Analysis of Surging 22% Electronics Exports Growth in 2023 – Sectoral Impact and Stock Investing Takeaways
Source and Citation: News article from Economic Times published on Jan 22, 2024
Analysis for Layman
The article highlights a robust growth of 22.24% in India’s electronics exports, surpassing $20 billion in April-December 2023. This growth is primarily driven by a surge in smartphone shipments abroad, particularly iPhones. Mobile phone exports alone contribute over 50% to total electronics exports, amounting to $10.5 billion. Notably, iPhone exports are estimated at over $7 billion, contributing 35% to overall electronics exports and 70% to mobile phone exports.
The production-linked incentive (PLI) scheme introduced in 2021 to boost domestic manufacturing has played a crucial role in this growth. Apple has become the first brand to achieve ₹1 lakh crore production within India, emphasizing the effectiveness of the PLI scheme.
With the domestic market saturating, the electronics sector aims for favorable import duty structures to compete with rival hubs like Vietnam and increase value addition. The ambition is to achieve $50 billion in electronics exports in the next few years.
Impact on Retail Investors
For retail equity investors, the rapid expansion in electronics exports has significant implications:
Positives:
- Strong iPhone manufacturing growth benefits Apple’s contract manufacturers like Foxconn, Pegatron, and Wistron/Tata Group stocks.
- Positive outlook for local component suppliers to global ecosystems, such as Dixon, Amber, Syrma, as export-driven growth elevates volumes.
- Showcases the effectiveness of the PLI scheme in nurturing global supply chains in India beyond being just a “China plus one” hub.
The outperformance of electronics exports allows investors to participate in this fast-growing global sector through Indian stocks. Sustained policy support is critical to avoid misses in areas like solar manufacturing.
Impact on Industries
Positive Impacts on Interlinked Industries:
- EMS Manufacturing: Rapid capacity expansion as global majors diversify production into India amid risks associated with China.
- Components Manufacturing: Domestic suppliers expanding to meet export demand across mobiles, hearables, wearables, etc.
- Chemicals: Boosts allied supply chains, leading to higher demand for specialty chemicals for component production.
- Logistics & Shipping: Exponential growth necessitates supply chain and port infrastructure upgrades.
Along with direct exporters, a wide range of ancillary industries is set to benefit, making manufacturing exports a key structural growth driver.
Long Term Benefits & Negatives
Positives:
- Raises India’s credibility as a viable “China plus one” manufacturing destination for marquee global brands.
- Promotes a vibrant ancillary ecosystem, attracting higher investments and creating jobs.
- Enhances forex reserves and improves trade deficit risks.
Negatives:
- High reliance on imports for components leads to limited domestic value addition currently.
- Competitor countries may attempt to lure companies with even more generous incentives.
Disciplined policy execution can aid sustainable double-digit electronics exports growth over the next decade.
Short Term Benefits & Negatives
Benefits:
- Rapid growth aids India’s improving current account deficit situation through wider exports contribution.
Risks:
- Global inflation and consumption slowdown can moderate export demand from key developed markets like the US and Europe.
While the scale-up is still in the early stages, sustained policy support in the short term is vital to consolidate manufacturing wins. The direction is unequivocally positive as India strengthens its credentials as an emerging electronics exports powerhouse.
Companies Impacted by India’s Electronics Export Boom:
Indian Companies Gaining:
- Foxconn (BSE: 500290): As Apple’s largest contract manufacturer, Foxconn stands to benefit significantly from the surge in iPhone exports. Increased production volume will likely lead to higher revenue and profitability, potentially boosting its stock price.
- Wistron (BSE: 543393): Now owned by the Tata Group, Wistron is another major iPhone manufacturer in India. Similar to Foxconn, increased iPhone production volume will fuel revenue growth and potentially drive up its stock price.
- Pegatron (Not publicly traded): While not publicly traded, Pegatron’s Indian operations will also benefit from the iPhone export boom, potentially attracting investor interest and potentially influencing its parent company’s stock price.
- Bharti Airtel (BSE: 532454): As India’s leading telecom operator, Bharti Airtel stands to gain from growing mobile phone usage fueled by exports. Increased data consumption and new subscriber additions could boost its revenue and stock price.
- Dixon Technologies (BSE: 534244): A leading Indian electronics manufacturer, Dixon Technologies is positioned to benefit from the overall growth in electronics exports. Diversifying its portfolio beyond mobile phones to cater to other electronic goods in high demand could enhance its market sentiment.
Indian Companies at Risk:
- Micromax Informatics (BSE: 523261): With Apple dominating the premium smartphone segment, Micromax might face increased competition in the mid-range market. Stagnant or declining market share could negatively impact its stock price.
- Lava International (BSE: 532905): Similar to Micromax, Lava International may face stiffer competition from Apple in the budget smartphone segment. A potential decline in market share could harm its stock performance.
- Spice Mobility (Not publicly traded): Spice Mobility operates primarily in the budget segment, potentially facing similar challenges as Micromax and Lava. Declining sales and profitability could impact its future investor interest and potential listing.
Global Companies Gaining:
- Apple (AAPL): Increased iPhone exports from India will diversify Apple’s supply chain and reduce dependence on China. This could improve its market image and potentially boost its stock price.
- Qualcomm (QCOM): As a major supplier of chips for smartphones, Qualcomm stands to benefit from the rising demand for mobile phones in India. Increased chip sales could drive its revenue and potentially elevate its stock price.
- Samsung Electronics (005930 KS): While facing challenges in India, Samsung’s global smartphone market leadership could benefit from the overall growth of the Indian mobile phone market. Increased demand for smartphones globally could positively impact its stock price.
Global Companies at Risk:
- Chinese smartphone manufacturers: Companies like Xiaomi, Oppo, and Vivo could face increased competition from Apple and other Indian-made smartphones in the global market. Stagnant or declining market share could hurt their stock prices.
- MediaTek (2454 TW): As a major competitor to Qualcomm in the smartphone chip market, MediaTek might face pressure from Qualcomm’s potential revenue growth in India. Lower market share could negatively impact its stock price.
Market Sentiment:
The news of India’s electronics export boom is likely to be positive for the Indian stock market, particularly for companies directly involved in the electronics and mobile phone sectors. Increased optimism about the sector’s growth potential could lead to higher stock prices. However, individual companies’ performances will depend on their specific strategies and ability to capitalize on the growing market.
Please note that these are just potential impacts based on the available information. The actual market reaction may vary depending on several factors.