Is Bank Nifty poised for further gains as margin pressures ease?

Synopsis

Bank Nifty surged past 59,000 to a record closing high on Wednesday, driven by investor confidence in banking stocks. Analysts anticipate continued momentum, citing easing earnings pressure and attractive valuations. Both private and PSU banks showed gains, with improved profitability and asset quality contributing to the optimism.

Mumbai: Bank Nifty crossed the 59,000-mark for the first time and closed at a record high on Wednesday, as investor optimism in banking stocks strengthened on expectations that earnings pressure from the interest rate cut cycle has bottomed out and valuations remain relatively modest compared to other sectors.

The index ended 0.5% higher at an all-time closing high of 59,216, while the benchmark Nifty advanced 0.6% to 26,052.

"The momentum in banking stocks is expected to continue, with modest gains likely as valuations remain reasonable," said Pankaj Pandey, head of retail research, ICICI Direct.

Out of the 12 stocks in the index, 10 advanced and two declined. Punjab National Bank gained 2.4%, while Bank of Baroda and Canara Bank rose 1.8% and 0.9%, respectively.

Fund managers said the pressure on profitability is easing.

Agencies

record close: Easing of margin pressure and modest valuations seen as factors behind the momentum l Foreign investors also said to be no longer negative on BFSI space

"The worst of the margin pressure is behind us, and the margins are anticipated to remain stable (unless there are further rate cuts) in the near term after a few quarters of decline," said Christy Mathai, fund manager, Quantum Mutual Fund.

In the past month, the Bank Nifty gained 2.6%, compared with a 1.3% rise in the benchmark Nifty. So far in 2025, Bank Nifty is up 16%, versus a 9.7% gain in the Nifty.

"Foreign investors are no longer negative on the BFSI space as banking stocks displayed improved profitability and relatively lower margin compression," said Pankaj Pandey, head of Retail Research, ICICI Direct.

The Nifty Private Bank and Nifty PSU Bank indices gained 0.3% and 1.2%, respectively, on Wednesday.

Pandey added that the asset quality and growth of PSU banks are now at par with private peers and that improving return ratios leave room for a re-rating.

"Although the entire banking pack witnessed low growth, the margin stability for PSU Banks positively surprised investors," said Mathai.

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