New Delhi, February 2 (IANS). The boost to capital expenditure (capex), service sector and Artificial Intelligence (AI) in the Union Budget will support the earnings for the financial year 2026-27.
Global brokerage firm Morgan Stanley has said in a report that the government’s fiscal consolidation (process of reducing the fiscal deficit) will help growth despite being a little slower than expected. Additionally, rising demand for equities through share buybacks will also support earnings.
The report said that the budget has struck a balance between trying to reduce the debt-to-GDP ratio and supporting growth. For this, both cyclical and structural steps have been taken.
Morgan Stanley said that it is positive about the Indian stock market. The global brokerage believes that there are good investment opportunities in the financials, consumer discretionary and industrial sectors.
The budget has set a target of keeping the fiscal deficit at 4.3 percent of GDP for the financial year 2026-27. Along with this, the central government’s debt to GDP is estimated to be 55.6 percent in the financial year 2027.
According to the report, the budget supports growth through three main areas. First, a continued focus on manufacturing, including steps such as semiconductors (ISM 2.0), rare earth magnets and strengthening legacy industrial clusters.
The report said that several steps have been taken in the budget to promote the services sector. These include tax exemption for data centres, increasing the safe harbor limit and a target of 10 percent share in global exports by 2047. Along with this, there has been a re-emphasis on capex, where the total capex has increased by 11.5 percent year-on-year and the defense sector capex has been increased by 18 percent.
Apart from this, the budget has continued the direction of reducing the fiscal deficit, although this is considered to be the slowest pace since the pandemic.
Morgan Stanley says the budget will support economic recovery with an emphasis on capex. The central government’s capex is estimated to be 3.1 percent of GDP in FY 2027, which is equal to the revised estimate for FY 2026. Additionally, steps to strengthen manufacturing and services sectors will enhance India’s long-term growth.
The report said that the budget figures appear to be realistic. For the financial year 2027, nominal GDP growth is considered to be 10 percent and direct tax revenue growth is considered to be 11.4 percent.
–IANS
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