Banking indices outperform broader markets, rise 10-20pc in Jan

In the past one-month period, Nifty bank index rose nearly 11 per cent to 39,330 points. Just on Wednesday, it gained over 2 per cent.

"Payment activity continues to be strong. Loan growth saw some signs of revival as it climbed up to 8 per cent YoY led by retail and MSMEs. The interest rate environment seems to be turning, accompanied by a narrowing of term spreads and credit spreads," said brokerage house Kotak Securities.

Besides, credit card spending also continued to be strong, the brokerage house said.

During the past month, Nifty PSU bank and Nifty private bank rose 21 per cent and 10 per cent, respectively. On Wednesday too, these two indices jumped sharply.

"PSU banks continued their rally, while select SFBs and regional private banks recovered after the decline in December. Among the frontline banks, SBI, Axis Bank and ICICI Bank continued to outperform HDFC Bank," the brokerage said.

Banking and financial stocks have held up well as the impact of the new Covid strain Omicron was limited so far, said the brokerage, adding that expectation of a rate tightening cycle across the world is, however, probably inhibiting investors from taking a "bullish stance" on these stocks.

"Loan growth has seen improvement beginning from the last fortnight of 2021 and we expect the trend to continue. The pace of recovery continues to be the key variable to monitor," it said.

Shares of State Bank of India and Bank of Baroda rose 15 per cent and 30 per cent, respectively, while the rise in broader market indices was below 1 per cent.

Canara Bank shares rose over 30 per cent.

Among private sector banks, IndusInd Bank shares rose 15 per cent, ICICI Bank 8 per cent, Bandhan Bank 27 per cent, and RBL Bank over 16 per cent.