Morgan Stanley Sees $800 Billion Capex Surge In India Amid West Asia Tensions

Geopolitical tensions in West Asia pose short-term risks, but could actually accelerate India’s long-term investment cycle and trigger a significant capital expenditure (capex) boom, a recent report by Morgan Stanley has said. India’s real gross domestic product (GDP) growth is expected to remain steady at 6.50–7 per cent, on the back of a stronger investment push, it said.

Despite concerns among global investors over rising oil prices and regional instability, the brokerage said it is optimistic about India’s medium-term economic outlook. The brokerage has revised its forecast for India’s investment-to-GDP ratio upward to 37.50 per cent by financial year 2029-30 (April to March), compared to its earlier estimate of 36.50 per cent. This seemingly modest revision translates into a substantial increase in spending—about $800 billion in additional cumulative capex over the next five years.

A major portion—nearly 60 per cent—of this incremental investment is expected to be directed towards key sectors, such as energy, defence, and data centres. These areas are seen as critical for strengthening India’s economic resilience amid global uncertainties.

Policy Push

The report said the West Asia crisis has exposed vulnerabilities in India’s economy, particularly its heavy reliance on imports. India currently imports around 85-90 per cent of its crude oil and nearly half of its natural gas requirements.

As such, policymakers in India will likely intensify efforts to build domestic capacity. This includes expanding strategic petroleum reserves, boosting coal production, accelerating renewable energy adoption, and pushing nuclear energy projects, Morgan Stanley said in its report.

Another instance is the case of the fertiliser sector, where India relies heavily on imports of key nutrients, and the government is working to increase domestic production as well as diversify sourcing. The government is also working to improve efficiency to manage subsidy burdens and ensure supply stability, which is also seen as bringing a structural change to drive India’s growth story.

Push in Defence and Data Centres

Defence spending is likely to see a structural increase, the report said with outlays projected to rise from around 2 per cent to 2.50 per cent of the GDP by FY31. The focus will be on indigenisation and boosting private sector participation, which could boost domestic manufacturing.

At the same time, India’s data centre sector is poised for rapid expansion, the report added. With global companies seeking to diversify operations amid geopolitical uncertainty and India’s push for data localisation, capacity is expected to surge significantly—to over 10 GW by FY31 from about 1.8 GW at present.

Market Impact

Morgan Stanley said that a stronger capex cycle will boost corporate profitability and increase the share of profits in the GDP. In turn, this could support earnings growth of over 15 per cent annually over the next five years, it added. Such momentum could also potentially drive equity market valuations higher, with projections suggesting markets could reach around 10 times FY31 earnings.

The brokerage maintained ‘overweight’ ratings on Adani Power, Adani Energy, Larsen & Toubro, BHEL, JSW Energy, KEI Industries, Reliance Industries, CG Power, NTPC, Polycab India, ONGC, HPCL, Solar Industries, Bharat Electronics, Deepak Nitrite, and Bharat Forge.

The report further said that while the outlook is constructive, risks persist. Elevated crude oil prices, fertiliser subsidy pressures, execution challenges in defence projects, and infrastructure constraints—such as power availability for data centres—could weigh on India’s growth momentum.