New Delhi, Feb 1 The sharp increase in capital spending in a year of global uncertainty, credible fiscal consolidation, no change in capital gains tax regime for equities, lower-than-expected market borrowings, and a likely shift in RBI's stance augur well for stocks, foreign brokerage Morgan Stanley said in a report on Wednesday.
"This Budget probably means the consensus may need to raise earnings estimates - we remain 10 per cent ahead of the consensus EPS on the BSE Sensex. Our overweight sectors are: Financials, Discretionary Consumption and Industrials. We remain underweight on global sectors and defensives, except technology," the report said.
The Budget focused on capex-led growth, improving the quality of government spending, and providing a credible fiscal consolidation path.
"We are constructive on domestic cyclicals and rate sensitivities from an equity market perspective," Morgan Stanley said.
"The government has pegged the fiscal deficit target at 5.9 per cent of GDP for F24 - in line with our expectations. In our view, the Budget provides firm support to domestic demand, which is critical in an environment of slowing global growth, thus protecting against the downside risks to growth," the report added.
Three key takeaways from the Budget (a) Gradual and realistic fiscal consolidation path, (b) improving quality of spending and push for capex spending, and (c) focus on improving access to amenities, push for social and digital infrastructure and India's climate change targets, it added.
The Budget is pegging capital spending growth of 37.4 per cent YoY in F24 (over FY23 revised estimates), which will push Central government capital spending to GDP to a 19-year high of 3.3 per cent. Indeed, this implies that share of capital spending in total expenditure will rise to 22.2 per cent as against an average of 13.3 per cent in the pre-pandemic period.
"As the Budget supports capex and employment creation, we remain constructive on the domestic demand strength. Thus, we expect GDP growth to track at 6.2 per cent in F24 as against the consensus expectation of 6 per cent.
"Furthermore, as the Budget maintains fiscal prudence and with the inflation trend moderating, we expect the RBI to deliver a final rate hike in the February policy review and change its stance to neutral," Morgan Stanley said.
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