Banking Stocks Drive April Rally as Nifty Bank Outpaces Broader Markets on FII Inflows

Mumbai, 29th April: The Nifty Bank index has led broader benchmarks higher with a strong 10% month-to-date gain, driven by good traction in both private and PSU banking stocks. The sharp rebound follows renewed foreign institutional interest, improved risk sentiment, and a largely in-line Q4 earnings season.

Sector Rotation Favouring Banks
The BSE PSU Bank index rose as much as 1.7% in early trade before easing slightly on profit-taking. Given that financials carry the largest sectoral weight in the benchmark indices, their trajectory is pivotal in shaping overall market direction.

Source: NSE Data as of April 29, 2025

Mid- and small-cap financials have clearly led the alpha generation this month. Notably, IndusInd and AU SFB have clocked outsized gains on the back of improved NIM visibility and traction in secured lending.

Institutional Flow Dynamics Fuel the Surge
The return of Foreign Institutional Investors (FIIs) has been a game-changer this month. A softer dollar index, declining global crude prices, and improved EM appetite for emerging markets have bolstered risk-on sentiment in Indian equities—particularly in bank stocks with high foreign shareholding.

FIIs  | ██████████████ ₹+35,000 Cr (Net Buying)

DIIs  | ██████ ₹+2,817 Cr (Net Buying)

After offloading equities worth ₹35,000 crore earlier this year, FIIs turned net buyers in April — resuming a nine-session buying streak. This capital shift has been instrumental in the sharp re-rating of banking counters.

Earnings: Steady, Not Spectacular—Yet Supportive
The Q4 earnings prints for most lenders have been in line with Street expectations, avoiding negative surprises that could derail sentiment. Trends in asset quality remained stable, provisions were well-managed, and credit growth guidance largely held steady.

While subdued earnings growth is priced in for FY25, strong topline resilience and manageable credit costs have brightened near-term risk-reward. Most PSU banks have delivered better-than-expected results this quarter, prompting a positive reassessment of valuations after a mutued March performance

Technical Setup: Key Levels to Track
The Bank Nifty’s short-term chart shows signs of overextension, with RSI for key constituents hovering near overbought territory. Yet, structurally, the uptrend remains intact unless key support zones are breached.

The key resistance level stands at 56,200—if decisively broken, it can initiate the next phase of the rally. At the lower end, the near-term support comes in at 55,300, followed by 55,000 and 54,700. A decline below these levels can trigger profit-booking and result in a minor corrective fall within the prevailing uptrend.

Broader Context Remains Favourable
Alongside foreign inflows, domestic institutional investors (DIIs) have also remained active, buying equities worth ₹2,817 crore for the second consecutive session. Despite valuation pressures earlier in the year, the banking sector has seen a sharp recovery, buoyed by consistent earnings and better asset quality.

Interestingly, despite a major erosion in market capitalisation among PSU banks in the March quarter, April has reversed much of that weakness. Bank Nifty has surged by over 9% this month alone, bolstered by broad-based institutional interest and positive earnings momentum.

Bottom Line: A Deep Trade Discount
The benchmark had hit a peak on 30 September 2024 on a month-end basis. Since then, Bank Nifty has not only weathered the volatility but also emerged as a clear outperformer—delivering solid returns while the broader Nifty 50 declined.

However, despite this rebound and improved investor sentiment, Nifty Bank continues to trade at a material valuation discount to the Nifty 50. This gap highlights a compelling risk-reward proposition for investors. With earnings visibility improving, credit costs under control, and capital flows turning supportive, banking stocks are well-positioned to remain at the forefront of market leadership. In a market searching for structural drivers, India’s financials could still offer both momentum—and meaningful value.