Bank Nifty Surpasses 60,000: What Drives Banking Stocks Amid FII Outflows in 2026

The Indian banking sector started 2026 with a bang. On January 2, 2026, Bank Nifty crossed 60,000 for the first time, marking a significant milestone. This surge was led by major banking stocks such as HDFC, ICICI, Axis, and SBI, which powered the New Year rally despite foreign institutional investors (FII) pulling out funds. What explains this strong performance in the face of FII outflows? This post explores the key factors behind the rally and what investors should watch going forward.

Banking Stocks Led the New Year Rally

The opening trading session of 2026 saw banking stocks outperform the broader market. HDFC, ICICI, Axis, and SBI recorded notable gains, driving Bank Nifty past the 60,000 mark. This rally was surprising given the pressure from FIIs, who were net sellers in the banking space. The resilience of these stocks highlights strong domestic interest and underlying fundamentals.

Domestic Institutions Provided Crucial Support

One of the main reasons banking stocks held firm was the support from domestic institutional investors (DIIs). These institutions stepped in to offset FII selling, buying aggressively in key banking stocks. Their confidence reflects a positive outlook on the sector’s growth prospects and valuations. This DII support helped maintain momentum and prevented a sharper correction.

Healthy Credit Growth Boosts Loan Books

Credit growth remains a critical driver for banking stocks. In 2026, banks are expected to see credit growth in the range of 10-12%, indicating healthy expansion of loan books. This growth is fueled by rising demand from retail, corporate, and infrastructure sectors. A steady increase in lending volumes supports banks’ revenue and profit growth, making them attractive to investors.

Attractive Valuations Draw Investor Interest

Despite the rally, valuations of many banks remain below their historical price-to-book (P/B) levels. This valuation gap suggests that banking stocks still offer upside potential. Investors looking for value find this attractive, especially when combined with improving fundamentals. The current pricing provides a cushion against volatility and room for further gains.

RBI Rate Cuts Are Showing Positive Impact

The Reserve Bank of India’s rate cuts over the past year are beginning to transmit into the banking sector. Lower interest rates improve net interest margins (NIMs), which is a key profitability metric for banks. With better NIMs expected, banks can generate higher income from their lending activities. This factor adds to the positive sentiment around banking stocks.

What This Means for Investors

For investors holding HDFC, ICICI, Axis, SBI, or other banking stocks, the January 2, 2026 milestone signals a strong start to the year. The combination of DII support, healthy credit growth, attractive valuations, and improving margins creates a favorable environment. However, investors should remain mindful of external risks such as global market volatility and policy changes.

Bank Nifty crossing 60,000 is not just a number; it reflects confidence in India’s banking sector fundamentals. Traders in Bank Nifty derivatives can also benefit from the increased momentum and liquidity in these stocks. Portfolio managers overweighting financials may consider maintaining or increasing exposure given the positive outlook.

Key Takeaways

• January 2, 2026 marked the first time Bank Nifty crossed 60,000, driven by strong gains in HDFC, ICICI, Axis, and SBI.

• Domestic institutional investors offset FII selling, providing crucial support to banking stocks.

• Credit growth of 10-12% indicates healthy loan book expansion, supporting revenue growth.

• Banks trade below historical P/B ratios, making valuations attractive for investors.

• RBI rate cuts are improving net interest margins, boosting bank profitability.

  
  

This combination of factors suggests that banking stocks could continue to lead market gains in 2026. Investors should watch credit growth trends, DII activity, and RBI policy updates closely to gauge future momentum.