The global brokerage firm said the big picture reading from the budget statement is that policy makers are moving in the right direction toward cutting back on redistributive policies and reviving investment sentiment and this would have a positive impact from a staock market perspective.
"We are raising June 2015 Sensex target by 9 per cent to 28,800 based on Sensex earnings growth of 13.5 per cent, 22.7 per cent and 23.4 per cent for F2015, F2016 and F2017, respectively," Morgan Stanley said in a research note.
From a stock market perspective, the investment push in the budget both directly by way of government spending as well as tax cuts together with higher FDI limits in insurance and defense and a bunch of steps to ease taxation should augur well.
"The key risks for Indian equities are global monetary policy shifts, policy momentum at home, a rise in oil prices, bunching of equity supply and the richer valuations," the report said.
The government will have to provide the finer details and implementation plans of the budget announcements and will need to articulate its plans on other critical reforms, Morgan Stanley said.
Some of the key reforms include the Land Acquisition Act, regulatory changes in the power sector, reductions in fuel and fertiliser subsidies, recapitalisation of state-owned banks, gas pricing, auctioning and privatisation of coal blocks.
In the base case scenario, probability of which is 50 per cent, the June 2015 Sensex target is 26,000, while in the bull case scenario (40 per cent probability), the target would improve to 33,900 and in the bear case scenario (10 per cent probability) Sensex target is 22,500.
The three above mentioned scenarios revolve around "the outcomes of US growth; China outcomes and Indian policy momentum", Morgan Stanley said.
The 30-share sensitive index Sensex closed for the day at 25,024.35, down 348.40 points today.