India's electronics manufacturing service (EMS) companies may see significant growth in the coming years amid supportive government policies and increasing costs in China, Jefferies said in a Thursday research note.

Jefferies expects a compound annual growth rate above 30% for the EMS industry between fiscal years 2024 and 2026.

The Indian government's indigenization focus, with electronics being a key import, should continue in 2025, Jefferies said.

Meanwhile, cheaper labor costs compared to China amid the "China Plus One" strategy create further opportunities for India's EMS players, Jefferies said.

The equity research firm is more bullish on backward integration and component segments, including printed circuit board assemblies (PCBA) and outsourced semiconductor assembly and test (OSAT).

The segment offers greater value addition compared to original equipment manufacturing (OEM) services, Jefferies said.

To support the expected medium-term growth, EMS companies have raised their capital expenditure, with healthy investments in the semiconductor ecosystem.

Companies like Amber Enterprises India (NSE:AMBER, BOM:540902), Kaynes Technology India (NSE:KAYNES, BOM:543664), and Dixon Technologies (India) (NSE:DIXON, BOM:540699) have outperformed the broader market with their returns doubling in 2024, the research firm said.