Tax holiday for data centres: A multi-decade investment play for power and real estate stocks?

The Union Budget 2026 has likely laid the foundation for what market participants see as a multi-decade structural opportunity in India's data centre ecosystem. By extending the tax holiday on data centres up to 2047 for foreign companies using India-based facilities to serve global customers, the government has signalled long-term policy intent rather than a short-term incentive.

At the heart of the proposal is a clear push to position India as a global data processing hub, not merely a consumption market for cloud and digital services. Under the Budget proposals, foreign companies that use Indian data centres to serve customers outside India will enjoy tax exemptions, while revenue earned from Indian customers under a reseller model will remain taxable domestically.

A safe harbour margin of 15% on cost has also been proposed for Indian captive data centre service providers, improving predictability for cross-border operations. While detailed clarifications on eligibility are still awaited, the broad direction of policy is a big push for the AI proxy ecosystem.

According to Jefferies, India's data centre capacity is expected to rise from just over 1.3 GW in 2024 to more than 5 GW by 2030. This expansion could require close to $30 billion, or about Rs 2.5 lakh crore, in facility-related capital expenditure, while annual leasing revenues could touch $8 billion by the end of the decade.

Kotak data similarly points to India's IT data centre capacity growing 24% since 2019, with total capacity expected to reach 3-3.5 GW by 2030. Importantly, AI-linked workloads are expected to drive the next phase of growth, with hyperscalers such as Microsoft, Amazon and Google accounting for nearly 80% of incremental demand between 2024 and 2027.

What the Budget proposal could mean for Indian data centre proxy plays

Analysts believe the Budget's tax holiday materially improves India's competitiveness as a destination for global cloud and AI workloads.

Sourav Choudhary, Managing Director at Raghunath Capital, says the policy provides long-term certainty that hyperscalers typically look for before committing large capital. He notes that while the headline benefit accrues to foreign technology companies, the indirect impact on Indian listed players could be more meaningful.

"As global cloud firms expand their footprint in India, demand for domestic data centre capacity, longer lease tenures and higher utilisation levels is likely to rise, creating annuity-like revenue streams for Indian developers," Choudhary added.

This is where the concept of "proxy plays" becomes relevant for equity investors. Many global players prefer not to lock capital into land, buildings and power infrastructure, especially in emerging markets. That creates an opportunity for Indian real estate companies, infrastructure providers and digital platform operators to develop, own and operate data centre parks, leasing them out to global clients.

Choudhary argues that this aligns well with a multi-decade investment horizon, as data centres are capital-intensive assets with long payback periods, and policy visibility until 2047 reduces regulatory risk substantially.

Abhishek Jain, Chief Strategist Officer at Arihant Capital Markets, echoes this view, describing the tax holiday as a strong structural push rather than a cyclical stimulus.

"Improved project viability is likely to attract large institutional capital into data infrastructure, benefiting companies with direct exposure to data centre development such as Anant Raj and Techno Electric," he said.

Jain also points out that proxy players supplying power equipment, engines and backup solutions, including Cummins India, could see sustained demand as new capacity comes on stream. However, he cautions that after the sharp rally seen in some data centre-linked stocks post-Budget, investors may need to be selective and patient.

Opportunity beyond infra and real estate

The opportunity is not limited to real estate and infrastructure alone. Reliable power supply, fibre connectivity, cooling systems and renewable energy sourcing are all critical components of large data centre campuses. Telecom players with strong fibre networks and data centre subsidiaries, such as Bharti Airtel through Nxtra, stand to benefit from increased colocation and interconnection demand.

Conglomerates like Adani Enterprises, which have ambitions across energy, logistics and digital infrastructure, are also positioning themselves as end-to-end providers for hyperscale data centre clients.

Nitant Darekar, Research Analyst at Bonanza Portfolio, believes the policy marks a decisive shift in India's AI and digital infrastructure strategy. He notes that the long tax holiday, combined with a lower safe harbour margin, could accelerate GPU and compute outsourcing to Indian operators such as Yotta, Nxtra, Adani Data Networks and CtrlS, which act as resellers for global technology firms.

From an investor perspective, stock performance over the past year shows a mixed picture, reflecting both optimism and execution-related caution. Anant Raj is down about 11% over the last year, while Techno Electric has gained around 5%. Cummins India, a key equipment supplier, has surged over 50%, reflecting broader industrial demand. Among large players, Bharti Airtel is up around 20%, while Adani Enterprises has seen relatively flat returns.

Analysts say this divergence underscores that the data centre theme is still evolving and benefits will accrue unevenly over time.

Few risks remain

Data centres require heavy upfront capital, access to low-cost power and long gestation periods before returns stabilise. Competitive intensity is rising as both domestic and global players scale up. Execution delays, funding costs and rapid technological shifts are factors investors will need to track closely. Moreover, detailed tax and eligibility clarifications from the government will be crucial in determining how quickly projects move from announcement to execution.

Despite these challenges, there is broad agreement that the Budget has strengthened the long-term investment case. With digital adoption accelerating, AI workloads exploding and data localisation becoming more common globally, data centres are increasingly viewed as core economic infrastructure.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)