India is projected to experience an incremental cumulative capex of $800 billion over the next five years in defense, data centers, and energy transition. This surge is attributed to the Middle East conflict, with investment rates expected to reach 37.5% of GDP by FY2030, according to a report by Morgan Stanley. The report highlights that around 60% of this incremental capex is likely to be directed towards energy transition, data centers, and defense sectors.
The report maintains a positive outlook on India’s medium-term capex-driven growth trajectory, emphasizing that real GDP growth is anticipated to remain steady at 6.5-7%. It suggests that a higher peak investment rate could elevate the profit share in GDP above previous levels, potentially reaching 8%, leading to corporate earnings compounding at over 15% in the next five years. This growth trajectory could position the equity market at approximately 10 times the fiscal year 2031 earnings.
Amid the Middle East conflict, the report anticipates a robust policy response and increased capex activity to tackle India’s supply-side challenges in energy, fertilizers, and defense. It also envisions India becoming a more attractive global destination for data centers. The central policy challenge outlined in the report is to mitigate concentration risk, fortify domestic buffers, and enhance resilience to recurrent shocks.
Regarding energy, the report predicts that the government will enhance the Strategic Petroleum Reserve, expedite coal gasification and mining, and promote electrification. In the fertilizer sector, a three-part strategy is proposed, involving diversification of supply sources, expansion of domestic capacity, and reduction of nutrient intensity through improved agronomy and input efficiency. Geopolitical de-risking, coupled with India’s domestic policy drive, is reinforcing a multi-year investment cycle in data centers, with significant spillover effects across construction, electrical equipment, cooling systems, and grid capex, supporting India’s broader goal of digital sovereignty.
