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

Even as major indices remain within range, there is selective buying across banks and financial names, which Deven Choksey, Managing Director of DRChoksey FinServ Pvt, says indicates sectoral churn heading into the second half of the year. Ltd.According to Choksey, the second half of FY26 is expected to see stronger growth across sectors, with banks among the key beneficiaries. “Most companies, including the banking sector that you mentioned, are definitely confirming that the second half of the financial year is definitely going to be better for them compared to the first and second quarters,” he told ET Now.

He noted that improved cost management and better lending are driving optimism within the financial sector. “There are few reasons on the banking side, especially the liabilities side, that are coming…costs are under control, which means lower costs for the funds they would get and enjoy. On the other hand, they are getting a greater 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 improving momentum among private sector lenders, Choksey said valuations remain attractive given the expected growth trajectory. “Most banks today are available at a valuation that is not expensive given the underlying 15% growth promise we have in store for these 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, they are indeed undervalued. Based on the business case, the tailwind largely comes from the government’s intention to further consolidate a number of public sector banks… the second round of consolidation is now likely to happen in this particular 25-26 period,” Choksey said.

He believes that the current results season has been better than expected. “Most companies have reported better profitability than expected, including the largecaps and also the midcaps,” he pointed out, adding that the combination of cost control, improving revenue and stable interest costs paves the way for a stronger FY26.Also read: Lenskart, PhysicsWallah and Groww: GMP trends suggest up to 22% stock market gains for 9 IPOs next week

Choksey concluded that PSU banks, backed by solid fundamentals and tailwinds of consolidation, offer relatively lower downside risk. “If someone needs to take a position with relatively low downside risk, I think the PSBs are right on the checkbox list,” he said.

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