Synopsis: While EMS stocks performed exceptionally well and delivered great returns, ICICI Prudential AMC is not following the herd. In fact, the fund house is still finding reasons to be cautious, even with the strong growth and support from the policy.
Electronics Manufacturing Services (EMS) companies like Dixon Technologies and Kaynes Technology have created substantial wealth in recent years. This growth is due to strong demand, global supply-chain diversification, and support from the government’s Production Linked Incentive (PLI) scheme. Despite their strong stock performance, Anish Tawakley, Co-CIO (Equity) of ICICI Prudential AMC, believes the market is overvaluing these companies in the long run.
About his take on EMS Companies
In an interview, Tawakley expressed concern about how investors are valuing EMS stocks. He noted that much of their recent profits come from PLI incentives, which are temporary and not recurring. He thinks that the market is giving high valuation multiples to earnings that may not hold up once these incentives decrease.
Tawakley questioned whether EMS companies have established solid and lasting competitive edges that would justify their current valuations. He suggested that if these businesses really had strong advantages, they would have attracted significant private investment sooner. Instead, investor interest surged only after the government intervened with financial incentives, which he believes skews true value assessment.
To illustrate his point, he mentioned that some companies receiving PLI benefits of about Rs 1,000 crore have seen their market capitalisation increase by Rs 10,000 to Rs 15,000 crore. He argued that this shows small government support has led to unusually large valuation gains, which raises concerns about sustainability.
Although he acknowledged that EMS stocks have provided strong long-term returns, Tawakley pointed out that recent declines of 35 to 50 percent from peak levels reflect growing caution among investors. He believes these drops indicate that the market is re-evaluating growth expectations and valuation comfort.
In contrast, Dixon Technologies, which is one of the most notable figures in the EMS segment, saw its P/E multiple drop from a staggering 212x in October 2024 to just 63x in December 2025. On the other hand, Kaynes Technology India, another EMS player, saw its P/E multiple drop from a staggering 203x in January 2025 to just 70x in December 2025. (Screener)
In conclusion, the conservative stance of ICICI Prudential AMC on EMS stocks is mainly a matter of valuation discipline rather than a worry of business execution. According to Anish Tawakley, the significant reliance on non-recurring PLI incentives, the doubt about sustainable competitive advantages, and the steep valuation re-rating ahead of the release of the fundamentals make the present EMS stock prices quite risky. The recent drop in these stocks is in line with his view that the market is re-evaluating the growth assumptions for the long-term and its level of risk.
Written by Satyajeet Mukherjee
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