Banking Rally 2026: Experts Reveal Whether to Buy, Hold, or Rebalance Bank Portfolios Now

The Nifty Bank index has recently consolidated near the 55,000 mark, igniting a fierce debate among retail investors. As the index displays volatility, market participants are questioning whether this rally represents a fresh buying opportunity or a signal to book profits and rebalance portfolios.

Piyush Jhunjhunwala, Founder & CEO of Stockify, believes investors must subtly approach the current market, "Investing in banks is not an all-in proposition at the moment, nor is it selling into the rally event. He adds, "Credit conditions remain solid, and the banks are reporting sound financial statements."

However, he also warns against indiscriminate buying., “Retail investors should target banks that have quality fundamentals and avoid participating in momentum-based rallies.” He adds, "For those who are already meaningfully exposed, a periodic portfolio rebalancing strategy is likely a good way to maintain a long-term investment outlook."

Credit Cycle

With bank credit growth hitting 16.2% YoY, the fastest pace since 2024, many are concerned about a potential peak. Jhunjhunwala remains cautious but optimistic, noting that current growth reflects strong economic performance. "However, as we move toward the end of this cycle and competition intensifies, it may prove difficult for banks to maintain credit growth at or above 16% over an extended time period," he adds.

He advises investors to look beyond top-line numbers, adding, "Investors should watch for ongoing developments relating to deposit growth, asset quality, and profitability trends, rather than making their allocation decision based only on credit growth numbers."

Private vs. PSU

The investment narrative has transformed as we hit mid-2026. While PSU banks previously enjoyed a period of rapid re-rating, rising crude oil prices and margin compression have shifted institutional attention. "Over the next 18 to 24 months, private sector lenders will possess a greater ability to generate consistent growth and stability than will select PSUs," says Jhunjhunwala. He notes that private lenders are garnering interest due to the strength of their deposit franchises, the efficiency of their operations, and the relative predictability of their earnings profile.

Harsha Vardhana VM, Founder-CEO of Atom Prive Financial Services, talks about the importance of the deposit-credit gap. Vardhana says, “Bank credit is up 16.2% year-on-year, which is impressive. However, since credit growth is outpacing deposits, which are up only 12.2%, investors should pay attention to this gap before making new investments.” 

He highlights that institutional money is already pivoting, adding that, “Mutual funds and foreign investors are investing in private banks such as ICICI Bank and HDFC Bank rather than public sector banks." 

HNI Investors

For High Net-Worth Individuals (HNIs), who are navigating a sector so sensitive to macroeconomic data can be daunting. Vardhana suggests that individual stock picking carries significant risk without high-level research. "A better option is to invest indirectly through actively managed equity mutual funds, which on average have 18-20% exposure to private banks, or structured products that offer banking sector exposure with some downside protection," he concludes.

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