TLDR: India’s data center industry is experiencing a significant boom, projected to reach ₹240-280 billion by FY27, driven by the rapid expansion of cloud services and artificial intelligence. While three emerging niche stocks are set to benefit from this growth, investors are advised to exercise caution due to potentially stretched valuations. The sector’s capacity is expected to quintuple to 8 GW over the next five years, fueled by various governmental and digital consumption factors.
India’s data center market is undergoing a transformative period, with projections indicating a substantial increase to ₹240-280 billion by fiscal year 2027, up from ₹84.5 billion in FY23. This remarkable growth positions India as the second fastest-growing data center market in the Asia-Pacific region. The primary catalysts for this expansion are the escalating demand for cloud computing and the burgeoning artificial intelligence (AI) sector. Jefferies, a global investment bank, estimates that India’s data center capacity will quintuple to 8 GW over the next five years, a testament to the surging internet traffic and digital adoption across the nation.
Several key factors are propelling this data center boom. Regulatory mandates, including data localization requirements, are compelling businesses to store data within India. Concurrently, a significant rise in digital consumption and widespread cloud adoption are creating an insatiable demand for robust data infrastructure. Government initiatives, such as the Data Center Incentive Scheme and the proposed Data Center Economic Zones, are further accelerating this expansion by providing a supportive policy environment.
Amidst this growth, three niche stocks are identified as emerging players poised to capitalize on the sector’s upward trajectory. However, analysts caution investors about potentially ‘stretched valuations’ for these companies, suggesting a prudent approach is warranted.
One such player, Orient Technologies, has strategically reorganized its business into two core lines from FY26 to balance contributions: IT infrastructure solutions (including data center and cybersecurity) and applications and IT infrastructure services. Currently, IT infrastructure solutions account for 65% of its revenue, with a long-term goal of achieving a 50:50 split between the two segments. In the first quarter of FY26, Orient Technologies reported a 42.8% year-on-year revenue increase to ₹2.1 billion. Its EBITDA (earnings before interest, tax, depreciation, and amortization) also saw a 26.9% surge to ₹173 million, though with a slightly lower margin of 8.1%.
Also Read:
- India’s Digital Public Infrastructure: A Catalyst for Growth and Global Tech Opportunities
- SUMCO Benefits from Surging Demand in AI and Data Center Semiconductor Markets
Conversely, another unnamed company in the sector faced short-term financial pressures due to capacity build-out, particularly in Chennai. This resulted in a 12.6% decline in revenue to ₹361.1 million in Q1 FY26, a significant 61.5% decrease in EBITDA to ₹105 million, and a sharp drop in margins by 3689 basis points to 29.1%. The company also swung from a profit of ₹101.4 million to a net loss of ₹284 million, highlighting the substantial fixed operating costs associated with infrastructure development.
