Domestic Semiconductor Stocks Are Skyrocketing Today - Here’s Why?

Domestic semiconductor stocks saw an uptick during the morning session on August 29, following US-based chip giant Nvidia's impressive earnings report for the June quarter.

On August 28, Nvidia announced its earnings for the quarter ending in June, surpassing Wall Street predictions with a revenue of $30.0 billion, exceeding the expected $28.7 billion.

By 9:25 am IST on August 29, companies like CG Power, Moschip Technologies, RIR Power Electronics, ASM Technologies, and SPEL Semiconductor, which have some involvement in the domestic semiconductor sector, had all gained over 1%.

Sunny Agrawal, Head of Fundamental Research at SBI Securities, stated that India is rapidly becoming a global hub for electronics manufacturing. He noted that the semiconductor industry presents "significant growth opportunities across the value chain as India strives to achieve self-reliance in chip supply."

Despite the strong financial performance, Nvidia stock fell by 6.6%in after-hours trading following the conclusion of Wednesday's earnings call. Market analysts suggest that although Nvidia exceeded earnings forecasts, the margin of the beat was smaller compared to previous quarters.

Nvidia also provided an optimistic outlook, forecasting September-quarter revenue of $32.5 billion, which is higher than the $31.7 billion consensus. However, the market was disappointed as the upward revision was not as substantial as in previous quarters.

This year, Nvidia's shares have skyrocketed by over 150%, adding $1.82 trillion to its market value and driving the S&P 500 to new record levels.

Semiconductor stocks in India have seen a notable surge, driven by several key factors that are shaping the market dynamics and investor sentiment.

1. Global Semiconductor Industry Momentum

The global semiconductor industry has been experiencing a significant upswing, primarily fueled by robust demand across sectors like AI, 5G, and advanced consumer electronics. Companies like Nvidia in the US have reported stellar financial results, which have, in turn, buoyed the semiconductor sector worldwide. The ripple effect of these global trends has positively impacted Indian semiconductor stocks, as investors anticipate similar growth trajectories for domestic companies involved in the chip-making ecosystem.

2. Government Initiatives and Support

India's government has been actively promoting the growth of the domestic semiconductor industry through various initiatives. The National Policy on Electronics (NPE) and the Production-Linked Incentive (PLI) scheme are pivotal in this regard. These policies aim to enhance domestic manufacturing capabilities, reduce dependency on imports, and position India as a key player in the global semiconductor supply chain. The recent approvals of substantial investments by major global semiconductor players like Micron Technology and Tata Electronics have further bolstered confidence in the sector.

3. Rising Domestic Demand

India is witnessing a surge in demand for semiconductor components, driven by the rapid adoption of technologies like 5G, electric vehicles (EVs), and smart consumer electronics. As the nation continues its digital transformation, the need for advanced chips and components is escalating. Companies that are well-positioned to cater to this demand, such as Bharat Electronics Limited (BEL) and Dixon Technologies, have seen their stock prices soar as investors bet on their ability to capitalize on this growing market.

4. Supply Chain Diversification

The global semiconductor supply chain has been under immense pressure due to geopolitical tensions and the ongoing effects of the COVID-19 pandemic. As a result, many countries, including India, are focusing on developing self-reliant semiconductor manufacturing capabilities. The Indian government’s push for self-sufficiency in semiconductor production is a strategic move to mitigate risks associated with global supply chain disruptions. This has led to increased investments and interest in domestic semiconductor companies, driving up their stock prices.

5. Technological Advancements

Indian companies are not just riding the wave of global trends but are also making significant strides in technological innovation. Advances in semiconductor materials and processes, such as the development of high-power gallium nitride and silicon photonics, are enabling Indian firms to compete more effectively on the global stage. These innovations are crucial for applications in high-frequency communications, electric grids, and next-generation consumer electronics, positioning Indian companies as leaders in these niche markets.

6. Investor Sentiment and Market Speculation

The recent rally in semiconductor stocks is also driven by positive investor sentiment and market speculation. With the global semiconductor market poised for growth, investors are increasingly viewing Indian semiconductor companies as lucrative investment opportunities. This speculative interest is further fueled by announcements of upcoming semiconductor projects in India, such as the anticipated production of the first 'Made in India' chip by the end of 2024.

7. Strategic Partnerships and Collaborations

Collaborations between Indian firms and global semiconductor giants are another factor driving the market. Strategic partnerships, such as those between Tata Electronics and Taiwan's Powerchip Semiconductor Manufacturing Corp, are expected to enhance India's manufacturing capabilities and accelerate the production of high-quality semiconductor products. These partnerships are seen as a vital component in India's strategy to become a global semiconductor hub, which has had a positive impact on investor confidence and stock prices.

Conclusion

The rise in domestic semiconductor stocks in India today can be attributed to a combination of global industry trends, supportive government policies, increasing domestic demand, and strategic initiatives aimed at enhancing manufacturing capabilities. As India continues to strengthen its position in the global semiconductor market, these stocks are likely to remain attractive to investors looking to capitalize on the growth potential of this critical industry.