PE investments in data centres grow fivefold YoY, reach $2.2 bn

An increase in digitization of businesses coupled with rising demand for localization of data has catapulted the quantum of private equity investments in Indian data centres by more than 5 times.  

As of January 2022, the country has witnessed a 5.5 times year-on-year growth in PE investments in data centres, to $2.2 billion from $396 million (in 2020), according to an annual survey by real estate consultancy firm, Knight Frank India. 
Data centres in the country are steadily growing. According to data centre marketplace Cloudscene, India accounted for 1.5% of the world’s data centres as of January this year, but is a growing market base thanks to rapid digitization and a government-led mandate to localize all data that is generated and processed in the country. 

In December 2021, companies such as NTT Limited and Yotta Infrastructure told Mint that they are ramping up data centre capacities in the country. While NTT plans to invest $2 billion for building its data centre capacities in India, Yotta said that it has already announced a $1.1 billion investment to set-up a hyperscale data centre park in West Bengal, in the coming months. 

The latest Knight Frank India report states that in 2021, data centres accounted for 26% of all PE investments in real estate in India.  

Shishir Baijal, chairman and managing director of Knight Frank India, said that India’s data centre capacity is low compared to the volume that the local market demands, thus offering good scope for them to grow in the country. 

“India's growing reliance on digital payments, ever-increasing data consumption and a surge in e-commerce usage would need enhanced digital infrastructure – making data centres a sunrise sector with high investor interest,” Baijal added. 

Sanchit Vir Gogia, chief executive of market analysis firm Greyhound Research, explained that data centre colocation in India, along with a balanced geopolitical standpoint, are further helping attract data centre investments in the country.  

“Colocation data centre providers are co-existing with hyperscalers such as Microsoft and Amazon to offer data centre infrastructure for companies. Data centres in countries such as Japan and Singapore are also expensive; India makes for a reliable destination to host workloads for tasks such as testing and development,” he said. 

According to a report in February this year by US-based market research firm Arizton, the Indian data centre market will be worth over $10 billion by 2027, and is set to grow at a compound annual growth rate (CAGR) of 15.7%. Factors such as cloud adoption, data localization and the deployment of Internet of Things (IoT) sensors across industries are expected to contribute to this growth. 

India’s upcoming data protection bill is expected to impose a law that mandates localization of data in the country. First introduced to Parliament in 2019, the then-preliminary draft had suggested establishing a data localization framework in the country. Going forward, this framework is expected to boost investments and the overall capacity of data centres in the country.