Market's Upward Trajectory
The Nifty Bank index saw a remarkable increase, climbing by 0.61% to reach 55,835, marking a one-month high on the trading day. This positive performance
constituted the twelfth consecutive session of gains, highlighting the strong momentum in the banking sector. This rally has also contributed to an impressive 4% gain for the index throughout September. Supporting the upward trend, the yield on the Indian 10-year G-Sec decreased to 6.50% following the U.S. Federal Reserve's decision to reduce its key interest rate by 25 basis points. This combination of factors paints a picture of a robust recovery within the Indian banking market.
Key Performance Drivers
Several key factors are currently fueling the positive trend in banking stocks. Expectations of a revival in credit demand are playing a significant role. Simultaneously, there is easing concern over the effects of government revenue from GST rate cuts. Additionally, decreasing bond prices contribute to the recovery rally in banking stocks. Specific counters such as Bank of Baroda gained 2.6% and hit an intraday high of ₹252.25 per share. Moreover, HDFC Bank and AU Small Finance Bank also advanced over 1% to reach daily highs. The overall sentiment across the sector is positive, with 11 out of 12 stocks in the index trading in the green at the time of observation.
Individual Stock Performance
Certain key stocks within the Nifty Bank index were instrumental in driving the overall index upward. HDFC Bank, Bank of Baroda, IDFC First Bank, and ICICI Bank significantly boosted the index by 0.61%. Bank of Baroda is closing in on its 52-week high. While many index stocks hit fresh 52-week highs in 2025, SBI and Bank of Baroda are approaching those levels. SBI is now only 2.06% away from its 1-year high of ₹874.45 apiece, recorded in December 2024. Bank of Baroda is just 6% away from its 52-week high of ₹266.95 apiece. These movements reflect the ongoing recovery and the positive expectations surrounding these financial institutions.
Future Outlook & Projections
Analysts anticipate a credit growth of 11% for FY26, with further acceleration to 13% in FY27E. While margin pressures from elevated funding costs and yield compression have negatively affected sector earnings, signs of stabilization are emerging. Deposit repricing is underway, and phased CRR cuts are expected to ease liquidity constraints, supporting margin recovery. Motilal Oswal forecasts earnings growth to rebound to 18.4% in FY27, compared to the 3% YoY growth expected in FY26. The brokerage also noted that the reduction in GST rates, along with the lagged benefits of income tax cuts, is expected to support loan recovery in the latter half of FY26. Furthermore, the Finance Minister reiterated the government’s dedication to achieving its fiscal deficit target of 4.4% of GDP for the fiscal year.
Market Dynamics & Trends
The banking system observed a deceleration in credit growth to 10% YoY, primarily caused by moderation in key retail and corporate segments. Domestically focused stocks, like those within the Nifty Bank, are providing a boost to the Nifty 50, which surpassed the 25,400 mark. Asset quality stress in unsecured loans and sectors such as MSMEs and CVs, however, continues to pose challenges to near-term profitability. The ongoing trends and projections paint a picture of resilience and potential growth for the Indian banking sector, driven by policy decisions and market dynamics.
