Finances impression: What makes Morgan Stanley’s Ridham Desai stay bullish on Indian shares
The Finances targets a fiscal deficit of 4.3% of GDP for FY27, solely a shallow enchancment from 4.4% in FY26, however Desai sees that as a deliberate option to again progress reasonably than push aggressive consolidation. “The Finances balances debt-to-GDP discount with gradual paced fiscal consolidation and assist for progress by cyclical and structural measures,” the Morgan Stanley India fairness strategist notes within the report co-authored with chief India economist Upasana Chachra.
The federal government’s math, constructed on 10% nominal GDP progress and 11.4% progress in direct tax revenues, is described as “practical,” decreasing the danger of mid-year spending cuts that would derail the restoration.
Central to Desai’s fairness name is the capex push that New Delhi has chosen to protect even because it walks the consolidation path. The report factors out that central authorities capital expenditure is budgeted at 3.1% of GDP in FY27, broadly unchanged from the FY26 revised estimate, whereas whole capex is slated to develop 11.5% year-on-year and defence capex by 18%.
Morgan Stanley argues this can “assist cyclical progress restoration” by sustaining the funding upcycle and crowding in personal capex, a backdrop that usually favours domestically oriented shares in banks, client discretionary and industrials—sectors the place the home stays “Obese.”
On the identical time, Desai highlights what he calls a decisive coverage pivot in the direction of future-facing sectors. “The finances speech nearly begins with the phrase ‘semiconductors,’ which indicators a serious pivot within the authorities’s view of what India ought to pursue,” the report notes, flagging new measures beneath “ISM 2.0”, incentives for uncommon earth magnets and assist for legacy industrial clusters.
On the providers facet, the strategists underline steps reminiscent of larger safe-harbour thresholds, a tax vacation for information centres and a said ambition to succeed in a ten% share of worldwide exports by 2047 as proof of a long-term agenda to carry India’s share in high-value world provide chains.For fairness traders, Morgan Stanley believes this twin concentrate on manufacturing and providers, layered over a still-accommodative fiscal stance, feeds immediately into the earnings narrative. The home expects “a possible increase to capex, providers sector progress and AI, together with barely slower than anticipated fiscal consolidation, [to] assist F2027 earnings, additional helped by elevated demand for equities by buybacks.”
In Desai’s framework, sustained revenue progress, a reputable glide path on debt and an specific push into semiconductors, information and AI collectively justify staying constructive on Indian equities even after the market’s current outperformance. “We stay constructive on Indian equities – Obese Financials, Shopper Discretionary and Industrials,” the report reiterates, underscoring why Morgan Stanley’s India fairness strategist is selecting to remain bullish on the post-Finances market reasonably than fade the rally.
