Nifty Bank rallies 1,000 points; HDFC Bank, IndusInd, Yes Bank, and other stocks jump up to 3%. What lies ahead?

Banking stocks surged on Monday, lifting the Nifty Bank index nearly 1,000 points, as easing geopolitical tensions following the Iran-US peace framework and a sharp decline in oil prices boosted market sentiment. Analysts said attractive valuations and improving macroeconomic conditions could help lenders lead the market rally.

The Nifty Bank index surged nearly 2% to cross the 57,800 mark on Monday, led by heavyweight HDFC Bank, whose shares climbed about 3% to Rs 1,793.50 apiece. The stock has now gained roughly 7% over the past two trading sessions.

IndusInd Bank shares also surged nearly 3% on Monday. Bank of Baroda and Yes Bank shares were up around 2% each, while those of IDFC First Bank, Punjab National Bank, Canara Bank, Union Bank of India, AU Small Finance Bank, Kotak Mahindra Bank, State Bank of India (SBI), Axis Bank and ICICI Bank gained around 1% each. Federal Bank was the only counter on the index that slipped into the red with marginal losses.

Iran and US reach peace deal framework

US President Donald Trump announced on Sunday that the much-awaited peace agreement has been finalised. "The Deal with the Islamic Republic of Iran is now complete," Trump wrote on his Truth Social platform. He further said that the Strait of Hormuz, a vital route for global oil shipments that Iran has effectively closed for months, would reopen on Friday, while the US would end its blockade of Iranian ports. "Ships of the World, start your engines. Let the oil flow!" Trump wrote.


Iran, meanwhile, said that the newly announced agreement with the United States puts an "immediate end" to the countries' war. "A permanent and immediate end to the war has been declared on all fronts, including Lebanon," Iran's Deputy Foreign Minister Kazem Gharibabadi said in televised comments in the early hours of Monday.

Also read: Rs 8L cr richer! Sensex zooms 1,100 pts, Nifty tops 24K. US-Iran truce among 5 drivers behind bull run

What lies ahead for bank stocks?

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, had highlighted that banks are likely to lead the rally today. “The big short positions in the leading private sector banks will continue to trigger further short covering in the segment. Their valuations are attractive in this fairly valued market,” he said.

Nomura, in its latest note on HDFC Bank, noted that the RBI's recent policy announcement introduces an FCNR(B) swap window for fresh NRI deposits of 3 to 5 year tenure, made during June 8 to September 30, with the RBI absorbing the full cross-currency hedge cost. Deposits are CRR- and SLR-exempt for their life – 100% deployable.

“This is positive for the sector: it brings in deposits at a time when deposit growth has been subdued, reduces reliance on short-term wholesale funding and improves ALM across the system,” the international brokerage highlighted.

Risk reward for HDFC Bank shares is favourable

Nomura further noted that most large banks are offering nearly 6% on FCNR deposits, while mid-tier banks are offering up to 7%. The difference in returns is meaningful when leverage is applied. A 10x leverage at 6% generates around 15% per annum returns for depositors at large banks, while at 7% (mid-tier), the same leverage generates around 25% returns.

“That said, we expect large banks to capture a disproportionate share of flows – foreign institutions facilitating leverage will prefer large bank counterparties over mid-tier, given safety and credit quality considerations,” it added, while reiterating its ‘Buy’ call on HDFC Bank shares as it sees the risk-reward favourable.

Also read: Bulls return to banks on RBI's FCNR(B) initiative

Technical levels for Nifty Bank

Bank Nifty witnessed a strong breakout, surpassing the crucial resistance zone of 56,400 and breaking above a falling trendline resistance in the last session, indicating a positive shift in momentum, said Vatsal Bhuva, Technical Analyst at LKP Securities. He highlighted that the index has also reclaimed its 100-DMA on the daily chart, while RSI remains in a bullish crossover, supporting the upward bias.

“On the weekly timeframe, the index has reclaimed both its 20-SMA and 50-SMA, highlighting improving technical strength. The overall setup suggests continued positivity, with the index likely to test 57,000 levels initially and potentially extend towards 57,500. Immediate support is placed at 56,000, while positional support is seen at 55,500,” according to the analyst.

"Bank Nifty witnessed a decisive breakout from a symmetrical triangle pattern on the daily chart this week. The index also moved above all its key short-term moving averages and closed just below its 200-DMA, placed at 56,990. A sustained move above this level could trigger further upside towards the 57,500–58,000 zone. The momentum indicators remain supportive, with the MACD generating a bullish crossover and the RSI climbing above the 65 mark, signalling strengthening momentum. The broader technical structure remains positive, and a buy-on-dips strategy is advisable as long as the index sustains above the 56,000 level,” said Nilesh Jain, VP- Head of Technical and Derivative research at Centrum Finverse.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)