would further enhance India's GDP, which is expected to expand from $1 trillion to potentially $3 trillion by 2030.
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The government is welcoming semiconductor investment in India with open arms. The India Semiconductor Mission, initiated in 2021, provides up to 50% capital expenditure support for manufacturing, designing and packaging. The Production-Linked Incentive (PLI) scheme is a ₹76,000 crore scheme aimed at attracting global giants alongside the Design-Linked Incentive (DLI) scheme, which supports startups in developing chip design. Programs like Chips to Startup (C2S) are training 85,000 engineers and developing India's workforce. This creates a tremendous opportunity to help semiconductor chip companies come to India with help, have their way, and make a fruitful space for their investments.
Key Players and Trends to Watch
There are quite a few semiconductor chip players in India. Tata Elxsi, for instance, is actively engaged in IC design for automotive and IoT chip designs. Meanwhile, others are trying to get into manufacturing and ATP. We are starting to see some essential trends developing. These trends include demand for AI chips, compound semiconductors for 5G, and the ability to pursue sustainable manufacturing in alignment with global ESG standards. You can capitalise on these trends as an investor by looking into semiconductor shares listed in India, especially those with connections to higher-growth sectors, such as renewable energy and telecom.
Considerations of Challenges
Although the future is bright from the latest outlook, India's semiconductor mission faces challenges. Establishing a state-of-the-art semiconductor fabrication facility requires enormous capital. It can cost upwards of a whopping $10 billion per facility. Furthermore, critical infrastructure is lacking in key areas, like reliable and sufficient electricity and water, which could prolong the implementation phase. Although the talent pool in India is expanding, it will become important to rapidly grow the labour supply in terms of the demand for 300,000 skilled workers by 2027. Additionally, geopolitical tensions and competition on a global scale continue to exist. As an investor, you will have to balance these challenges against the long-term value of investments in India's semiconductor sector when considering an allocation to India.
Your investment playbook
The semiconductor awakening in India represents a multi-decade opportunity. The Indian government targets 10% (or 1/10th) of global chip production by 2030. If you invest now, you can achieve a high return on your investment if several of these developments bear fruit, particularly in those early years. As a first step, identify and research companies on the semiconductor shares list in India. Choose companies with solid fundamentals and that are directly involved in government-related projects. Aim for a blended portfolio in terms of design, manufacture and ATP position, giving you the highest level of diversification and reducing risk. You should continue to read about various state government initiatives that provide incentives, as they create leverage for the company. If they are successful, you can expect the unit of measure (the stock) also to level up. And finally, check with your financial advisor to determine how to incorporate these investments into your goals.
The India Semiconductor Mission is rewriting India's technology story as we know it. By investing wisely in this sector, you're betting on chips and investing in India's future as a global innovation hub.