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A recent report by global brokerage Morgan Stanley highlights that the Union Budget will help India's economy and corporate profits to grow during the next few years.

The report predicts that capital expenditure (capex) growth together with ongoing services sector expansion and stronger artificial intelligence (AI) development will drive earnings in FY27, which will start to slow down fiscal consolidation efforts.

The report showed that the Budget maintains an equilibrium between two objectives first to decrease the debt-to-GDP ratio and second to foster economic development.

The government maintains its fiscal consolidation process while keeping a slow implementation schedule which protects economic growth.

The strategy employs cyclical methods through increased government spending and it uses structural reforms to establish permanent growth improvements.

The report maintains that it holds positive views about Indian equities while it recommends three main sectors which include financials consumer discretionary and industrials.

The study discovered that increased equity demand through share buybacks will create additional support for stock market performance during upcoming months.

The Budget sets a fiscal deficit target of 4.3 per cent of GDP for FY27 which confirms the central government debt-to-GDP ratio of 55.6 per cent.

The government achieves its slowest fiscal consolidation progress since the pandemic because it now spends more resources on growing the economy than on reducing fiscal deficits.

The report identified three major pillars through which the Budget aims to support economic expansion. The first area involves ongoing support for manufacturing industries.

The Budget builds on previous initiatives by extending support to areas such as semiconductors under ISM 2.0, rare earth magnets, and legacy industrial clusters. The implemented measures will enhance manufacturing capabilities and boost domestic production capacity.

The second focus area is the services sector. The report pointed out that the Budget includes measures such as higher safe harbour thresholds, a tax holiday for data centres, and a long-term goal of achieving a 10 per cent share in global services exports by 2047. India will become a global services and technology hub through these initiatives.

The third pillar needs increased focus on capital expenditure as its primary objective. Total government capex is expected to rise by 11.5 per cent year-on-year, while defence capex is projected to increase by 18 per cent.

The expected central government capex for FY27 will remain at 3.1 per cent of GDP, which matches the revised estimates for FY26 and provides support for cyclical recovery.

The report added that the fiscal assumptions appear realistic, with nominal GDP growth estimated at 10 per cent for FY27 and direct tax revenue growth projected at 11.4 per cent. The report stated that the Budget strengthens India's growth outlook while maintaining fiscal discipline.