There’s no doubt that you have heard of semiconductors but do you know everything about them? Consider this article as your introduction to semiconductors, semiconductor stocks, and the semiconductor stocks industry in India.
What is a semiconductor?
Used in a wide range of electronic devices such as cars, laptops, household appliances, smartphones, and gaming consoles, semiconductors are materials that have a conductivity more than an insulator but less than a conductor. These small chips are designed to control and manage the flow of electric current in electronic equipment and devices.
Types of semiconductors
a. Intrinsic Semiconductor
It is a type of semiconductor material that is chemically very pure. Common examples are – pure germanium and silicon.
b. Extrinsic Semiconductor
An extrinsic type of semiconductor has a small amount of impurity or doping agent added to the basic intrinsic material. These are further classified into N-Type semiconductors and P-type semiconductors.
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N-Type semiconductors:
An N-type semiconductor material has an excess of negatively-charged carriers. Because the electron affinity required to free the fifth electron is very low, the electrons become free and move in the semiconductor’s lattice. These semiconductors are referred to as n-type semiconductors.
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P-Type semiconductors:
In these types of semiconductors, you can find an excess of positively-charged carriers.
What is semiconductor stock?
Due to the increase in demand for semiconductor chips, semiconductor stocks are now in the limelight. But what are semiconductor stocks? These are shares of companies engaged in the manufacturing and marketing of semiconductors.
Benefits of investing in the best semiconductor stocks
a. Huge potential
The digitization, automation, and robotization trends will only grow stronger; thus, semiconductor stocks have huge potential to gain profits.
b. Expected future growth
Demand for semiconductors is projected to remain strong as the market develops and technology changes how we live and work. The semiconductor sector is considered to be a good long-term investment.
c. Government support:
The government has lined up a host of initiatives for local semiconductor manufacturing, such as the PLI scheme, which encourages more people to manufacture the same.
Risks in semiconductor stocks
a. Volatile market
Due to the industry’s erratic demand swings or volatility, investors are hesitant to invest in these stocks.
b. Changing technology
There is a huge chance that new-age innovation can be imagined without microcircuits and chips, making semiconductors obsolete.
c. Other factors
The global recession and inflation may adversely impact the production of semiconductors that, indirectly hits semiconductor stocks.
Government initiatives to support the semiconductor industry in India
Indian Government has also shown significant efforts in uplifting the semiconductor industry. They have announced the Production Linked Incentive (PLI) Scheme to encourage local semiconductor manufacturing and setting up display units.
What is PLI, and how will it benefit the manufacturers? This scheme provides incentives to domestic industries to boost local production. According to the PLI program, the government encouraged domestic businesses and organizations to build or expand manufacturing facilities to boost production, offering incentives for additional sales.
Apart from PLI, below are a few of the other government initiatives.
- Has allowed 100% FDI (Foreign Direct Investment) in Electronics Systems Design & Manufacturing Sector (under the automatic route)
- Has increased the allocation for M-SIPS (Modified Special Incentive Package Scheme) and the EDF (Electronic Development Fund) to ₹745 crores
(Source: IBEF)
Semiconductor industry in India
The semiconductor industry comprises companies engaging in the designing, manufacturing, and selling of semiconductors and semiconductor devices like transistors. The demand for semiconductors has increased significantly over the past several years due to technological developments like the EV revolution and the implementation of 5G.
The semiconductor industry in India is leveraging and has huge potential in the coming days. Investors must watch the stock of these businesses and be prepared to diversify their portfolios, given they have done due diligence prior to purchasing such stocks.
Are semiconductor stocks a good investment?
By now, we’ve understood that semiconductor companies currently have high demand and huge potential in the near future, pointing towards significant sector growth. However, one shouldn’t invest in these companies without considering the important factors mentioned below.
a. Innovation is the key
To stay relevant and unique in the industry, the business needs to find ways to creating smaller, faster, and cheaper products. As an investor, you should pay attention to the companies doing smart innovations that give a good return on investment.
b. Check for high-profit margins:
Companies with high-profit margins can reinvest in research and enhance their operations.
c. Market penetration
Semiconductor companies should have high market penetration and growth potential. Thus, choose the stock that has huge potential in the near future.
d. The financial health of the company
Investors should check on the company’s financials, such as its balance sheet, annual returns, and statement on equity.
Conclusion
Semiconductor shares are stocks of the companies involved in manufacturing, designing, selling, or any related activity of small chips that control electronic devices or semiconductors. Investing in these stocks is one of the best ways to diversify your portfolios. However, investment in top semiconductor stocks requires accepting some risk because shares of even the most promising firms in the sector might fluctuate. Thus, you should thoroughly research before investing in any stock.
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