Although headline indices remain range-bound, selective buying is emerging in banking and financial names, signaling sector churn in the second half of the year, according to Deven Choksey, managing director of DRChoksey FinServ Pvt. Ltd.

According to Choksi, strong growth is expected for many sectors in the second half of FY26, with banks among the main beneficiaries. “Most of the companies, including the banking sector that you mentioned, are definitely confirming that the second half of the financial year is definitely working better for them as compared to the first and second quarters,” he told ET Now.

He noted that improved cost management and better loan traction are helping optimism on the financial front. “A couple of reasons are coming from the banking side, especially the liability side…, cost containment, which is the lower cost of funds that they will get and enjoy. On the other hand, they are getting huge amounts in the form of MSME and SME loans, which was probably not the case in the first two quarters,” he added.

Highlighting the pace of improvement among private sector lenders, Choksi said valuations remain attractive given the expected growth trajectory. “Most banks today are available at valuations that are not expensive, because we promise 15% kind of underlying growth in those companies,” he noted.

Market veterans also expect renewed interest in public sector banks (PSBs), citing both valuation comfort and strong government intent. “From a valuation perspective, yes, they are undervalued. Based on the business case, the tailwind is mostly coming from the government’s aim to further consolidate some public sector banks… Now another round of consolidation is likely in this particular period of 25-26,” Choksi said.

He believes that the ongoing earnings season has been better than expected. “Most companies reported better-than-expected profitability, including largecaps and midcaps,” he pointed out, adding that a combination of cost containment, improving topline and stable interest expense is setting the stage for a strong FY26.

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Choksi concluded that PSU banks, backed by solid fundamentals and consolidation tailwinds, offer relatively low downside risk. “If one wants to take a position with relatively low downside risk, I think PSBs are right on the checkbox list,” he said.

(disclaimer: Recommendations, suggestions, views and opinions expressed by experts are their own and do not represent the views of The Economic Times.)