NIFTY Bank index surges 6% in three sessions; top factors behind the rally in banking stocks

The measure of banking shares on the National Stock Exchange, the NIFTY Bank index, rose as much as 744 points, or 1.3%, to hit a four-month high of 53,123.70 on Wednesday, April 16.

The index rallied for a third straight session in a row on Wednesday, and in the last three sessions, the NIFTY Bank index has climbed as much as 5.71% or 2,883 points, data from the National Stock Exchange showed.

Here are the key factors behind the surge in NIFTY Bank index:

The banking shares caught investors' interest after the Reserve Bank of India (RBI) announced a repo rate cut last week in a move to support growth.

Following the rate cut by the RBI, a whole host of banks announced interest rate cuts, thereby reducing borrowing costs.

All the 12 shares in the NIFTY Bank index were trading higher, led by IndusInd Bank's 7.32% gain.

Last week, global investment bank Goldman Sachs came out with a report in which it said that it sees early signs of improvement in asset quality and operating profitability, which added to the bullish sentiment for banking shares, analysts said.

"In the near term the data points could remain soft, given sluggish credit growth (see recent report), impact on NIMs due to lead/lag between loans vs. deposits and elevated credit costs, driving modest EPS cuts of 2% on average for our coverage for FY26E. We believe the sector could be closer to the bottom of the cycle, with cuts to consensus EPS forecasts for FY26-FY27E to end in 1HFY26," Goldman Sachs said in a report.

The global investment bank added that the asset quality of the banking sector is showing signs of stabilisation in most loan segments, noticeably in the unsecured loan segment, except for business banking loans for NBFCs.

"We expect the slippages to start moderating from 2HFY26, and consequently, the credit costs will also start to moderate from 2HFY26, as we lower our credit-costs assumptions," Goldman Sachs added.

Goldman Sachs further said that banks will have a manageable impact of tariffs on their earnings.

"Our macro team has reduced GDP growth assumptions by 30bps (link to note) on potential impacts from tariff rollouts by the US government. However, they still expect nominal GDP growth of 9.5% pa in FY26/27. Our credit growth assumptions of 11% CAGR over FY25-27E look manageable, partly supported by the fiscal measures (cut in income tax rates), RBI easing measures (such as rate cuts, liquidity infusion, etc.) and likely improving asset quality scenario in 2HFY26," Goldman Sachs said.

As of 2:32 pm, the NIFTY Bank index traded 678 points higher at 53,057.60, outperforming the NIFTY50 index, which was up 0.29%.