India's Data Centre Market: A Lucrative Opportunity for Investors

Autonomous cars, artificial intelligence (AI) and chatbots have become the buzzwords of our era. As these technologies continue to make significant strides, they have opened up possibilities once deemed the stuff of science fiction.

From self-driving vehicles to chatbots engaging in human-like conversations, these advancements are reshaping industries. Redefining our daily lives, they are quickly turning into an investing megatrend.

Yet, a crucial aspect often goes unnoticed and underappreciated: the sheer volume of data they generate and rely upon.

Data is the driving force behind every technological innovation, making it indispensable.

Autonomous cars require vast amounts of data to analyze their surroundings, make informed decisions and improve their performance.

Likewise, the complex algorithms powering artificial intelligence and chatbots require a lot of data too, for training and fine-tuning.

So, where does all this necessary data go?

Enter data centres, the backbone of the digital age.

Data centres, also described as the 'data factory of the world', house the technological infrastructure that store, process and manage colossal amounts of data.

These unassuming structures work tirelessly behind the scenes to ensure the seamless functioning of the technologies we heavily rely on. And without them, you wouldn't be able to chat on WhatsApp or initiate a UPI transaction or binge-watch your favourite show on Netflix.

And as technological innovation continues to unravel, the demand for data centres will follow suit.

A report published in June 2023 by Colliers, a commercial real estate company, pegs India's data centre inventory to double to 20 million square feet by 2025 from the current 10.3 million square feet, led by increased adoption of smart devices, e-commerce and cloud services.

The massive growth and investments in the sector will be driven by the expansion of global hyper scalers in India, who are ramping up expansions in the country.

Hyperscalers demand set to boom. Here's why...

Hyperscalers are large companies that operate massive data centres with immense computing power, storage capacity, and network resources. Think global tech giants such as Amazon, Google Microsoft, Oracle, Yotta Infrastructure, Blackstone's Lumina CloudInfra, etc.

So far, 2023 has witnessed landmark investments and pre-commitments from global hyper scalers in India's data centre space.

At the beginning of 2023, tech giant Google signed a 28-year land lease agreement for its new data centre in Navi Mumbai, aimed at expanding its cloud infrastructure in India. Google has two of its 26 global cloud regions in India.

Microsoft Azure has the maximum number of cloud regions in India, among all hyperscalers. It has three of its 65 global cloud regions in India Pune, Chennai and Mumbai.

But the Indian business houses are not far behind. The strong growth prospects have prompted large conglomerates, such as Adani Group and Reliance Industries-Microsoft, to partake in this thriving sector.

The major metros are predestined to hoover up most of the benefits, housing a large part of the data centres.

At present, Mumbai accounts for the largest chunk of the data centres at 49%, benefiting from the presence of a landing station and submarine cable connectivity. Delhi-NCR has about 17%, followed by Bengaluru with 12% of the total data centre capacity.

So, there is an influx of interest from across the globe for investments in India. This comes on the back of anticipation of the surge in demand and shifts from on-premise data centres to co-location.

But this surge in interest has been spurred by conducive government policies and ecosystems as well.

Favourable policies and ecosystems

The government is leaving no stone unturned in welcoming hyper scalers with open arms.

They are offering data localization mandates, streamlined regulatory processes, improved digital infrastructure, incentives for renewable energy adoption, and skill development initiatives.

These policies foster data security, ease of doing business, connectivity, sustainability, and a skilled workforce, driving the expansion of the data centre industry in India.

Apart from these earnest reforms, it is also implementing policies to monitor smooth data flow, via the proposed Digital Personal Data Protection Bill, 2022. This bill establishes severe penalties for violations of any of the legislation's provisions, which will be determined by the Data Protection Board of India.

Thanks to robust government support and burgeoning global interest, the sector is racing towards rapid growth, offering investors a great opportunity to benefit from this trend.

How investors can seize this opportunity

While investing in data centre stocks presents a prime opportunity to participate in the sector's expansion, there are also other companies indirectly serving this burgeoning industry.

Aurionpro Solutions, an advanced technology solutions company, works in the banking, mobility, payments and government sectors.

The company is quickly evolving into a formidable player in the data centre market with deep skills in design consultancy and turnkey build services.

With a strong pipeline, the company expects significant growth in the data centre segment.

Kirloskar Engines, a renowned designer, manufacturer and distributor of engines and power solutions, has also highlighted data centres as its new leg of growth.

The company is expanding its portfolio by creating 1,500KVA+ category nodes to meet the burgeoning demand from data centres.

Railtel Corporation of India, a leading PSU telecommunications infrastructure provider that focuses on offering high-speed broadband and networking services to the railway sector, offers comprehensive data centre solutions.

Their portfolio comprises, transformation and systems management, hosting and co-location services, as well as, the development of a secure and energy-efficient infrastructure environment.

Mukesh Ambani's Reliance Industries is also joining hands with Brookfield Infrastructure Partners Lp and Digital Realty Trust Inc. in a three-way venture for setting up special purpose vehicles aimed at developing data centres in India.

L&T, another prominent conglomerate known for its diverse business portfolio, is also building state-of-art green data centres.

Anant Raj, a Delhi-based real estate developer, has also taken a significant leap towards data centres.

It plans to develop 300-MW data centre buildings with a massive investment of around Rs 100 bn.

The company has already constructed three IT buildings in Manesar, Rai and Panchkula and Anant Raj is currently in the process of transforming these structures into data centres.

The company has a big differentiating factor. A megawatt of data centre capacity costs around Rs 550-600 million, according to reports. And Anant Raj is doing it at Rs 250 crore per MW as it has a long-held land ownership and existing building structures.

In conclusion

Technology's transformative impact is reshaping our lives, work, and interactions from rural communities to bustling urban centres.

Amidst this digital revolution, data centres play a pivotal role by providing critical infrastructure to store, process, and manage vast amounts of data.

As we embrace this data-driven future, data centres will propel us toward a more connected, efficient, and progressive world.

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