Indian semiconductor and AI stocks remain elusive for retail investors amid sector growth focus

Semiconductor and artificial intelligence (AI)-linked stocks have emerged as some of the most dynamic and talked-about themes in global financial markets. With an expanding array of applications ranging from automotive electronics to mobile devices, data centres, and now AI-driven innovations, the semiconductor sector is widely regarded as a sunrise industry. India, aiming to bolster its foothold in this critical space, is actively promoting the development of a domestic semiconductor ecosystem, especially in response to the vulnerabilities it faced during prior global supply chain disruptions.

Despite the burgeoning interest, experts caution that the Indian stock market currently offers limited direct investment avenues for retail investors wishing to capitalise on the semiconductor and AI thematic. Ashu Madan, Managing Director at JM Financial, articulated this constraint clearly, noting that while the enthusiasm is palpable, the available semiconductor and AI-linked stocks on Dalal Street remain sparse. This scarcity creates significant challenges for investors seeking direct exposure to these fast-evolving sectors.

Madan suggests that investors might find better participation through thematic proxies such as defence stocks, which are poised for substantial growth given India’s drive towards self-reliance and indigenous manufacturing. Defence companies are increasingly focusing on exports and developing domestic capabilities, making them an attractive alternative thematic investment. He further advises investors to adopt a broader market or index-based approach when direct sectoral options are limited or difficult to navigate. “If you are not able to participate really in a particular sector, just go for the index,” he said, emphasising the benefits of diversification over concentrated bets in uncertain areas.

In the context of technology stocks more broadly, even well-represented sectors like IT pose selection challenges. Companies like TCS and Infosys, despite corrections in their stock prices, might appear safer bets, but identifying winners within the sector remains complex. Madan highlights that many investors missed out on recent market rallies because of their underweight positions in sectors such as PSU banks and autos, which outperformed expectations. This dynamic underscores the utility of exchange-traded funds (ETFs) as stable, diversified vehicles for participation. “ETFs are the best proxy to play and participate in this market. Once you are convinced about the story, the India story or the sectoral story or probably the market, I think one should, must have a portfolio of ETFs,” Madan recommended.

Regarding ETFs in defence and IT sectors, Madan affirms their merit, especially for short-term trading ahead of important financial results. He also foresees the Nifty index potentially reaching 27,000 points before the upcoming Union Budget, contingent on continued market momentum. However, his overarching advice remains disciplined, systematic investment in broad indices through ETFs rather than attempting to pick individual stocks.

Supporting this broader viewpoint, multiple industry analyses spotlight a handful of Indian companies actively contributing to the semiconductor ecosystem, albeit the list is not extensive. Leading names include Bharat Electronics Limited (BEL), Tata Elxsi, Dixon Technologies, and several others like CG Power and Industrial Solutions, V-Guard Industries, and Havells India , firms that span defence electronics, consumer electronics, power systems, and semiconductors. Some smaller yet growth-potential companies such as MosChip Technologies and Kaynes Technology India also feature prominently in sector assessments, highlighting their roles within the semiconductor value chain.

Bharat Electronics Limited notably appears at the intersection of both semiconductor and defence industries, underscoring the interconnectedness of themes identified by experts. The defence sector, highlighted by companies such as Hindustan Aeronautics Limited and Bharat Dynamics Limited, is gaining sustained investor interest as India increases its indigenous manufacturing capabilities and export ambitions.

For investors looking to broaden exposure beyond Indian markets, platforms like INDmoney facilitate investments in prominent US semiconductor giants such as Nvidia, TSMC, AMD, and Intel. These companies represent global leaders in the semiconductor space, offering an alternative way to access the sector’s growth story albeit with the cyclical risk inherent to the industry.

Mutual funds focused on semiconductor investments also present a measured route for participation. Funds like Motilal Oswal Flexi Cap Fund and Canara Robeco Infrastructure Fund include semiconductor holdings within diversified portfolios, catering to investors seeking professional management and risk spread.

In sum, while the promise of semiconductor and AI-linked industries is undeniable and the Indian government’s initiatives reflect a strategic priority, current market realities necessitate caution and pragmatism for investors. The limited availability of direct semiconductor stocks on Dalal Street means that proxy sectors such as defence, broad-market ETFs, or IT might provide safer and more practical investment channels. As the domestic chip ecosystem matures and more companies list on Indian exchanges, direct investment opportunities should expand, enabling investors to tap into this high-growth sector more comprehensively. Until then, a diversified approach via indices, ETFs, and mutual funds, complemented by strategic exposure to global semiconductor leaders, appears the most prudent path.