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We remain structurally positive on the Indian EMS/ESDM sector, supported by the convergence of electronics localization, semiconductor ecosystem development, mobile manufacturing, defense indigenization and rising demand for high-reliability electronics. Importantly, the opportunity is gradually moving beyond PCB assembly and box-build toward components, semiconductor packaging, industrial/defense electronics, and mission-critical applications.

We believe the EMS sector is entering the next phase of its growth cycle – from scaleled assembly to capability-led, high-value ESDM. Government support through MPMS + ECMS + Semicon 2.0 + defense indigenization, combined with global supply-chain diversification, should support sustained localization and outsourcing opportunities

Our preference is toward companies that can move up the value chain through

a) highreliability electronics

b) design/engineering capabilities

c) export exposure

d) participation in semiconductor ecosystem development

e) Defence/aerospace/industrial applications

f) strong new-logo addition and orderbook conversion.

We estimate earnings CAGR of 40.4%/35.6%/28.4%/40.4% for AVAL/CYIENYDL/KAYNES/SYRMA over FY26-29E. We remain positive on EMS companies, but the recent run-up in stocks has captured the near-mid-term opportunity

Government support in building an end-to-end electronics ecosystem: The combination of MPMS, ECMS and Semicon 2.0 is helping create an integrated electronics manufacturing ecosystem. Industry bodies view these schemes as complementary layers connecting electronics manufacturing with domestic components and semiconductors

* Mobile Phone Manufacturing Scheme (MPMS): The government has approved an INR625bn 5-year scheme aimed at scaling mobile manufacturing, increasing domestic value addition, and strengthening the component/supply-chain ecosystem. (Click on the link for a detailed report on MPMS: VolumeXLII-ManthanEMS-27-8-26-PL.pdf)

* Semicon 2.0 / ISM 2.0: The second phase carries an outlay of INR1.275trn, with support extended beyond semiconductor fabs to chip design, equipment, materials, packaging, R&D and talent development. This significantly broadens the opportunity for Indian EMS/ESDM companies

*Defense indigenization emerging as a major ESDM opportunity: The Defence Acquisition Council recently accorded AoN for INR1.10trn of procurement, with ~98% expected to be sourced from domestic players. The approvals span radars, electronic warfare, mobility systems, helicopters and other platforms. This should create a multi-year opportunity for domestic players in defense electronics, aerospace electronics, communication systems, radar/EW and high-reliability electronics manufacturing.

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