AI investment boom in India: Which sectors beyond IT could benefit from data centres, power and electronics growth?
India’s artificial intelligence (AI) investment boom could create opportunities beyond traditional information technology (IT) services, with power equipment, specialised manufacturing and businesses supporting AI infrastructure emerging as potential beneficiaries. However, the investment opportunity is becoming more selective as higher capital costs and demanding valuations raise the bar for companies seeking to attract investor money.
According to Axis Mutual Fund’s report, Trends Shaping Equities: Growth, Opportunities and Valuations, AI adoption is increasing demand for computing capacity, electricity and data infrastructure. At the same time, global supply-chain realignment is creating opportunities for Indian manufacturers, while higher borrowing costs are making sustainable earnings growth more important for equity investors.
The expansion of AI is increasing demand for computing infrastructure, power and data centres. Axis Mutual Fund identifies power, data centres, platforms and specialised manufacturing as potential beneficiaries of AI adoption.
For investors, the opportunity extends beyond software companies to businesses that provide the physical infrastructure required to support AI. However, the report does not identify individual listed companies as guaranteed beneficiaries. The scale of the opportunity will depend on investment spending, the ability of businesses to execute projects and their capacity to generate sustainable earnings.
The report also identifies power equipment as an area that could benefit from higher capital expenditure in industrial and infrastructure businesses. Its broader argument is that companies with durable competitive advantages and the ability to convert growth into cash flows may be better positioned in the current market environment.
Electronics manufacturing services (EMS), auto components, contract development and manufacturing organisations (CDMOs), chemicals and defence are among the manufacturing segments highlighted in the report.
Axis Mutual Fund attributes the opportunity to changing global supply chains, China-plus-one strategies, localisation and the push for greater self-reliance in key sectors. These shifts could encourage companies to diversify production and increase investment in Indian manufacturing.
The report argues that the opportunity is not simply about adding manufacturing capacity. Companies with specialised capabilities, strong customer relationships and the ability to move into higher-value products may be better placed to benefit.
Auto-component manufacturers, for instance, could use their engineering and production capabilities to expand into electric vehicles, aerospace, defence, embodied AI, humanoid robotics and specialised industrial applications. Electronics manufacturers could benefit from import substitution and localisation, supported by production-linked incentives, as they work towards greater scale.
These opportunities nevertheless depend on execution and the ability to generate adequate returns on the capital invested.
The report cautions that investors should not assume every business associated with a growing sector deserves a premium valuation. Higher global bond yields and the increased cost of capital mean equities must compete more strongly for investment.
Axis Mutual Fund estimates that the earnings-growth hurdle for equities is broadly around 13-15% or higher. Companies capable of sustaining growth above this range may continue to attract capital, while businesses growing below 10-12% could struggle to compete with alternative investments, even after their valuations decline.
This distinction is particularly relevant to AI-related businesses. Demand for infrastructure may expand, but investors still need to assess whether companies can deliver earnings growth that justifies their stock prices.
The report also stresses that revenue growth alone is insufficient if a business continues to require substantial capital without generating healthy cash flows and returns on capital.
Axis Mutual Fund's central argument is that the next phase of the equity market will reward sustainable earnings growth rather than companies benefiting solely from favourable market sentiment.
For AI-related opportunities, this means assessing whether businesses have a credible growth runway, the capital required to pursue it, their competitive advantages and how much of the anticipated opportunity is already reflected in valuations.
The report also cautions against relying on a single market theme. A diversified portfolio can balance businesses offering stronger growth but higher valuations with reasonably valued companies where an earnings recovery could create opportunities.
India's AI investment cycle could therefore expand opportunities beyond IT services, particularly in power, data infrastructure and specialised manufacturing. But the report's investment framework remains clear: sustainable earnings, cash generation and disciplined valuations matter more than exposure to a popular theme alone.
Kirti jha
Kirti Jha is a Senior Content Producer at Mint, where she writes on mutual funds, taxation, personal finance and macroeconomic developments. Her reporting focuses on helping readers understand complex financial developments through data-driven, research-backed stories that explain how policy changes, market trends and regulatory decisions affect investors and households. <br><br> Before joining Mint, Kirti worked at ET Money, where she specialised in mutual fund research and investment analysis. She tracked portfolio disclosures, fund manager strategies, sectoral allocation shifts and investment trends, distilling large datasets into investor-focused insights. Her work combined quantitative analysis with consumer-centric storytelling, enabling readers to better understand fund positioning, portfolio changes and long-term investment opportunities.<br><br> Kirti holds a Bachelor's degree in Economics from Indraprastha College for Women, University of Delhi, and a Master's in Finance from the Jindal School of Banking & Finance at O.P. Jindal Global University. Her academic training emphasised analytical thinking, quantitative research and financial decision-making, providing a strong foundation in understanding capital markets, financial systems and economic policy. With a combined experience in investment research and financial journalism, she is committed to producing accurate, accessible and insightful journalism that empowers readers to make well-informed financial decisions.
Get Latest real-time updates
Catch all the Business News , Corporate news , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
✕
Wait for it…
Oops! Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.