A sector that underpinned the once-popular “Make in India” trade is faltering as shrinking margins and slowing growth shake investor confidence, Bloomberg has reported.
Following triple-digit share gains in recent years, electronics manufacturers are facing a sharp reversal as investor enthusiasm cools. Among them, shares of Dixon Technologies India and Kaynes Technology India have tumbled more than 15 per cent this year, underperforming the broader market rally.
The unwind marks a turning point in 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, competition and an expiry of government stimulus 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 alongside hopes India could emerge as a manufacturing powerhouse.
But that market frenzy also pushed valuations higher, with most stocks in the segment trading at above 50 times their one-year forward earnings, more than twice that of the NSE Nifty 50 Index.
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.
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.