Outlook 2025: After underperforming in 2024, can Nifty Bank outperform Nifty 50 next year? | Stock Market News

Market outlook: The Indian banking sector showcased steady growth in 2024, delivering a year-to-date return of around 8 per cent. However, this performance lagged behind the Nifty 50’s over 11 per cent increase and a stellar 30 per cent surge seen in mid- and small-cap indices. 

Despite significant FII outflows, Nifty Bank demonstrated a robust recovery, rallying 5 per cent from its November lows. Certain banks have emerged as leaders, driven by solid fundamentals.

Banking Stocks: Top gainers & losers

In 2024 so far, banking stocks delivered mixed returns. Small finance banks and those having high exposure to unsecured loans underperformed, while private banks and public sector banks (PSBs) posted stronger gains.

ICICI Bank was the top gainer in the Nifty Bank index in 2024, with a remarkable 31 per cent increase. State Bank of India (SBI) followed closely, gaining over 30 per cent. Federal Bank also saw a solid 29 per cent rise.

Canara Bank advanced by 18%, while Bank of Baroda, Punjab National Bank (PNB), and HDFC Bank each posted gains of over 6%. Axis Bank also finished in positive territory.

However, IndusInd Bank was the top loser as it declined 40 per cent. It was followed by AU Small Finance Bank and IDFC First Bank, down over 27 per cent each. Kotak Bank also shed over 7 per cent in 2024.

On the financial front, most banks posted double-digit profit growth in the September quarter, underscoring their operational strength. However, challenges persisted, particularly for banks with high exposure to unsecured loans. Some players faced a steep decline in profits of up to 90 per cent, driven by elevated credit costs. PSBs stood out, outperforming their peers during this period.

Outlook: Will Nifty Bank outperform Nifty in 2025?

As 2025 approaches, experts are optimistic about the banking sector’s prospects amid strong fundamentals, technological advancements, and supportive macroeconomic conditions. According to experts, these factors are expected to position Nifty Bank as a potential outperformer in the year ahead.

Shrikant Chouhan, Head of Equity Research, Kotak Securities, expressed confidence in the sector’s outlook, stating, “Banking stocks offer both value and safety, positioning them as strong candidates to outperform the Nifty in 2025. Looking ahead, we see sustained opportunities in the sector, with healthy double-digit loan growth, limited downside risk to net interest margins, and strong asset quality.”

Atul Parakh, CEO of Bigul, also echoed a positive sentiment, saying that the banking sector may show resilience in 2025 despite a challenging economic backdrop. “The sector’s asset quality has significantly improved. Although credit growth may moderate, profitability indicators remain healthy, supporting a stable outlook,” he said. 

Parakh added that the sector could outperform the Nifty index, particularly as it capitalises on diversified revenue streams and improving economic conditions.

Analysts also highlighted the Reserve Bank of India’s (RBI) reduction in the cash reserve ratio by 50 bps to 4 per cent as a key catalyst for driving gains in banking stocks. 

Anupam Roongta, Market Analyst at Share.Market, said the recent CRR cut is expected to boost liquidity and credit growth, which can support broader economic growth. A thriving economy typically leads to higher demand for credit and financial services, benefiting the banking sector, he added.

Technological advancements in the digital banking and automation space are reshaping the banking sector, with digital transactions expected to exceed ₹83 lakh crore by 2025. Banks that embrace these innovations could see enhanced efficiency and profitability, according to analysts.

Investment Strategy

Diwakar Rana, Fund Manager at Prudent Equity, advised investors to focus on quality and consistent earnings predictability. “Investors should prioritise quality and consistent earnings predictability when selecting banking stocks, rather than focusing solely on low valuations,” Rana noted.

Meanwhile, Chouhan of Kotak Securities recommended staying invested in banking stocks. “Historically, when stock prices correct despite strong fundamentals, the prudent approach is to stay invested, which aligns with our recommendation,” he said. Axis Bank, HDFC Bank, ICICI Bank, SBI, and BOB are his top picks from the sector.

Technical Outlook

Mandar Bhojane, Equity Research Analyst at Choice Equity Broking, provided a bullish technical outlook for the Bank Nifty index. 

He stated, “The Bank Nifty index is currently trading just 1,100 points away from its all-time high, signalling relative strength. A decisive break and close above the 54,000 mark would signal the potential for a strong rally, with targets of 58,000 and possibly 60,000 in the near future.”

The index has shown a well-defined sideways range between 54,000 and 50,000 on the weekly chart. Positive momentum, as indicated by an upward-trending RSI of 59.22, supports the potential for a breakout, he added. In contrast, the broader Nifty index remains over 1,700 points away from its all-time high, hindered by weaker market sentiment and global macroeconomic uncertainties.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.