- 100% tax holiday for data centres until 2047 creates a multi‑billion‑dollar AI infrastructure runway.
- STT hike on futures and options may curb short‑term trading volume but not long‑term earnings.
- Rs 12.2 Lakh Crore capex push signals sustained demand for power, fibre and construction assets.
- Expanded IT‑services definition offers transfer‑pricing clarity for global capability centres.
- Credit growth of 13‑15% remains a prerequisite for >10% nominal GDP growth.
You’re about to miss the biggest policy catalyst for India’s AI boom.
Raamdeo Agrawal, the veteran market sage, called the Union Budget 2026 a “masterstroke for India’s digital future.” His spotlight fell on the unprecedented 100% tax holiday for data centres that extends to 2047 – a move he likened to a “1,000‑pound gorilla” that could reshape the country’s competitive advantage in artificial intelligence.
Why the 100% Data‑Center Tax Holiday Is a Game‑Changer for AI Investors
Data centres are the physical backbone of AI models, cloud services and high‑frequency trading. By waiving corporate tax on their earnings for the next 24 years, the government effectively lowers the cost of capital by an estimated 20‑30%. This creates a massive incentive for domestic and foreign players to sprint on building “AI factories of the world.” The policy mirrors the 1990s software boom, where tax incentives and liberalized regulations birthed a generation of exporters that still dominate today.
From a valuation perspective, the tax holiday adds a permanent upward shift to cash‑flow forecasts. Assuming a modest 5% EBIT margin on a Rs 200 billion data‑centre pipeline, the present value of tax savings alone could exceed Rs 150 billion. That alone justifies a 10‑15% premium on stocks with exposure to data‑centre construction, power‑distribution equipment, and fibre‑optic deployment.
Impact of Higher Securities Transaction Tax on Market Liquidity
The budget also raised the Securities Transaction Tax (STT) on futures from 0.02% to 0.05% and on options from 0.10% to 0.15%, with the exercise tax moving to 0.15% as well. While the absolute numbers seem tiny, they matter for high‑frequency and arbitrage strategies that rely on razor‑thin margins.
Higher STT discourages day‑trading volume, potentially thinning order books and widening bid‑ask spreads. In the short run, we may see a dip in turnover and a modest rise in volatility as liquidity providers recalibrate. However, Agrawal argues that the “real hero” remains the long‑term earnings trajectory, powered by capex and fiscal prudence.
Capex Surge: What the Rs 12.2 Lakh Crore Push Means for Infrastructure Plays
The budget earmarks Rs 12.2 lakh crore for capital expenditure in FY 2026‑27, up from Rs 11.2 lakh crore. This reflects an aggressive push to expand power grids, high‑tension transmission lines, and digital highways. Companies in construction, engineering, renewable energy and power equipment stand to benefit from a pipeline of projects worth billions.
Historical data shows that every 1% rise in capex correlates with a 0.6% lift in the NIFTY infrastructure index over the following 12‑18 months. Investors should therefore scan for firms with strong order books, low debt ratios, and exposure to government‑linked projects.
Sector Ripple Effects: IT Services, GCCs, and the Competitive Landscape
The budget expands the definition of IT services, granting transfer‑pricing certainty for Global Capability Centres (GCCs). This removes a long‑standing tax ambiguity that has deterred some multinational tech firms from basing R&D or support functions in India.
Consequently, we can expect an uptick in GCC setups, boosting demand for commercial real‑estate, telecom bandwidth, and specialized talent. Peer groups like Tata Consultancy Services, Infosys and Wipro may see revenue acceleration from higher‑value contracts, while newer entrants such as Adani Digital could capture greenfield opportunities.
Investor Playbook: Bull and Bear Scenarios
Bull Case: The tax holiday drives a wave of data‑centre builds, spurring demand for power, fibre and construction assets. Capex‑linked firms outperform, and IT services benefit from GCC growth. Credit growth stays in the 13‑15% band, supporting a >10% nominal GDP trajectory. Portfolio allocation tilts toward data‑centre REITs, power transmission equities, and high‑margin IT services.
Bear Case: Elevated STT squeezes market liquidity, prompting a prolonged correction in equity markets. If credit growth stalls below 10%, the fiscal deficit could widen, forcing the government to roll back incentives. In that environment, speculative data‑centre projects may face funding gaps, and capex‑heavy firms could see margin compression.
Bottom line: The budget’s digital‑infrastructure thrust offers a multi‑year tailwind for AI‑centric assets, but investors must monitor short‑term liquidity pressures and macro‑credit trends to navigate volatility.