India's data centre sector poised for strong growth, but land, power access remain key hurdles: JM Financial
New Delhi, July 23
India's data centre sector is set for significant expansion as rising artificial intelligence adoption, cloud computing and enterprise digitalisation fuel demand, though challenges related to land acquisition, power availability and execution complexity are likely to shape the pace of growth, according to a report by JM Financial.
The report said the domestic data centre industry remains at a nascent stage despite robust long-term growth prospects, with access to land and power emerging as the biggest differentiator for developers.
According to the report, companies that have already executed large data centre projects or possess land banks with grid connectivity are expected to enjoy a competitive advantage as they can accelerate project deployment.
Highlighting one of the biggest constraints facing the industry, the report said, "Access to land and power remains the key differentiator," adding that companies with established relationships and ready access to these resources are likely to benefit by materially shortening deployment timelines.
The report also pointed to an evolving debate over business models, with operators weighing traditional colocation services against integrated full-stack infrastructure offerings.
It noted that while colocation remains a stable and predictable business driven by long-term contracts, full-stack offerings can generate higher revenue per megawatt and improve customer retention. However, these also bring greater technology risk, higher capital intensity and execution complexity, making business model selection another key challenge for the sector.
The report further said service providers are evaluating capex and opex strategies. While leasing data centre capacity under an opex model offers greater flexibility and lower execution risk, owning infrastructure through a capex model provides stronger strategic control but requires significantly higher investments.
Another hurdle identified by the report is sustainability. As AI workloads increase power consumption, enterprises are placing greater emphasis on both energy efficiency and renewable power sourcing.
"Maintaining a low PUE remains important; however, enterprises are also prioritising access to renewable energy," the report said, adding that securing renewable power through procurement arrangements is likely to become increasingly important.
The report also highlighted contrasting strategies adopted by major IT companies. TCS is focusing on building AI-ready infrastructure through its HyperVault initiative and leasing capacity to enterprises, while HCLTech is pursuing a full-stack AI strategy by combining data centres, compute infrastructure and AI models to serve enterprise clients.
Overall, the report noted that sector's long-term outlook remains favourable, but the availability of land, power, renewable energy and efficient execution will determine which players emerge as leaders in India's rapidly expanding data centre market.
— ANI
Reader Comments
Interesting how TCS and HCL are taking different approaches. TCS playing it safe with leasing, while HCL going all-in with full-stack. The capex vs opex debate is real - nobody wants to be stuck with stranded assets if AI demand shifts. Smart move by JM to highlight the execution complexity. 💡
Renewable energy sourcing is critical. Our data centers in Chennai are already under pressure from Tamil Nadu's power fluctuations. If we can't guarantee uptime with green power, enterprises will look elsewhere. The report rightly says PUE alone isn't enough anymore.
The capex vs opex trade-off is a major headache for startups like ours. We want the control of owning our infrastructure, but the capital requirements are insane. Leasing gives flexibility but you're tied to the provider's terms. Honestly, I wish the government would incentivize shared infrastructure models.
As an expat working in Mumbai's tech scene, I've seen this firsthand. The land acquisition delays here are unlike anything in the US. India has the talent and demand, but infrastructure bottlenecks could slow the AI boom. The report's focus on execution complexity is spot on.
Nobody is talking about the water consumption! Data centers use massive amounts for cooling, and we're already water-stressed in places like Pune and Bengaluru. JM Financial should have addressed sustainability beyond just power. Renewable energy is great, but we need water recycling mandates too.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.