A recent analysis by Morgan Stanley suggests that the Union Budget’s focus on capital expenditure, services sector growth, and artificial intelligence is expected to boost FY27 earnings. The budget, aiming for fiscal consolidation alongside support for growth, targets a fiscal deficit of 4.3% of GDP for FY27. The emphasis on manufacturing, services sector development, and increased capex is seen as key pillars of the budget’s strategy.
The global brokerage remains optimistic about Indian equities, particularly favoring Financials, Consumer Discretionary, and Industrials sectors. The budget’s measures include support for semiconductors, rare earth magnets, and industrial clusters, along with initiatives to enhance the services sector. Additionally, there is a renewed focus on capex, with a notable increase in total capex and defense capex.
While maintaining a path of fiscal consolidation, the budget is expected to drive cyclical growth recovery through capex emphasis. It also aims to enhance India’s structural growth trajectory by improving manufacturing competitiveness and the attractiveness of the services sector. The fiscal projections are deemed realistic, with assumptions of 10% nominal GDP growth and 11.4% direct tax revenue growth for FY27.
