The so-what: value is migrating from screwdrivers to substrates

India has proven it can assemble at scale. The harder, more profitable question for the next three years is whether it can localize the components inside the box. FY26 marked the final year of the production-linked incentive (PLI) scheme for large-scale electronics, and it ended on a high: iPhone exports hit a record Rs 2 lakh crore, making Apple's handset India's single largest branded export ahead of diamonds, fuel and pharmaceuticals 1. But assembly is a thin-margin game. The real investment thesis for 2026 onward is the government's deliberate push down the value chain into printed circuit boards, camera modules, connectors and lithium cells, backed by a far larger, export-linked incentive architecture. Investors positioned only in assemblers are exposed to margin compression as PLI benefits roll off; the durable alpha is in the emerging component ecosystem.

Assembly hit escape velocity, but the incentive tap is closing

The scale India built under PLI is striking. iPhone shipments grew from roughly Rs 9,352 crore in FY22 to Rs 44,270 crore in FY23, Rs 85,014 crore in FY24, about Rs 1.5 lakh crore in FY25 and then a record Rs 2 lakh crore in FY26 1. Total smartphone exports reached roughly Rs 2.6 trillion (about USD 29.4 billion), with iPhones over 75 percent of that 1. Counterpoint and other trackers put made-in-India iPhones at around a quarter of global output, up from roughly 18 percent in 2024, with Apple aiming to source most US-bound iPhones from India by end-2026 2.

The competitive map among assemblers has also reshuffled. Tata Electronics, a late entrant that absorbed Wistron's India unit and a majority of Pegatron's local operations, exported iPhones worth about USD 26.3 billion across FY22-FY26, edging past Foxconn's roughly USD 25.6 billion, even though Foxconn still leads on total production value at about USD 38 billion versus Tata's USD 35.5 billion 3. Foxconn's new Devanahalli plant near Bengaluru, a roughly Rs 20,000 crore investment, targets close to 20 million units a year and up to 50,000 jobs 3. The catch: the original PLI window has now lapsed, and assemblers face a margin air-pocket as those incentives phase out, a pressure already flagged in company outlooks 4.

The pivot: deep localization under a bigger, export-linked scheme

The policy response is the Electronics Components Manufacturing Scheme (ECMS), and its scale signals intent. The Union Budget for 2026-27 lifted the ECMS outlay toward the Rs 40,000 crore range, and the third tranche alone cleared 22 proposals carrying projected investment of Rs 41,863 crore, expected production output of Rs 2,58,152 crore and roughly 33,791 direct jobs across eight states 5. Crucially, the approved names span the value chain, not just assembly: Foxconn's Yuzhan Technology and Tata Electronics in enclosures, Samsung Display, and a spread of PCB players including AT&S India and others in high-density interconnect boards 5. Dixon has also stepped into components, including through approvals in sub-assembly and optical transceiver work 5.

This matters because components are where India remains import-dependent, and where the China-plus-one substitution opportunity is largest. India's domestic bare PCB market is projected to grow at roughly a 45 percent compound annual rate to about USD 4 billion by FY29, with local penetration rising from around 13 percent toward 31 percent as import substitution accelerates 6. Unlike the old PLI, future incentives are being designed to lean harder on export performance and genuine value addition, an attempt to avoid subsidizing low-value screwdriver assembly and to reward firms that build defensible component capability 1 7.

Reading the equities: watch the margin mix, not the headline revenue

For investors the key is separating revenue optics from margin reality. Dixon Technologies is the cleanest listed proxy for the transition. It reported FY26 consolidated revenue of about Rs 49,586 crore, up 28 percent, with EBITDA up 69 percent to roughly Rs 2,580 crore and profit after tax up 33 percent to about Rs 1,644 crore 4. Yet Q4 told a more cautionary story, with profit falling year-on-year, and management flagged margin pressure from PLI phase-out and the lag before component investments become accretive 4. The company is guiding for large step-ups in telecom and networking (toward Rs 7,500-8,000 crore) and IT hardware (Rs 3,500-4,000 crore) even as it navigates that transition 4.

Three implications for portfolios. First, the near-term earnings of pure assemblers are exposed to the incentive cliff, so multiples paying up for PLI-era growth carry re-rating risk. Second, the durable winners are firms credibly moving into PCBs, enclosures, display and cell manufacturing, where ECMS underwrites capex and where import substitution offers a structural tailwind 5 6. Third, the macro prize is real: iPhone assembly alone anchors a supplier base of more than 40 component vendors and roughly 250,000 jobs, and success in ECMS could compound that into a genuine domestic supply chain rather than a bonded export enclave 2. The signposts to track over the next few quarters are the design details of the refreshed export-linked incentive, ECMS project execution timelines, and whether component gross margins actually expand as localization deepens 1 6. India has won the assembly argument; the 2026 investment case rests on whether it can now win the component one.