Can these EMS stocks gain as sector sees good growth

India's electronic manufacturing services (EMS) sector is experiencing impressive growth, driven by rising demand for electronics across various industries. KPMG reports that the Indian EMS industry has grown from $10-12 billion in FY2019-20 to $40-45 billion in FY2024-25. Despite holding only 5-6% of the global EMS market, there is significant room for expansion, with KPMG forecasting the industry to reach over $150 billion by FY2029-30.

Key growth factors include growing export opportunities, the China-plus-one strategy aiming to diversify supply chains beyond China, and government support through initiatives like Make in India, Production Linked Incentive (PLI) schemes, and the Electronic Component Manufacturing Scheme. These policies encourage domestic manufacturing and critical component production.

Moreover, the government's semiconductor push, through the Semiconductor Missions 1.0 and 2.0, aims to deepen India's semiconductor design and manufacturing capabilities, potentially enhancing supply chains and value-chain growth opportunities for EMS players.

As leading original equipment manufacturers (OEMs) outsource increasingly complex products, domestic EMS companies are shifting towards more intricate, higher-value products such as box builds, system integration, and precision engineering. This evolution from basic assembly to complex electronics promises improved margins and operating leverage, with analysts forecasting a shift from a capacity-led to a capability-led industry.

Valuations for EMS stocks are currently premium compared to their five-year averages, but analysts advocate for a gradual investment approach, focusing on companies advancing along the value chain and showing strong return on capital employed.