Interim Budget surprised positively on fiscal deficit target: Morgan Stanley

New Delhi: The Interim Budget focused on consolidating fiscal deficit ahead of expectations and pegged the target at 5.1 per cent of GDP for F25BE from 5.8 per cent of GDP in F24RE. Further, the fiscal assumptions look reasonable with the tax revenue assumptions a tad conservative, foreign brokerage Morgan Stanley said in a report.

The Budget has prioritised macro stability, with a lower than expected fiscal deficit and government borrowing, which is likely creating space for the private sector to take on the mantle of capex growth, the report said.

As such total expenditure growth is expected to moderate to 6.1 per cent in F25BE (from 7.1 per cent in F24RE), led by a slowdown in overall capex (from a high base) and tepid growth in revenue spending.

While capex spending remains meaningfully above revenue spending, overall infra-related capex spending is budgeted to slow to 5 per cent YoY in F2025BE (vs 19 per cent in F2024RE).

"Indeed, it appears that the government is attempting to transition the economy from government expenditure to private expenditure led, but we will await the full Budget in July (post elections) for confirmation," Morgan Stanley said.

“The higher-than-expected fiscal consolidation is good news for macro stability but, at the margin, a slight drag on earnings. That said, likely lower long-term yields augurs well for equities. The lower government borrowing for the rest of this fiscal and next year is good for liquidity and the private sector banks. We are overweight financials," the report added.