Bank Nifty poised to extend monthly winning run to four for the first time in 2 years. What's behind the momentum?

Nifty Bank in focus today: It was another green day for domestic financial stocks as the Nifty Bank scaled a new record high of 57,387 in Friday's session, June 27. Although the index witnessed some profit booking at the opening bell, it recovered smartly as the day progressed, supported by strong buying in heavyweight stocks that have been leading the index in recent sessions.

As of 12:30 p.m., eight out of the 12 constituents of the index were trading in the green. IndusInd Bank and Bank of Baroda were the top performers, gaining up to 2%. Other stocks, including IDFC First Bank, Punjab National Bank, State Bank of India, and Canara Bank, also posted solid gains of over 1%.

Bank Nifty eyes fourth straight monthly gain

So far this month, the index has gained nearly 3%. If it ends the month with similar momentum, which appears likely, it will mark the fourth consecutive monthly gain for the index, its longest winning streak in the past two years.

The index last posted a similar streak between March 2023 and July 2023, when it closed in the green for five straight months. In terms of top performers this month, AU Small Finance Bank leads the pack with an 18% rally so far, followed by IndusInd Bank and IDFC First Bank, which have gained 7% each.

Meanwhile, Kotak Mahindra Bank, Federal Bank, HDFC Bank, and Axis Bank have also gained between 2.5% and 5%, respectively. Looking at the stocks that recorded fresh milestones in June, two counters, including HDFC Bank and AU Small Finance Bank, set new all-time highs of ₹2,027 and ₹824.

Rate cuts and liquidity easing fuel banking stocks revival

Banking stocks began their upward run in March, ending a four-month losing streak after the RBI announced its first rate cut in five years during the February meeting and introduced further liquidity easing measures in the following months.

Tight liquidity conditions had put pressure on bank margins in recent quarters, with aggregate net profit for banks growing in single digits year-on-year in the March 2025 quarter, the first time in four years (or 17 quarters).

However, investor optimism toward banking stocks remained intact, as the RBI’s series of steps to inject additional liquidity into the banking system since September, along with interest rate reductions, have raised expectations that these measures will ease margin pressures in the coming quarters and support banks’ bottom lines.

The banking regulator last week relaxed project finance regulations to make lending more affordable for infrastructure and industrial projects. While the draft guidelines had proposed sharply higher provisioning requirements of up to 5% during the construction phase, the final norms are significantly more lenient.

Meanwhile, the relaxation in final norms for gold loans and liquidity coverage ratio (LCR), along with the deferment of Expected Credit Loss (ECL) implementation, signal the RBI's clear intent to revive credit growth.

In addition, the RBI announced an unexpected 50-basis-point cut in the repo rate and a surprise 100-basis-point reduction in the cash reserve ratio (CRR) during the June 2025 MPC meeting, which analysts believe could further support the revival of credit demand in the system.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.