China supply chain risk gives little-known Indian stocks a boost

China’s darkening supply-chain clouds have brought a silver lining to some lesser-known Indian stocks, in particular those which stand to benefit from expanding global supplier lists as well as the nation’s efforts to create worldwide champions.

Electronic-parts maker Dixon Technologies (India) Ltd. has jumped more than 80% this year, partly driven by hopes that the Samsung Electronics Co. supplier will be able to successfully sell its products globally. Amber Enterprises India Ltd., an air conditioner parts supplier to LG Electronics Inc., is up more than 40% on similar expectations, handily beating the benchmark S&P BSE Sensex Index. Dixon and Amber each rose by at least 3% on Tuesday.

The outperformance shows some investors are expecting India to widen its presence in the global supply chain as factories in China face pressure from its zero-Covid policy, energy crisis, green goals, regulatory crackdown on private enterprises and trade tensions with Washington. India already boasts of a large swathe of companies exporting pharmaceuticals and software services to the U.S. and Europe.

Edelweiss Financial Services Ltd. analysts including Amit Mahawar drew comparisons between Dixon, and global electronic parts giants Hon Hai Precision Industry Co. and Pegatron Corp. in a note earlier this month.

“A lot of these stocks have gained on the concept of global companies looking to diversify away from China,” said Sumeet Rohra, a fund manager at Smartsun Capital Pte. in Singapore. Still, “one needs to be cautious due to their high valuations.”

Despite falling in recent days, Dixon’s stock is trading close to 75 times its 12-month forward earnings estimate, while Amber is trading at about 48 times, according to data compiled by Bloomberg. That compares to the Sensex’s multiple of less than 24 times.

Chemical Gains

Caustic soda makers are another example of Indian firms benefiting from China’s supply chain issues, with the shares of DCM Shriram Ltd. and DCW Ltd. more than doubling this year. Manufacturers of the chemical — used in the production of alumina to paper to soaps — are among major beneficiaries of power shortages in China, which pushed a number of factories to close in September.

DCM rose as much as 4.1% on Tuesday.

“The Indian chemical industry is at the cusp of a structural growth, led by the shift in global supply from China, increase in outsourcing opportunities,” KRChoksey Research’s analysts wrote in a note earlier this month. “China is losing ground on decreasing cost competitiveness.”


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