New Delhi, February 2: The boost in capital expenditure (capex), services sector, and artificial intelligence (AI) announced in the Union Budget is expected to support earnings in the financial year 2026-27.
Global brokerage firm Morgan Stanley said in its report that although the government’s fiscal consolidation—efforts to reduce the fiscal deficit—may proceed a bit slower than expected, it will still aid growth. The report also highlighted that increasing demand for equity through share buybacks will provide additional support to earnings.
The budget strikes a balance between reducing debt-to-GDP ratio and supporting growth, adopting both cyclical and structural measures. Morgan Stanley expressed a positive outlook on the Indian stock market, pointing to good investment opportunities in the financial, consumer discretionary, and industrial sectors.
The fiscal deficit target for 2026-27 is set at 4.3% of GDP, with the central government’s debt expected to be 55.6% of GDP by 2027. The report identified three main areas supporting growth: a continued focus on manufacturing—including semiconductors (ISM 2.0), rare earth magnets, and strengthening old industrial clusters; promotion of the services sector through tax incentives for data centers, increased safe harbor limits, and a target of 10% share in global exports by 2047; and renewed emphasis on capex, which has grown 11.5% year-on-year, with defence capex rising by 18%.
While fiscal deficit reduction continues post-pandemic, it is happening at the slowest pace seen so far. Morgan Stanley believes the budget’s focus on capex will help economic recovery. Capex is projected to remain at 3.1% of GDP in FY27, matching the revised estimate for FY26. The manufacturing and services sector initiatives are expected to boost India’s long-term growth.
The report finds the budget numbers realistic, estimating nominal GDP growth at 10% and direct tax revenue growth at 11.4% for FY27.
Leave a Comment