India’s next big capex wave? Morgan Stanley sees $800 billion investment surge amid West Asia war

Geopolitical instability in the West Asia may be forcing countries to rethink supply chains and energy security, but for India, it could also trigger one of the largest investment cycles in decades. 

A new report by Morgan Stanley argues that rising global uncertainty is likely to accelerate India’s push toward domestic manufacturing, defence indigenisation, energy diversification and digital infrastructure expansion. The brokerage estimates India could attract an additional $800 billion in cumulative investments over the next five years, pushing the country’s investment-to-GDP ratio to 37.5% by FY2030. 

The report positions the ongoing geopolitical churn not merely as a risk, but as a catalyst for a structural transformation of India’s economy. 

Conflict forcing a rethink of India’s vulnerabilities 

Morgan Stanley says India’s biggest exposure to Middle East instability continues to come through energy imports and critical raw materials. India still imports nearly 85% of its crude oil requirements and around 50% of its natural gas demand, making the economy vulnerable to supply disruptions and price spikes. 

But instead of pursuing immediate self-sufficiency, policymakers are now focusing on reducing concentration risks, creating strategic buffers and building domestic capacity in sectors that directly affect economic stability. 

The report says India’s policy framework is evolving from a simple “energy transition” narrative to a broader “energy security plus transition” strategy. 

That means greater investments in coal, renewable energy, nuclear power, strategic petroleum reserves and transmission infrastructure — all at the same time. 

Coal returns as India’s security backbone 

Despite India’s ambitious green energy targets, coal remains central to its energy security strategy. 

Morgan Stanley notes that coal currently contributes around 55% of India’s energy mix and powers more than 75% of electricity generation. Domestic coal production crossed 1 billion tonnes in FY2025, supported by aggressive mining reforms and commercial coal auctions. 

India has also built record coal stockpiles of nearly 210 million tonnes, enough for about 88 days of consumption, giving policymakers a critical buffer during global disruptions. 

The report highlights coal gasification as a major strategic initiative, with the government targeting 100 million tonnes of coal gasification capacity by 2030. The goal is to convert domestic coal into synthetic natural gas, methanol and fertiliser feedstock, reducing dependence on imported hydrocarbons. 

Renewables and nuclear to power the next phase 

At the same time, India is rapidly expanding renewable energy. 

Non-fossil fuel capacity has already crossed 50% of total installed power capacity, touching 262.7 GW by late 2025. India is now the world’s third-largest renewable energy market. 

Morgan Stanley says the next challenge is no longer just adding renewable capacity, but integrating it into the grid through storage systems, smart transmission and digital infrastructure. 

The report also sees nuclear energy emerging as a long-term pillar of India’s energy security strategy. India currently has just 8.2 GW of nuclear capacity, but the government plans to scale this to 22 GW by FY2032 and eventually 100 GW by 2047. 

Small Modular Reactors (SMRs) are expected to become a key focus area, backed by a dedicated Nuclear Energy Mission and proposed regulatory reforms aimed at increasing private participation. 

Fertiliser imports remain a weak spot 

The report warns that fertilisers remain one of India’s biggest structural vulnerabilities. 

India continues to depend heavily on imports for phosphatic and potassic fertilisers. Around 65-70% of DAP demand is met through imports, while potash imports remain almost entirely dependent on foreign suppliers. 

Much of this supply comes from geopolitically sensitive regions, including the Gulf and Russia. 

Morgan Stanley says India’s response is now centred around diversification rather than full self-sufficiency. This includes long-term import agreements with Saudi Arabia and Morocco, expansion of domestic urea plants and investments in alternative products such as Nano DAP and green ammonia. 

The brokerage notes that fertiliser security has direct implications for food inflation, government subsidies and rural economic stability. 

Defence spending becoming structural, not cyclical 

The report makes a strong case that India’s rising defence expenditure is no longer a temporary geopolitical response, but a long-term structural trend. 

India currently spends roughly 2% of GDP on defence, but the government aims to increase this to 2.5% by FY2031. 

The Union Budget for FY2027 has already increased defence capital expenditure by 18%, with 75% of procurement expected to come from domestic manufacturers. 

Morgan Stanley says policies such as “Make in India”, positive indigenisation lists and higher foreign investment limits are helping India rapidly build domestic defence capabilities. 

Defence production has grown at a 13% CAGR over the past decade, while exports have expanded at 28% CAGR. 

The report argues that rising defence investments could create broader economic spillovers through manufacturing, R&D and supply-chain development. 

India emerging as a global data centre hub 

One of the biggest surprises in the report is the scale of optimism around India’s data centre sector. 

Morgan Stanley believes geopolitical “de-risking” by global tech firms could make India one of the world’s preferred destinations for hyperscale data centres. 

The report forecasts India’s installed data centre capacity could rise from 1.8 GW currently to 10.5 GW by FY2031, driven by AI demand, cloud adoption and stricter data localisation rules. 

This expansion alone could create a $60 billion industrial opportunity spanning construction, power systems, cooling infrastructure, battery storage and electrical equipment. 

Major players including Microsoft, AWS, Google, Adani, Reliance and TCS have already announced large-scale investments across cities such as Hyderabad, Chennai, Mumbai, Noida and Visakhapatnam. 

Morgan Stanley says India’s ability to combine expanding renewable capacity with reliable thermal power makes it particularly attractive for energy-intensive AI infrastructure. 

Remittances still a key stabiliser 

India’s remittance flows remain another crucial support for the economy. 

The country received an estimated $138 billion in remittances in FY2025, with Gulf countries still accounting for nearly 38% of total inflows. 

However, Morgan Stanley notes that India’s remittance profile is becoming more diversified, with a rising share now coming from advanced economies such as the United States and Europe. 

That diversification reduces India’s vulnerability to oil-linked Gulf slowdowns and makes external balances more resilient. 

Bigger capex cycle, stronger market outlook 

Morgan Stanley believes all these structural shifts together could reinforce India’s long-term growth story. 

The brokerage expects India’s total investments to rise 1.6 times to $2.2 trillion by FY2031, while real GDP growth remains anchored at 6.5-7%. 

A stronger investment cycle could also translate into a prolonged earnings boom for Indian companies. 

The report predicts corporate profit share in GDP could move beyond previous peaks, with earnings potentially compounding at over 15% annually over the next five years.