Banking stocks poised for selective rally as sector rotation gains momentum: Deven Choksey

Even as headline indices remain range-bound, selective buying is emerging across banking and financial names, signalling a sectoral churn ahead of the year’s second half, according to Deven Choksey, Managing Director, DRChoksey FinServ Pvt. Ltd.

According to Choksey, the second half of FY26 is expected to deliver stronger growth for several sectors, with banks among the prime beneficiaries. “Most of the companies, including the banking sector that you have mentioned, are definitely confirming that the second half of the financial year is definitely working out better for them compared to the first and second quarter,” he told ET Now.

He noted that improved cost management and better loan traction are aiding optimism within financials. “Few reasons on the banking side particularly the liability side is coming…, the cost is under control, which is a lower cost of funds they would be getting and enjoying. On the other side, they are getting the larger amount of traction in the form of MSME and SME loans, which was probably not the scenario in the first two quarters,” he added.

Highlighting the improving momentum in private sector lenders, Choksey said valuations remain attractive given the expected growth trajectory. “Most of the banks are available today at a valuation which is not expensive, given the kind of 15% kind of underlying growth promise that we carry in those companies,” he noted.

The market veteran also expects renewed interest in public sector banks (PSBs), citing both valuation comfort and strong government intent. “From a valuation perspective, yes, they are undervalued. On a business case basis, the tailwind is largely coming in from the government’s intention to consolidate some of the public sector banks further… the second round of consolidation is likely to happen now in this particular period 25-26,” Choksey said.

He believes the ongoing earnings season has been better than anticipated. “Most of the companies have reported better profitability than anticipated, including the largecaps and among the midcaps as well,” he pointed out, adding that the combination of cost control, improving topline, and stable interest costs is setting the stage for a stronger FY26.Also read: Lenskart, PhysicsWallah, and Groww: GMP trends suggest up to 22% listing gains for 9 IPOs next weekChoksey concluded that PSU banks, backed by solid fundamentals and consolidation tailwinds, offer relatively lower downside risk. “If one has to take some position with a relatively low downside risk, I think that the PSBs are right in the checkbox list,” he said.(Disclaimer: Recommendations, suggestions, views, and opinions expressed by experts are their own and do not represent the views of The Economic Times.)