New Delhi, Feb 2 A likely boost to capex, services sector growth and AI in the Union Budget, along with slightly slower than expected fiscal consolidation, will likely support FY27 earnings, further helped by increased demand for equities through buybacks, Morgan Stanley has said.
The Budget balances debt-to-GDP reduction with slow fiscal consolidation and support for growth through both cyclical and structural measures.
“We remain constructive on Indian equities – Overweight Financials, Consumer Discretionary and Industrials,” the global brokerage said in its note.
The Budget balances debt to GDP reduction with slow paced fiscal consolidation and support for growth through cyclical and structural measures.
It targets a fiscal deficit of 4.3 per cent of GDP for F27, in line with a central government debt to GDP ratio of 55.6 per cent in F27.
The Budget supports growth through three main segments. First, a continued emphasis on manufacturing, with measures that build on past steps such as support for semiconductors (ISM 2.0), rare earth magnets and legacy industrial clusters.
“The Budget focuses on the services sector through steps such as higher safe harbour thresholds, a tax holiday for data centres and a target to reach a 10 per cent share of global exports by 2047; and renewed focus on capex, with total capex rising 11.5 per cent YoY and defence capex up 18 per cent,” said the note.
The Budget maintains the fiscal consolidation path, albeit at the shallowest pace since the pandemic.
“We expect the Budget to support cyclical growth recovery through its emphasis on capex (central government capex stays at 3.1 per cent of GDP in F27, similar to F26 RE) and to strengthen India’s structural growth trend through steps that improve manufacturing competitiveness and services sector attractiveness,” said the global brokerage.
The fiscal math remains realistic, in our view, with nominal GDP growth assumed at 10 per cent for F27 and direct tax revenue growth at 11.4 per cent, it added.
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