The ‘China plus one’ megatrend is evolving. Indian small caps could benefit.

livemint.com:

China plus one: Will the dragon now make way for the elephant? As such, many small chemical producers shut down. For bigger companies, costs shot up and approvals took much longer. Many of these companies were catering to global demand, but the government’s tough measures caused the supply of several critical chemicals to dry up.

This led to a spike in prices and supply interruptions for the industries that depended on these chemicals, causing them to look elsewhere. Beneficiaries included Indian chemical companies, which rushed to fill the supply gap. But that good run did not last long.

Indian chemical companies have struggled of late to put up capacity with China offering products at throwaway prices. China’s internal issues were the initial trigger for widespread ‘China plus one’ de-risking strategies, but the version that has been emerging post-covid is different. Since the pandemic, governments – and not just companies – have been looking to rewire supply chains.

This is not driven by cost or availability issues in China. It's a proactive step to avoid over-reliance on a single economy. India, along with emerging and Southeast Asian economies, have benefited.

What could turbo-charge this shift is policy measures – a focus on indigenisation, and production-linked incentive (PLI) schemes. Companies in the electronics manufacturing supply chain have been big beneficiaries, with Dixon Technologies much-celebrated star of this story. Many more companies could benefit.

For instance, according to TCPL Packaging’s management, the iPhone presents a huge opportunity as Apple appears serious about expanding its presence in India. Also read: Dixon is becoming India’s Foxconn Another potential beneficiary is Faze Three. The