While the prevailing narrative suggests Indian equity markets have largely missed the global artificial intelligence boom, a closer examination of the underlying market reveals a different story. A wave of smaller, often overlooked companies are quietly capitalizing on the trillions of dollars being invested in artificial intelligence capacity, particularly in the data center ecosystem.
The ‘AI Capex Trade’ Emerges
The standout performer in this emerging trend is Sterlite Technologies Ltd., an optical-fiber maker that has seen its stock price skyrocket by over 530% this year. This remarkable rally was significantly boosted by a substantial $1.1 billion multi-year contract secured last month from a US-based hyperscaler. Its competitor, HFCL Ltd., has also experienced considerable gains, jumping 191%, while MTAR Technologies Ltd., a manufacturer of precision cooling and power components essential for data centers, has more than tripled in value.
These impressive gains are not isolated incidents. An equal-weighted Bloomberg index tracking 28 Indian companies that supply the data center ecosystem—ranging from manufacturers of transformers, switchgear, wires, cables, to cooling systems—has added approximately $47 billion in combined market value this year, representing a nearly 50% increase. This performance stands in stark contrast to the broader market, with the benchmark NSE Nifty 500 index losing over $300 billion in the same period.
Old Economy Firms Powering New Tech
The fundamental driver behind this phenomenon is the immense power and cooling requirements of data centers, which are critical for every AI query. This has transformed traditional, ‘old-economy’ industrial firms into India’s most sought-after market plays. In Mumbai’s financial districts, this strategic investment focus has been dubbed the ‘AI capex trade.’
R. Sivakumar, chief investment officer at Axis Mutual Fund, articulated this sentiment, stating, “We may be on the wrong end of the AI trade, but we could be on the right side of the AI capex trade. One could consider companies benefiting from data centers and the entire value chain associated with this capex.”
Global Giants Invest Heavily in India’s Infrastructure
The demand for data center infrastructure in India is being fueled by significant investments from global technology giants. Amazon.com Inc. has committed to investing $12.7 billion in cloud infrastructure in India through 2030. Similarly, Alphabet Inc. is allocating approximately $15 billion to establish an AI infrastructure hub in Visakhapatnam.
Domestic players are also actively participating in this expansion. A joint venture involving Reliance Industries Ltd. signed an $11 billion pact last year to build local data centers. Furthermore, AdaniConnex Pvt. has formed strategic partnerships with tech heavyweights like Google and Uber Technologies Inc. to develop their data center facilities within India.
‘Picks and Shovels’ in the AI Gold Rush
Analysts at Nomura Holdings Inc., led by Akash Gupta, highlighted the strategic advantage of investing in the industrial supply chain, referring to these companies as the ‘picks and shovels’ that are essential for building, powering, and cooling AI infrastructure. In a June 2 report, they noted that a two-to-four-year lead time for supplying certain components has created a favorable seller’s market with multi-year backlogs. Orders secured now are projected to translate into revenue between 2027 and 2029.
This attractive investment proposition is drawing the attention of foreign investors. Data from Elara Capital (India) Pvt. indicates that foreign fund shareholding in Indian industrials rose to 14% by the end of March, reaching its highest level in two years. This inflow is occurring even as global funds continue to be net sellers of Indian equities overall.
Invisible Winners in Broader Market Metrics
From a top-down perspective, India has been among the weaker global market performers, largely due to its lack of pure-play AI companies and semiconductor manufacturers that have propelled the growth of Taiwanese and South Korean equities. However, the global focus on generative AI is inadvertently benefiting companies that provide the essential infrastructure to support these hyperscalers. This includes firms like Hitachi Energy India Ltd., ABB India Ltd., and Cummins India Ltd.
The substantial rallies experienced by these less prominent beneficiaries often go unnoticed in headline market indices. Many of these companies, such as Sterlite Technologies and MTAR Technologies, are not included in the broadest domestic stock market indexes, making their individual success stories less visible to the wider investment community.
The current market dynamics demonstrate that while India may not be at the forefront of AI development itself, it is strategically positioned to be a critical enabler of the global AI revolution through its robust industrial sector and growing data center capacity. The ‘AI capex trade’ is proving to be a potent force, rewarding investors who look beyond the obvious AI players and focus on the foundational infrastructure that powers this transformative technology.
