Key facts
- An equal-weighted index of 28 Indian companies in the data center ecosystem has added $48 billion in market value this year.
- Sterlite Technologies Ltd. has surged 500% after receiving a $1.1 billion contract from a US hyperscaler.
- Amazon, Alphabet, Reliance Industries, and AdaniConnex are investing billions in India's data center and cloud infrastructure.
- Nomura analysts identified industrial supply chain companies as key beneficiaries of AI infrastructure build-out.
- Foreign fund investment in Indian industrials reached a two-year high of 14% by end-March.
While the broader Indian equity market has underperformed in the global artificial intelligence boom, a select group of industrial companies supplying the data center ecosystem has seen significant gains. An equal-weighted index tracking 28 such firms has added approximately $48 billion in market value this year, a nearly 45% increase, driven by the immense power and cooling requirements of AI infrastructure.
Key beneficiaries include Sterlite Technologies Ltd., an optical-fiber maker that surged 500% after securing a $1.1 billion multi-year contract from a US hyperscaler. Its competitor, HFCL Ltd., jumped 176%, while MTAR Technologies Ltd., which produces precision cooling and power components, more than tripled in value. These companies are transforming into India's hottest market plays, often referred to as the 'AI capex trade.'
Major technology firms are fueling this growth with substantial investments in India. Amazon.com Inc. plans to invest $12.7 billion in cloud infrastructure by 2030, while Alphabet Inc. is establishing an AI infrastructure hub in Visakhapatnam with an $15 billion investment. Additionally, a Reliance Industries Ltd. joint venture has a $11 billion pact for local data centers, and AdaniConnex Pvt. is partnering with Google and Uber on data center construction.
Analysts at Nomura Holdings Inc. described these industrial supply chain companies as the 'picks and shovels' for AI infrastructure, noting that a two-to-four-year lead time for some components has created a seller's market with multi-year backlogs extending to 2027-2029. Foreign investor interest in Indian industrials has also increased, with shareholding reaching a two-year high of 14% by the end of March, even as global funds remain net sellers of Indian equities overall.
Despite India lacking pure-play AI firms and semiconductor manufacturers that have boosted Taiwanese and South Korean markets, companies supporting hyperscalers are thriving. Hitachi Energy India Ltd., ABB India Ltd., and Cummins India Ltd. are among those benefiting. Angel One estimates that global hyperscale data center investments will surpass $1.2 trillion between 2025 and 2027, expanding the customer base for these equipment manufacturers. Finolex Cables Ltd. also saw its stock surge 40% this year.
However, the rapid rallies have led to high valuations, with Sterlite trading at 66 times forward earnings, significantly above the NSE 500's 20 times. Anant Raj Ltd., a pure-play data center firm, has seen more modest gains of about 4%. Analysts caution that high valuations leave little room for execution disappointments. Concerns also exist regarding potential sharp corrections if restrictions on Chinese equipment firms are relaxed, as previously observed.