Middle East Conflict to Drive $800B Capex Surge in India Over 5 Years

The report from Morgan Stanley said about 60 per cent of the incremental capex is likely to be allocated to energy transition, data centres and defence.

"In this context, we remain constructive on India's medium-term capex-led growth trajectory, as real GDP growth remains anchored at 6.5-7 per cent," the report said

The report added that a higher peak investment rate could lift profit share in GDP above its previous peak of 7 per cent, potentially to 8 per cent.

This means corporate earnings compound at over 15 per cent over the next five years, putting the equity market at roughly 10 times of fiscal year 2031 earnings.

"Amid the Middle East conflict, we expect a strong policy response and greater capex activity to address India's supply-side challenges in energy, fertilisers and defence. India also could become a more favourable destination globally for data centres," the report said.

The report outlined the central policy challenge is to reduce concentration risk, strengthen domestic buffers and improve resilience to repeated shocks.

On energy, it predicted that the government would expand the Strategic Petroleum Reserve, accelerate coal gasification and mining, and push electrification. On fertilisers, the bank said medium-term response involves a three-part strategy: diversify supply sources, expand domestic capacity, and reduce nutrient intensity via better agronomy and input efficiency.

Geopolitical de-risking, and India's domestic policy push is reinforcing a multi-year investment cycle in data centres, the report noted.

"The expansion has meaningful second-order spillovers across construction, electrical equipment, cooling systems and grid capex, and supports India's broader objective of digital sovereignty," it noted.

- IANS