Here's are the key factors contributing to this upward trend
1. Attractive valuation
Most of the banks in the banking sector were trading at an attractive valuation for a long period of time. This made the sector attract maximum flows leading to sharp up move.
2. Robust Earnings and Financial Performance
ICICI Bank reported a record net profit of ₹126.30 billion for Q4 FY2025, marking an 18% year-on-year increase. This growth was fuelled by a 13.9% rise in total loans and improved asset quality, with the gross non-performing assets ratio declining to 1.67%.
HDFC Bank also delivered strong quarterly results. The bank's CFO projected that its fiscal 2027 loan growth would exceed industry averages.
3. Macroeconomic Tailwinds and Regulatory Support
The Reserve Bank of India's reduction of the cash reserve ratio by 50 basis points to 4% is anticipated to enhance liquidity and spur credit growth, benefiting the banking sector
4. Public Sector Banks (PSBs) Outperforming
PSBs like Indian Bank, State Bank of India (SBI), and Indian Overseas Bank have reported substantial stock gains, with Indian Bank up 38.5% in 2024. This performance is attributed to improved financials, reduced interference, better credit disbursement controls, and favourable risk/reward ratios compared to private banks
We invested in banking funds in our sector rotation portfolio some time back and also have very high allocation in banking sector in all our equity portfolio. It looks like the move is paying off.