The Reserve Bank of India's latest monetary policy decision delivered a shot in the arm for banking stocks, with the Bank Nifty bouncing back above 55,300. But will this rally sustain?

The central bank maintained the repo rate at 5.5%, providing relief to retail borrowers by keeping EMIs for home, car, and personal loans unchanged, which also ensured stability for banks, according to SEBI-registered analyst Finkhoz RoboAdvisory. 

Additionally, India's GDP growth forecast for FY26 was revised upward from 6.5% to 6.8%, indicating a stronger economic outlook that is favorable for corporate lending growth. Inflation projections were also lowered from 3.1% to 2.6%, suggesting a reduced risk of future rate hikes by the RBI.

Finkhoz noted that this combination of stable interest rates, increased loan demand, and a lower likelihood of defaults created a supportive environment for the Bank Nifty, which saw a significant bounce, reclaiming the 55,300 levels. 

Technical Outlook

Charts indicate strong support between 53,800 and 54,000, near the 200-day moving average, where buyers have defended the level strongly. Finkhoz identified resistance around the 56,000 to 56,200 range, which, if broken, can take the bank index beyond 57,000.

The Relative Strength Index (RSI) was back above 55, indicating a positive turn in momentum, and rising volumes on up-days indicate strong participation from major market players.

Finkhoz concluded that the RBI's latest policy decision was a 'booster dose' for Indian banking stocks. While some short-term volatility is expected around the 56,000 resistance level, the medium-term trend remains bullish as long as the support near 53,800 holds. If global cues do not spoil the party, Finkhoz believes that banks may lead the next leg of the Nifty rally.

Analyst Vinay Taparia added that the Nifty Bank index appeared to have made a durable bottom. He suggested using every dip as a buying opportunity, with targets of 55,700-56,200 on the banking index.

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