MarketOutlook –Global brokerage Morgan Stanley has reaffirmed its positive assessment of Indian equities in the aftermath of the Union Budget, citing clear signals of the government’s long-term growth priorities and policy direction. In its latest note to investors, the investment bank maintained an overweight position on financials, consumer discretionary, and industrial stocks, pointing to supportive fiscal measures and renewed emphasis on capital formation.

Budget Signals Shift Toward Technology-Led Growth

According to the report, the Budget speech opened with a strong reference to semiconductors, a move Morgan Stanley interprets as a meaningful shift in policy focus. The early mention of advanced manufacturing and high-end technology underscores the government’s intention to anchor future growth around innovation-driven sectors rather than relying solely on traditional engines.

The brokerage noted that this emphasis reflects a broader strategy to position India as a key player in global technology supply chains. Greater policy support for semiconductors, artificial intelligence, and related ecosystems is expected to create long-term opportunities across manufacturing, services, and allied industries.

Sector Preferences Remain Unchanged

Morgan Stanley said it continues to favour financials, consumer discretionary, and industrials within the Indian equity market. These sectors, the report explained, are best placed to benefit from higher capital expenditure, resilient domestic demand, and policy support aimed at sustaining economic momentum.

Financial institutions are expected to gain from steady credit growth and improving balance sheets, while consumer-focused companies could see continued demand support as incomes and employment conditions improve. Industrials, meanwhile, are likely to benefit directly from infrastructure spending and manufacturing-linked initiatives announced in the Budget.

Capital Spending and Services Growth to Support Earnings

The report highlighted expectations of a further push in capital expenditure, which could act as a key driver of economic activity over the medium term. Alongside this, Morgan Stanley sees continued strength in the services sector, which remains a significant contributor to India’s growth and export performance.

The growing focus on artificial intelligence and digital capabilities is also expected to support productivity gains and open new revenue streams across multiple sectors. Taken together, these factors are projected to underpin earnings growth into the financial year 2027.

Fiscal Strategy Balances Growth and Discipline

Morgan Stanley observed that the Budget strikes a careful balance between supporting growth and maintaining fiscal discipline. While the government has reiterated its commitment to reducing the debt-to-GDP ratio, it has opted for a gradual pace of fiscal consolidation rather than aggressive tightening.

This approach, the report noted, helps preserve growth momentum while avoiding undue strain on public finances. The targeted fiscal deficit of 4.3 percent of GDP for FY27 is broadly aligned with Morgan Stanley’s own estimate of 4.2 percent, suggesting limited downside risk from fiscal slippage.

Debt Metrics Remain Manageable

The brokerage pointed out that the outlined fiscal path is consistent with a central government debt-to-GDP ratio of around 55.6 percent in FY27. This trajectory indicates continued efforts to improve fiscal metrics without compromising investment-led growth.

Such stability in fiscal planning is seen as supportive for market confidence, particularly for long-term investors assessing macroeconomic risks alongside earnings prospects.

Equity Demand and Buybacks Add Support

In addition to policy measures, the report noted that rising equity demand through corporate buybacks could provide an incremental boost to earnings per share. This trend, combined with supportive macro conditions, may further strengthen the investment case for select sectors.

Positive Medium-Term View Reinforced

Overall, Morgan Stanley concluded that the Budget reinforces its constructive stance on Indian equities. The combination of growth-oriented policies, targeted support for emerging technologies, and a measured approach to fiscal consolidation is viewed as favourable for medium-term earnings visibility.

Sectors linked to domestic consumption, financial intermediation, and industrial expansion are expected to remain key beneficiaries as the government’s growth strategy unfolds.