Underperformance, growth recovery likely to support banks' rally

Stronger balance sheets and little impact of digital disruption could be the other triggers

In the calendar year 2021, we saw the relative underperformance of banking. The Nifty50 gained around 26 per cent in the 12 months, and 2.7 per cent in December, while the Bank Nifty was up 16 per cent and 0.2 per cent, respectively. The Nifty50 has corrected around 10 per cent from its all-time highs; on the other hand, the Bank Nifty has corrected 19 per cent.

This is unusual. The banking sector has generally outperformed the broader market. Banks also have a large weighting in the Nifty50, with banking and financials contributing nearly 36 per cent to the Nifty