Morgan Stanley expects a likely boost to capital expenditure, continued growth in the services sector and increasing focus on artificial intelligence.
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Dado Ruvic
The report said the Budget sends a strong signal on the government’s future growth priorities, with the speech almost beginning with a reference to semiconductors. This, Morgan Stanley noted, reflects a major shift in the government’s approach towards technology-led growth and advanced manufacturing.
It stated, “We remain constructive on Indian equities – Overweight Financials, Consumer Discretionary and Industrials”. According to the report, these sectors are well placed to benefit from the Budget’s emphasis on growth-supportive measures and capital spending.
Morgan Stanley expects a likely boost to capital expenditure, continued growth in the services sector and increasing focus on artificial intelligence. These factors, along with a slightly slower-than-expected pace of fiscal consolidation, are expected to support earnings growth in F2027. The report also highlighted that increased demand for equities through buybacks could further aid earnings.
The report observed that the Budget strikes a balance between reducing the debt-to-GDP ratio and maintaining a gradual pace of fiscal consolidation, while still supporting economic growth through both cyclical and structural measures. Morgan Stanley noted that this approach helps sustain growth momentum without putting excessive pressure on fiscal stability.
The Budget has targeted a fiscal deficit of 4.3 per cent of GDP for F27, which is broadly in line with Morgan Stanley’s estimate of 4.2 per cent of GDP. The report said this fiscal path is consistent with a central government debt-to-GDP ratio of 55.6 per cent in F27, reflecting continued efforts towards fiscal discipline.
Morgan Stanley added that the combination of growth-oriented policies, support for emerging sectors such as semiconductors and AI, and manageable fiscal consolidation creates a favourable environment for equities. The investment bank believes that the Budget’s policy direction could support medium-term earnings visibility, particularly in sectors linked to domestic demand, financial intermediation and industrial expansion.
Overall, the report highlighted that the Budget reinforces Morgan Stanley’s positive stance on Indian equities, with Financials, Consumer Discretionary and Industrials remaining key beneficiaries of the government’s growth strategy and fiscal approach.
Published on February 2, 2026
