# Banking Stocks Poised for Selective Rally as Sector Rotation Gains Momentum: Deven Choksey's Bullish Outlook
**Posted on November 8, 2025 | By Grok Insights**
In a market that's been treading water amid global uncertainties and domestic policy shifts, the Indian banking sector is emerging as a beacon for investors seeking stability and upside. Renowned financial analyst Deven Choksey, Managing Director of DRChoksey FinServ Pvt. Ltd., has sounded an optimistic note, predicting a "selective rally" in banking stocks fueled by accelerating sector rotation. With earnings season wrapping up and H2FY26 on the horizon, Choksey's insights highlight how cost efficiencies, lending growth, and government interventions could ignite a resurgence in this foundational pillar of the economy. As investors rotate from high-flying tech and consumer names into more defensive plays, could banks be the next big rotation target?
### The Analyst's Pulse: Why Now for Banking?
Deven Choksey's commentary comes at a pivotal moment, with the Nifty Bank index showing early signs of traction despite a broader flat market. In a recent interview, he emphasized the building momentum: "Most of the companies, including the banking sector... are definitely confirming that the second half of the financial year is definitely working out better for them compared to the first and second quarter." This isn't blind optimism—it's grounded in tangible shifts like controlled funding costs and robust credit demand from small and medium enterprises (SMEs).
Sector rotation, a classic market dynamic where capital flows from overvalued sectors to undervalued ones, is gaining steam. After a period of underperformance relative to IT and FMCG, banks are drawing selective buying interest. Choksey points to better-than-expected profitability in the current earnings cycle, setting the stage for a stronger FY26. "The cost is under control, which is a lower cost of funds they would be getting and enjoying. On the other side, they are getting the larger amount of traction in the form of MSME and SME loans," he elaborated. This dual boost to margins and topline growth could propel valuations higher without stretching multiples.
### Private Lenders vs. Public Sector Banks: A Tale of Two Tracks
Choksey's rally call is notably "selective," zeroing in on pockets of strength within the sector. Private sector lenders are leading the charge with improving operational momentum and a promising 15% underlying growth trajectory. Their agility in capturing SME lending—fueled by digital platforms and targeted outreach—positions them for outperformance. Valuations here remain "not expensive," offering a compelling entry point for growth-oriented portfolios.
Public Sector Banks (PSBs), often the overlooked stepchildren of the sector, are another highlight. Trading at discounts to peers, PSBs benefit from undervaluation and tailwinds from government-led consolidation. "From a valuation perspective, yes, they are undervalued. On a business case basis, the tailwind is largely coming in from the government's intention to consolidate some of the public sector banks further… the second round of consolidation is likely to happen now in this particular period 25-26," Choksey noted. This could streamline operations, reduce redundancies, and unlock synergies, making PSBs a defensive bet with upside surprises.
While no specific tickers were named in Choksey's remarks, market watchers are eyeing names like HDFC Bank and ICICI Bank for private plays, and State Bank of India (SBI) or Punjab National Bank (PNB) for PSBs, based on recent momentum.
### Earnings Outlook and Valuation Edge
Looking ahead, Choksey forecasts a robust H2FY26, with banks leveraging stable interest costs and government initiatives to drive profitability. Improved cost controls— from deposit mobilization to operational efficiencies—will keep net interest margins (NIMs) resilient even as loan books expand. Add in the SME/MSME surge, backed by policy support like credit guarantees and easier access to finance, and the recipe for earnings beats is complete.
Valuations underscore the opportunity: Many banks trade at forward P/E multiples below historical averages, baking in the 15% growth promise without overpricing risks. For risk-averse investors, PSBs stand out as a "low downside risk" option: "If one has to take some position with a relatively low downside risk, I think that the PSBs are right in the checkbox list."
| Factor | Private Banks | Public Sector Banks | Key Driver |
|--------|---------------|---------------------|------------|
| **Growth Potential** | High (15%+ loan book expansion) | Moderate, with consolidation boost | SME/MSME traction |
| **Valuation** | Attractive (not expensive) | Undervalued (deep discounts) | Earnings recovery |
| **Risk Profile** | Moderate (competitive pressures) | Low (govt backing) | Policy tailwinds |
| **Rally Trigger** | Sector rotation inflows | 2nd-round mergers | Cost controls & NIM stability |
### Navigating the Rally: Investor Takeaways
Choksey's view paints a picture of measured optimism—not a blanket bull run, but a targeted one where fundamentals align with market flows. For retail investors, this signals a window to build positions in quality names ahead of FY26 catalysts. However, watch for macroeconomic wildcards like inflation spikes or global rate shifts that could temper the rotation.
As sector rotation accelerates, banking stocks could provide the ballast India's bull market needs. Will Deven Choksey's prediction pan out, or will external headwinds clip the wings? One thing's clear: In a flat market, selective bets like these could deliver outsized returns.
*What's your pick in the banking pack—private powerhouse or PSB turnaround? Share in the comments!*
**Sources:** The Economic Times (primary interview with Deven Choksey), ProPakistani, and real-time market discussions on X. For updates, follow @GrokInsights.
Even as headline indices remain range-bound, selective buying is emerging across banking and financial names, signalling a sectoral churn ahead of the year’s second half, according to Deven Choksey, Managing Director, DRChoksey FinServ Pvt. Ltd.
According to Choksey, the second half of FY26 is expected to deliver stronger growth for several sectors, with banks among the prime beneficiaries. “Most of the companies, including the banking sector that you have mentioned, are definitely confirming that the second half of the financial year is definitely working out better for them compared to the first and second quarter,” he told ET Now.
He noted that improved cost management and better loan traction are aiding optimism within financials. “Few reasons on the banking side particularly the liability side is coming…, the cost is under control, which is a lower cost of funds they would be getting and enjoying. On the other side, they are getting the larger 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 the improving momentum in private sector lenders, Choksey said valuations remain attractive given the expected growth trajectory. “Most of the banks are available today at a valuation which is not expensive, given the kind of 15% kind of underlying growth promise that we carry in those 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, yes, they are undervalued. On a business case basis, the tailwind is largely coming in from the government's intention to consolidate some of the public sector banks further… the second round of consolidation is likely to happen now in this particular period 25-26,” Choksey said.
