Bank Nifty Sees 8% Decline in 2026: Is Correction a Buying Opportunity?

Banking Stocks Face Headwinds Amid Regulatory Changes and Global Uncertainty

The banking sector in India has experienced significant selling pressure this year, with stocks like HDFC Bank, IDFC First Bank, and Kotak Mahindra Bank losing over 10% so far. The Reserve Bank of India (RBI) has issued a new "expected credit loss (ECL)" framework mandate, which has spooked investors. The deadline for implementation is 1 April 2027, and under the new guidelines, financial assets will be classified in three stages, depending on whether there has been a significant rise in credit risk since initial recognition.

The Bank Nifty is down 8% this year, mirroring the trend in the benchmark Nifty 50, which has also lost 8% this year. However, experts believe that the correction in banking stocks may be an opportunity to buy. The banking sector is considered a proxy for the country's economic growth, and amid persisting uncertainty around the US-Iran conflict and rising concerns that the full impact of the elevated crude oil prices on the growth-inflation dynamics of the country could be significantly negative, the outlook for the sector has turned hazy.

Experts Recommend Selective Accumulation

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Experts recommend a selective approach to investing in the banking sector. Ravi Singh, Chief Research Officer at Master Capital Services, advises accumulating quality banking names in a staggered manner rather than going all-in at once. Singh notes that the correction feels more like a buying opportunity than a reason to run for the exits. Public sector banks need to be approached with more care, as the regulatory transition will hit them harder and their near-term earnings could remain under pressure.

However, Singh also notes that the stronger private sector banks are available at much better prices than they were a few months ago, and that is an opportunity worth paying attention to. Paresh Bhagat, Chief Investment Officer at Veer Growth Fund (AIF), and Chairman at Mangal Keshav Financial Services, is cautious about banking stocks for the near term due to FII ownership and potential currency pressure.

Valuations Have Become More Attractive

Sonam Srivastava, the founder and fund manager at Wright Research, points out that the selling in the banking sector has created a more attractive entry point from a valuation perspective. Srivastava underscores that large private sector banks and select PSU banks now trade at levels that price in near-term headwinds, making the risk-reward more favourable for patient investors.

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From a portfolio standpoint, Srivastava does not believe it is a moment to avoid banking stocks categorically. Rather, it calls for selectivity. Shashank Udupa, a SEBI-registered research analyst and fund manager at Smallcase, highlights that today Indian banks, mainly PSU and NBFCs, are very clean and have a strong scope to grow in the next five years. Udupa notes that most public sector mega banks are coming out with good results and trading at very low price-to-book ratios, some even less than 1 price-to-book.

Conclusion

The banking sector in India faces headwinds amid regulatory changes and global uncertainty. However, experts believe that the correction in banking stocks may be an opportunity to buy. A selective approach to investing in the banking sector is recommended, with a focus on quality banking names and a staggered accumulation strategy.