The Nifty Bank index has witnessed a healthy uptrend in recent sessions, even as the domestic equity benchmark Nifty 50 has struggled to sustain gains. The banking index is up nearly 3% year-to-date, while the Nifty 50 has slipped about 1.5% during the same period.
The Bank Nifty climbed to 61,309 in intraday trade on Wednesday, February 18, moving closer to its all-time high of 61,764.85, which it hit on February 3 this year. Strong Q3 earnings, a pause on RBI rate cuts, and relatively attractive valuations have boosted investor interest in banking stocks.
Can the rally in the banking pack sustain?
Improving outlook
The banking sector’s outlook has improved in the wake of in-line Q3 results and the RBI’s reluctance to cut rates further.
On February 6, the RBI decided to keep the repo rate unchanged at 5.25%, while maintaining a “neutral” policy stance. This eliminated a major risk of further deterioration of the margins of many banking players.
As far as earnings are concerned, brokerage firm Motilal Oswal Financial Services observed that the banking sector posted a “steady quarter, supported by stable margins, healthy loan growth and continued improvement in asset quality, with credit costs remaining well under control.”
Motilal highlighted that most banks expect healthy momentum in Q4FY26, supported by steady net interest margins (NIMs) and improving credit cost metrics.
“We remain constructive on the banking sector, as we believe the positive earnings momentum is expected to continue over the coming quarters. We project sector credit growth to remain at nearly 12.5% YoY for FY26,” said Motilal Oswal.
Motilal expects margins to improve further in Q4, aided by CRR cuts, better business growth and improving credit cost metrics.
“Earnings growth is expected to be positive in Q4FY26, with a more meaningful rebound in FY27 as easing stress translates into lower credit costs and as margin recovery takes hold,” said Motilal.
Over FY26-28, Motilal projects an aggregate earnings CAGR of 21% for private banks and 11% for public sector banks. For our overall coverage universe, it estimates a 16% earnings CAGR.
Vinit Bolinjkar, the Head of Research at Ventura, highlighted that the Indian banking sector in early 2026 is defined by a transition from aggressive retail expansion to “quality-led moderation” as the credit-deposit gap remains a central challenge.
Bolinjkar pointed out that with the RBI maintaining a neutral stance and the repo rate held at 5.25%, the industry is focusing on protecting NIMs, which have stabilised following the previous year’s rate cuts.
“Analytical trends suggest a structural pivot toward corporate capex as private investments revive, benefiting large-cap lenders with strong balance sheets. Furthermore, the mandatory transition to expected credit loss (ECL) provisioning this April has already been largely priced in, with top-tier banks having built sufficient cushion reserves,” said Bolinjkar.
Technical outlook for Bank Nifty
Experts highlight that the banking sector remains constructively bullish. The recent formation of a Bullish Engulfing pattern on the daily chart, along with a consistent higher-high–higher-low structure, indicates that buyers are firmly in control.
Riyank Arora, Associate Vice President – HNI and Derivatives, Hedged.in, highlighted that the banking sector remains a key pillar of market stability and upside, supported by healthy credit growth, improving asset quality, and stable margins.
Arora pointed out that private Banks are showing a positive bias, with support near 28,800, and a breakout above 29,200 is likely to open upside towards 29,500–29,600.
However, leadership at this juncture clearly lies with PSU banks, Arora added.
PSU banks are witnessing strong momentum, backed by balance-sheet repair, declining NPAs, improved ROEs, and sustained loan growth. The PSU Bank index is holding firmly above the 9,360 support zone, and a move beyond 9,600–9,650 could trigger further upside, said Arora.
According to Hitesh Tailor, a technical research analyst at Choice Broking, pointed out that the banking index continues to trade along a rising trendline, suggesting that the broader uptrend remains intact and is gradually gaining momentum.
Tailor said the 59,800–60,000 zone stands as a formidable demand base.
“As long as this support holds on a closing basis, the tactical stance remains buy on dips. On the upside, while 61,000 may act as an interim psychological checkpoint, the key supply zone is placed at 62,000, where some resistance-driven consolidation or profit booking could emerge,” said Tailor.
Banking stocks to buy
Motilal’s preferred picks are ICICI Bank, HDFC Bank, SBI, and AU Small Finance Bank.
Bolinjkar recommends ICICI Bank, HDFC Bank, SBI, and Union Bank of India for the long term.
“ICICI Bank is the premier ‘all-weather’ pick. Its superior digital architecture and diversified loan book offer the best risk-adjusted returns,” said Bolinjkar.
“State Bank of India (SBI) is trading at attractive valuations (nearly 1.2 times P/BV) and uniquely positioned to lead the multi-year corporate credit upcycle,” said Bolinjkar.
“Synergies from the historic merger are finally yielding operational efficiencies, making HDFC Bank a value-buy for long-term compounding,” Bolinjkar said.
“Union Bank of India is a high-momentum play in the PSU space with strong asset quality improvements and a technical target of ₹220,” said Bolinjkar.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
