India's capital expenditure cycle and the global shift to diversify supply chains beyond China are creating an investment opportunity across manufacturing, power and infrastructure, with artificial intelligence increasingly influencing which companies could benefit from the transition, according to fund managers.
AI adoption is expanding across electronics, automobiles, pharmaceuticals, industrial manufacturing, logistics and warehousing. Companies are deploying the technology for predictive maintenance, computer-vision-based quality checks, robotics, digital twins, supply-chain optimisation and manufacturing operations.
For investors, the combination of a rising capital expenditure cycle, China+1 supply-chain diversification and increasing use of AI in factories broadens the opportunity beyond companies simply adding manufacturing capacity. The investment case increasingly extends to businesses that supply power, infrastructure, industrial equipment and technology to expanding manufacturing operations.
"Power, infrastructure and China+1 manufacturing are now a larger bet, with the increasing AI-adoption at factories," said Mihir Vora, chief investment officer at Trust Mutual Fund.
Capex Cycle
Crisil Intelligence estimates infrastructure capital expenditure will rise to Rs 90-100 lakh crore between FY26 and FY30, about 60% higher than the roughly Rs 59 lakh crore spent between FY21 and FY25. Roads, renewable power and urban development are among the main drivers.
The Ministry of Finance's public-private partnership pipeline comprises 852 projects worth roughly Rs 17 lakh crore, providing private investors with visibility over several years.
"They are not just cyclical opportunities, they are structural, long-term themes," Vora said.
The investment cycle follows almost a decade of subdued capital expenditure after 2011. The conditions supporting investment have since changed, according to Vora.
"Today, the backdrop is very different. Government spending remains strong, private sector balance sheets are healthier, bank lending capacity has improved, and corporate capex intentions are gradually picking up," he said.
Public capital expenditure has been raised to Rs 12.2 lakh crore for FY27 from Rs 11.2 lakh crore in the previous year. That compares with around Rs 2 lakh crore in FY15.
Power demand is also rising as manufacturing expands and digitisation, data centres, urbanisation, electrification and the energy transition increase electricity requirements.
"The entire ecosystem, from power generation and transmission to electrical equipment and related industrials, has a long runway ahead," Vora said.
India has crossed 50% of installed capacity from non-fossil sources ahead of its 2030 Paris Agreement target. Electricity consumption from data centres is projected to grow about 15% annually through 2030.
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AI At Factories
AI adds another dimension to the capital expenditure and manufacturing cycle as companies move from conventional automation towards data-led factory operations.
The shift is taking place alongside government programmes including Make in India, production-linked incentive schemes and the Rs 10,372-crore IndiaAI Mission.
Several large manufacturers have already introduced AI across their operations. Tata Steel uses AI-based predictive maintenance across more than 10,000 sensor points to reduce unplanned downtime. Tata Motors uses computer vision to detect small defects on assembly lines and AI-directed robotics for material handling.
Hindustan Unilever has converted five manufacturing plants in India into World Economic Forum Lighthouse sites. Reliance Industries uses machine-learning models to analyse temperature and crude quality in real time to optimise refining yields. Asian Paints uses AI-based demand forecasting at the postal-code level to manage distribution costs and inventory.
Adoption is also spreading beyond large manufacturers. A study by the Ministry of Electronics and Information Technology, the Ministry of Micro, Small and Medium Enterprises and the National Institute for Smart Government evaluated more than 350 MSME manufacturing units across textile, pharmaceutical and electronics clusters.
The study focused on modernising older manufacturing operations to improve unit economics and compliance with global export requirements. Industrial AI across MSMEs could also support manufacturing's contribution towards India's $35 trillion economic goal by 2047.
Nasscom's AI Adoption Index 2.0, which covered 500 companies across seven sectors, put India's AI maturity score at 2.47 on a four-point scale in 2024, compared with 2.45 two years earlier. The number of companies at the advanced adoption stage doubled during the period.
Industrials and automobiles are among four sectors Nasscom expects to account for roughly 60% of AI's net new economic value addition in India.
India is also expanding its industrial automation hardware base. The International Federation of Robotics ranks the country seventh globally for annual industrial robot installations. The domestic industrial robotics market is estimated to reach about $264 million by 2028, while industrial sensors account for around 40% of smart-factory investment.
China+1 Opportunity
The expansion of manufacturing technology comes as companies globally diversify supply chains, creating opportunities for India across engineering, textiles, chemicals, electronics, machinery, electrical equipment, pharmaceuticals and auto components.
"Recent trade developments also strengthen this opportunity. Agreements with major trading partners improve market access, enhance export competitiveness and can accelerate India's integration into global supply chains," another fund manager said.
The China+1 opportunity, however, depends on more than adding automation or manufacturing capacity. Companies also need factories capable of meeting global requirements on productivity, quality, reliability and traceability.
"India's rise in global manufacturing rankings has been supported by supply-chain diversification," said Vaibhav Koul, managing director at Protiviti Member Firm for India.
AI and automation by themselves will not determine whether India becomes a larger global manufacturing base, Koul said.
"The opportunity for India lies in combining its strengths in engineering talent, digital infrastructure, AI capabilities, and manufacturing incentives to build globally competitive smart factories," he said.
For investors, that puts the focus on the intersection of three trends: a domestic capital expenditure revival, global supply-chain diversification and greater use of AI-led automation. The companies that can use these investments to improve productivity, quality, resilience and traceability could be better placed to capture a larger share of the China+1 opportunity.
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Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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