Shrinking profit margins unwind popular ‘Make in India’ trade in electronics

A sector that underpinned the once-popular “Make in India” trade is faltering as shrinking margins and slowing growth shake investor confidence.

Following triple-digit share gains in recent years, electronics manufacturers — who make everything from Samsung Electronics Co. phones to air conditioning units — are facing a sharp reversal as investor enthusiasm cools. Among them, shares of Dixon Technologies India Ltd. and Kaynes Technology India Ltd. have tumbled more than 15% this year, underperforming the broader market rally.

The unwind marks a turning point of a trade once central to the bullish case about India’s manufacturing ascent. As companies boost spending, some investors are questioning whether market demand is keeping pace with the flood of investments. Rich valuations, increased competition and an expiry of government stimulus programs are adding to the unease.


“There is plenty of topline growth available for the leaders in this space – but when we incorporate high valuations and sensible margin scenarios into the growth outlooks, we believe capital can be more effectively deployed elsewhere,” said Vikas Pershad, a fund manager at M&G Investments.

The underperformance follows years of stellar gains, when shares of these companies surged thanks to hopes India could emerge as a manufacturing powerhouse to rival China. But that market frenzy also pushed valuations higher, with most stocks in the segment trading at above 50 times its one-year forward earnings, more than twice that of NSE Nifty 50 Index. Dixon’s Taiwan peers Hon Hai Precision Industry Co. and Wistron Corp. trade at about 11 to 12 times forward earnings.

In the last two calendar years, Kaynes shares have surged 888% while PG Electroplast Ltd. soared 771%. Amber Enterprises India Ltd. has jumped 291%.

Wall Street firms are turning less bullish on the outlook. Jefferies analysts said this week that the risk-reward for Dixon appears stretched and reiterated its underperform rating, while Morgan Stanley downgraded the stock to a sell equivalent. Meanwhile, the ratio of sell rating to total recommendations for Kaynes is at the highest since its listing in 2022, according to data compiled by Bloomberg.

Sentiment has shifted partly due to the looming expiry of the government’s production-linked incentive scheme, a key part of Prime Minister Narendra Modi’s manufacturing push. While the government has stayed mum on any extensions, media reports say Modi will let it lapse due to disappointing results.

Dixon will likely be impacted when the incentives for mobile phone manufacturers expire in the fiscal year ending March 2026.

Some firms are expanding upstream by acquiring suppliers, raising investor concerns about long-term cost increases. Kaynes is investing 34 billion rupees ($397 million) for a semiconductor assembly facility, while Amber has committed up to 24 billion rupees over five years for its electronics division.

Beyond electronics manufacturing, other segments of the market once central to manufacturing renaissance hopes have also slid this year. Those include shares of some renewable firms like solar panel and battery makers, as well as some auto component makers. In the latest blow, Foxconn Technology Group has asked hundreds of Chinese staff at iPhone plants in southern India to fly home. While India is still expected to significantly increase its manufacturing base, uncertain market growth has prompted many stock investors to step back for now.

“Much of the growth so far was driven by government incentives, and long-term success will depend on quality of the capex and whether firms can develop a lasting edge over its competitors,” said Vipraw Srivastava, an analyst at PhillipCapital India.