India’s data center sector is expected to witness strong growth over the coming years as artificial intelligence (AI), cloud computing and enterprise digitalisation continue to drive demand for digital infrastructure, according to a JM Financial report. However, it said land acquisition, power availability and execution challenges could influence the pace of expansion.

The report said the industry is still at a relatively early stage despite growing investments and rising capacity additions. It identified access to land and grid-connected power as the biggest competitive advantage, with developers having ready infrastructure expected to execute projects faster than their peers.

Land And Power Become Key Differentiators
According to the report, companies with existing land banks and experience in developing large-scale data centres are likely to strengthen their market position. It said established access to land and electricity infrastructure can significantly reduce deployment timelines as demand for AI-driven facilities continues to rise.

JM Financial noted that developers with strong execution capabilities and infrastructure readiness are expected to benefit as enterprise demand for data storage and computing capacity increases. The report said these factors are likely to become more important as the sector expands.

Operators Reassess Business Models
The report said data centre operators are evaluating different business models to improve returns and meet changing customer requirements. While colocation services continue to provide stable revenue through long-term contracts, integrated infrastructure offerings can generate higher revenue per megawatt and improve customer retention.

However, JM Financial said full-stack infrastructure models also involve higher capital expenditure, greater technology risks and more complex execution. The report added that companies are weighing the benefits of leasing infrastructure under operating expenditure (opex) models against owning assets through capital expenditure (capex).

Renewable Energy Focus Intensifies
The report said sustainability is becoming an important consideration as AI applications increase electricity consumption across data centres. Besides improving energy efficiency, enterprises are placing greater emphasis on securing renewable power to support their digital infrastructure.

JM Financial said maintaining a low Power Usage Effectiveness (PUE) remains important, but access to renewable energy is emerging as an equally significant priority. It added that long-term renewable power procurement is likely to play a bigger role in future expansion plans.

The report also highlighted different strategies adopted by major IT companies. While TCS is expanding AI-ready infrastructure through its HyperVault initiative, HCLTech is building an integrated AI ecosystem by combining data centres, computing infrastructure and AI models for enterprise customers.

Overall, the report said India’s data centre industry has strong long-term growth potential, but access to land, power, renewable energy and efficient project execution will determine which companies emerge as market leaders.