News

Global investment bank Morgan Stanley has struck an optimistic note on Indian equities after the Union Budget, saying the policy mix strengthens the case for a sustained growth cycle. In its latest strategy note, the bank reiterated a constructive stance on Indian stocks and flagged Financials, Consumer Discretionary and Industrials as its preferred sectoral bets, citing supportive capital spending, a technology-led growth push and a calibrated fiscal path.

Morgan Stanley said the Budget sends a clear signal on the government’s future priorities, with an early emphasis on semiconductors underscoring a broader pivot towards advanced manufacturing and technology-driven expansion. The investment bank sees this as a real shift in thinking, with policy now clearly geared towards boosting productivity and long-term competitiveness rather than short-term fixes.

The report stuck to its overweight view on financials, consumer discretionary and industrial stocks, saying these sectors are best positioned to ride the Budget’s growth push. Banks and NBFCs should do well as loan demand picks up and balance sheets stay solid. Consumer companies get support from people continuing to spend, and industrials benefit from the government and companies putting money into projects and expansion.

Morgan Stanley expects a likely boost to capital expenditure alongside continued momentum in the services sector. It also pointed to the increasing emphasis on artificial intelligence as a long-term growth lever, saying AI could lift productivity and support earnings over the next few years. Taken together, these trends are expected to keep profit growth on track through FY2027.

On the fiscal front, the report observed that the Budget balances the goal of reducing the debt-to-GDP ratio with the need to support growth. A slightly slower-than-expected pace of fiscal consolidation, Morgan Stanley said, leaves room for cyclical and structural support without undermining stability.

The Budget’s fiscal deficit target of 4.3 per cent of GDP for F27 is broadly in line with Morgan Stanley’s estimate of 4.2 per cent. The report noted that this path implies a central government debt-to-GDP ratio of about 55.6 per cent in F27, reflecting continued commitment to fiscal discipline even as growth-supportive measures remain in place.

Buybacks are adding another layer of support. The report said stronger equity demand from share buybacks could help steady earnings, and when paired with clearer policy signals and ongoing capex spending, it improves visibility for companies tied to domestic demand and industrial growth.

Morgan Stanley said the Budget reinforces its positive stance on Indian equities. The combination of growth-oriented policies, support for emerging areas such as semiconductors and AI, and manageable fiscal consolidation creates a favourable backdrop for markets. Financials, Consumer Discretionary and Industrials, the report concluded, remain the key beneficiaries of the government’s growth strategy in the post-Budget landscape.