Despite the initial knee-jerk reaction, shares of electronics manufacturing services (EMS) firms might outperform going ahead, noted experts. As U.S. President Donald Trump levied 26 percent reciprocal tariffs on all imports from India, the markets were quick to react, selling off equities across all sectors, except pharma and healthcare.
However, as the dust settles, and investors have digested the news, a silver lining emerges: India's positioning relative to Asian counterparts is more attractive, which could lead to domestic EMS players gaining. Compared to other U.S. trade partners, such as China (54 percent), Vietnam (46 percent), or Sri Lanka (44 percent), India's tariff rate is relatively favourable.
"Electronics manufacturing services may benefit relatively, as India’s tariff rate is lower than those on Vietnam and China, potentially making India a more attractive destination in global supply chain realignments," noted Sonam Srivastava, Founder and Fund Manager at Wright Research PMS.
A note by Emkay Global found that upon a further breakdown of the export data, over half of India’s electronics exports to the US are mobile phones. These are almost exclusively iPhones assembled in India and shipped for retail to the U.S.
“With India imposing 15 percent tariffs on fully assembled phone imports (vs zero tariffs on the same in the US), reciprocal tariffs on India at the same rate would only make these iPhones more expensive for US consumers,” noted Emkay Global.
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Experts noted that PLI-led manufacturing are key to turning the tariff-related disruptions into an opportunity. To this effect, the government of India already offered a new production-linked incentive scheme to spur non-semiconductor electronics manufacturing last month.
The PLI scheme will have an outlay of Rs 22,919 crore, Union Electronics and IT Minister Ashwini Vaishnaw had said. It is the first scheme that focuses on promoting the manufacturing of passive electronic components.
The minister said that the scheme will create direct employment for 91,600 people and attract investment of around Rs 59,350 crore. "Passive components are approved under the Electronics Component PLI scheme. It has a total package of Rs 22,919 crore. This will be over six years," Vaishnaw said.
EMS players such as Dixon Technologies, Kaynes Tech and Amber Enterprises are expected to be the key beneficiaries of the government-supported incentives, coupled with the China+1 narrative, as the component PLI scheme increases the domestic value addition done by Indian EMS players.
Offering a contrary opinion, Emkay Global suggested that, based on its analysis, around 75 percent of China’s exports are high-complexity products, while India’s share is only 45 percent.
Post-pandemic trade data indicates India has not gained market share in areas China exited, while China expanded in high-tech sectors. China’s losses in jewellery, footwear, textiles, and electronics could have been an opportunity for India, said Emkay, but India's gains have been limited only to primary goods.
Aside from telecom equipment, India has not significantly replaced China’s exports and has even lost share in key sectors like gems, jewellery, and textiles. "On the other hand, China has gained market share in high-tech sectors – automobiles, electric machinery, and engineering equipment, along with some of its traditionally strong commodities such as toys, leather, and base metals," said the brokerage.
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