'Play the bubble if you want': Shankar Sharma warns against India's data centre hype

Ace investor Shankar Sharma on Monday cautioned that the frenzy around India's fast-growing data centre sector may be misplaced, likening it to the telecom tower business of the past. "The enthusiasm around data centres is largely a hope trade. In reality, it broadly resembles that Telecom Tower business in which the tower company invests massively in Capex and then leases out the capacity to various telecom companies," Sharma wrote on X.

He explained that while the customer base for data centres may be more diversified, the economics are tilted in favour of clients rather than operators. "The bargaining power almost always rests with the customer and not with the data centre because ultimately, data centres are a capex guzzling business (like an industrial warehouse eg), and once you have capex in the ground, you are at the mercy of the various customers who can play one against the other to get very low rates," Sharma added.

According to him, the model remains essentially a leasing business with all its associated risks. "Therefore, this is ultimately a leasing business and it will have pretty much all the similar risks associated including leverage on the balance sheet. ROIs will trend down, cash flow will be largely negative most of the time. Play the bubble if you want but remember the economics are not at all sexy," he wrote.

Sharma's remarks come at a time when India's data centre industry is seeing unprecedented investor interest. Capacity was estimated at 1.1 GW in 2024 and is projected to nearly triple to 3 GW by 2030, according to a July report by Avendus Capital. Annual investments of $1–1.5 billion are expected to double in the coming years on the back of data localisation, cloud computing, and AI adoption.

Business Standard reported on Monday that the government is considering major incentives under a draft National Data Centre Policy, including tax exemptions of up to 20 years for developers meeting targets on capacity addition, efficiency, and employment. The draft also proposes allowing input tax credit on GST levied on data centre construction and equipment.

These measures reportedly aim to spur job creation and boost India's capacity in advanced technologies not only in metros but also in Tier-II and Tier-III cities.