Budget 2026: Tax Holiday Until 2047 Sparks Data Centre Stock Rally

Introduction: A Strategic Push for Digital Infrastructure

In a significant policy move during the Union Budget 2026 presentation, Finance Minister Nirmala Sitharaman announced a long-term tax holiday for foreign companies operating data centres in India. The proposal, effective until 2047, is designed to attract global cloud service providers and establish India as a critical hub for digital infrastructure. The announcement immediately spurred a rally in stocks linked to the data centre ecosystem, as investors reacted to the strategic incentive.

Unpacking the Tax Holiday Proposal

The core of the proposal is a tax exemption until 2047 for any foreign company that delivers cloud services to global customers from data centres located within India. This long-term policy certainty is aimed at encouraging substantial capital-intensive investments from global hyperscalers. However, the incentive comes with a key condition: to qualify, these companies must serve their Indian customers through a designated Indian reseller entity. This clause ensures that while global business is attracted, the domestic market structure is also strengthened. Furthermore, the budget introduced a safe harbour of 15% on cost for instances where the company providing data centre services from India is a related entity, a move intended to simplify transfer pricing and reduce potential tax disputes.

The Rationale: Addressing India's Data Capacity Gap

The government's initiative is a direct response to the rapidly growing demand for data processing and storage, fueled by the rise of artificial intelligence and stricter data localisation norms. India currently generates approximately 20% of the world's data but hosts only about 3% of the global data centre capacity. This mismatch creates a significant supply-demand gap that the new policy aims to close. By incentivising the construction of data centres locally, the government seeks to ensure that the computational power required for India's digital economy is available within its borders, enhancing data sovereignty and reducing latency.

Market Responds with Enthusiasm

The stock market reacted swiftly and positively to the announcement. Companies across the data centre value chain witnessed sharp gains as investors anticipated a surge in demand for construction, power, and computing hardware. The rally highlighted the market's confidence in the long-term growth trajectory of India's digital infrastructure sector.

Key Beneficiaries and Sectoral Impact

Real estate developer Anant Raj, which has been actively developing data centre parks in the Delhi NCR region, emerged as a top gainer, climbing 10%. Analysts at Emkay Global have identified the company as a key beneficiary, setting a target price of Rs 800. Techno Electric and Engineering surged 8%, with investors betting on increased orders for power infrastructure. Netweb Technologies, a supplier of high-performance servers, rose 6% on expectations of higher demand from new data centre projects. Even industrial firms like Cummins India saw a modest 1% gain, as the market priced in sustained demand for power solutions. In a notable exception, Adani Enterprises, which is building a pan-India data centre network via its AdaniConneX joint venture, saw its stock slip slightly by 0.7% on the day.

Aligning with Global Tech Investments

The tax holiday aligns with massive investment commitments already made by global technology giants in India. Microsoft has pledged $17.5 billion for AI-related projects, Amazon plans to invest $15 billion over the next five years, and Google has committed $15 billion for developing data centres in partnership with local firms. These figures underscore India's importance in global technology strategies, and the new tax incentive is expected to accelerate the deployment of this capital.

Analyst Perspective

Industry experts view the policy as a structural positive. Tarun Pathak, Research Director at Counterpoint Research, noted that data centres are capital-expenditure-heavy and that the long-term tax certainty supports planning and investment for hyperscalers. He highlighted that the 'reseller hook' also reinforces India's tax sovereignty. The policy is seen as a crucial step to support the country's digital transformation, which is rapidly increasing the need for scalable and sustainable data infrastructure.

Conclusion: Building a Digital Future

The tax holiday announced in Budget 2026 is a clear signal of the government's intent to make India a globally competitive destination for data centres and cloud computing. By providing a stable and attractive tax regime, the policy aims to attract foreign investment, build domestic capacity, and provide the foundational infrastructure for the next wave of digital growth, particularly in the field of artificial intelligence. This strategic move is expected to have a lasting positive impact on India's technology landscape for decades to come.