Mumbai leads, but Chennai, Hyderabad are fast becoming India's next big data centre battlegrounds

India's data-centre industry is at an inflection point. Mumbai remains the undisputed anchor of the market, but a new phase of capacity expansion is underway — one that is spreading across Chennai, Hyderabad and beyond, driven by AI workloads, hyperscaler ambitions and an investment pipeline of staggering scale. A new report by Avendus Capital lays out just how dramatically the country's digital infrastructure landscape is shifting.

Mumbai becomes the anchor

The numbers make Mumbai's position hard to contest. The city currently holds 801 MW of built data-centre capacity — about 50% of India's total installed base of 1,650 MW — and is expected to capture 47% of all additional capacity to be deployed across the country over the next five years. Vacancy stands at just 2.9%, the tightest in the country, reflecting a market where demand has consistently outrun supply additions.

The city's lead is structural, not accidental. Mumbai holds 12 of India's 22 submarine cable landing stations, giving it unmatched global connectivity and the lowest latency to international networks. Reliable power, dense fiber infrastructure, a large BFSI client base and the absence of significant natural hazards make it the default choice for hyperscalers and enterprise operators alike.

The Avendus report designates Mumbai as the "expected hub for setting up GPU clusters to cater to AI training workloads" — the most compute-intensive and capital-heavy segment of the AI infrastructure stack, requiring massive liquid-cooled facilities and high-density power.

Chennai: the second city rises

Chennai's case is built on geography and connectivity. The city is currently the second most preferred location for data centres in India, with 268 MW of built capacity and net absorption of 49 MW in CY25. The Avendus report expects approximately 15% of India's incremental data-centre capacity to land in Chennai over the next five years.

The near-term catalyst is cable infrastructure. The report notes that three more international subsea cable landing stations are coming to Chennai over 2026-27, further deepening the city's connectivity advantage and amplifying its appeal for latency-sensitive cloud and enterprise workloads. Chennai is described as the "most suitable location to service Southern India," with a growing trend of GPU adoption for AI workloads adding a new demand layer on top of its traditional base.

Hyderabad becomes major destination for hyperscaler bets

Hyderabad is playing a different game. With 138 MW of current capacity and vacancy at 9.7%, the city is still building its base — but its trajectory is being shaped by hyperscale capital. The Avendus report describes Hyderabad as an "upcoming major DC hub both for colo and hyperscale builds," with Microsoft Azure already having made large commitments and AWS also expanding heavily.

CtrlS, Sify and CapitaLand are among the operators already active in the market, and the report expects approximately 11% of India's incremental data-centre capacity to come from Hyderabad over the next five years. The demand driver here is the local IT sector, along with AI deployments that are less latency-sensitive and therefore suited to slightly decentralised locations offering land availability and power at scale.

Scale of what is being built

All of this sits inside a national infrastructure story of considerable size. Avendus estimates that India's total data-centre capacity will climb from 1.6 GW in December 2025 to 5 GW by December 2030, a 26% CAGR, with developers carrying "an active pipeline of over 3GW to be delivered over next 5 years," requiring total capex of approximately $25 billion.

The report frames this as a "dual growth trajectory" — one powered by traditional cloud, 5G, data localisation and enterprise demand, and the other by GPU deployments for AI training and inference. India's AI market is projected to grow at 39% CAGR over the next seven years, reaching USD 131 billion by 2032, creating sustained and compounding demand for compute infrastructure. The IndiaAI mission alone has seen 38,000+ GPUs committed, requiring approximately 48 MW of AI-ready capacity just to deploy them.

Capital is already pricing this in

Investor activity confirms the sector's shift to mainstream infrastructure. India's data-centre ecosystem has seen over $5 billion of transaction activity over the last three years, spanning PE growth investments, M&A, JV formations and QIPs. Globally, data-centre platforms are commanding 20x to 30x EV/EBITDA multiples in M&A, with hyperscale-focused assets at the upper end of that range.

The economics support the capital flows. Avendus models a sized GPU cluster deployment that can deliver an equity IRR of 28.4% and a project IRR of 20.3%, with a payback period of approximately 2.8 years — a return profile strong enough to attract institutional capital at scale.

Who wins the next round

Mumbai will continue to dominate in absolute terms, but the margin is set to narrow as Chennai, Hyderabad and other markets absorb a growing share of incremental investment. The differentiator going forward will not be which city has the best headline announcement — it will be which cities can deliver power-rich, AI-ready, liquid-cooled infrastructure reliably and at scale.