New Delhi [India], May 21 (ANI): Morgan Stanley, a global financial services firm, on Wednesday modestly upgraded its forecast for the Indian economy to 6.2 per cent year-on-year for financial year 2026, up from 6.1 per cent and 6.5 per cent for FY 2027, up from 6.3 per cent.

'We upgrade our growth forecasts modestly to 6.2% YoY (vs. 6.1%) for F2026 and 6.5% YoY (vs. 6.3%) for F2027 in view of the de-escalation of US-China trade tensions, which improves the outlook for external demand at the margin,' said the report.

The financial services firm cited the internal economic forces behind the upward revision of India's GDP. It says that domestic demand will remain the primary engine of growth, especially at a time when global uncertainties persist.

'Domestic demand trends will be the key driver of India's growth momentum amid lingering uncertainty on the external front,' Morgan Stanley added.

The financial services firm further added that policy support from the government is likely to continue and it will boost domestic demand and growth.

'Policy support is likely to continue through easier monetary policy while fiscal policy prioritises capex. Macro stability is expected to be in the comfort zone with robust buffers,' the report added.

The broking firm further added that within domestic demand, consumption recovery will become more broad-based with urban demand improving and rural consumption levels already robust.

On the investment front, it added that public and household capex are driving growth, while the anticipation is that private corporate capex will recover gradually.

'Within domestic demand, we expect consumption recovery to become more broad-based with urban demand improving and rural consumption levels already robust. Within investments, we see public and household capex driving growth while we expect private corporate capex to recover gradually,' said the Morgan Stanley report.

On policy front, brokerages anticipated that the central bank, Reserve Bank of India (RBI), will continue with a deeper easing cycle as growth has seen a slowdown and controlled inflation levels.

'On the fiscal policy front, we expect the consolidation path laid down in the Budget to be maintained in our base case with a focus on pushing capex,' Morgan Stanley added.

The Reserve Bank of India (RBI) has projected a GDP growth of 6.5 per cent for the fiscal year FY26 (ANI).