Market analysts have identified 10 banking sector stocks that could potentially deliver returns exceeding 17% over the next one year, despite ongoing concerns about Foreign Portfolio Investor (FPI) selling pressure affecting the sector.

FPI Ownership and Market Dynamics

The Indian Banking Sector faces unique challenges due to its high FPI ownership structure. Banking stocks are extensively held by Foreign Portfolio Investors through multiple investment vehicles, including actively managed funds and India-dedicated Exchange Traded Funds (ETFs). This concentrated ownership pattern creates vulnerability to external capital flows.

The heavy FPI presence in banking stocks means that any intensification of foreign selling could create significant downward pressure on share prices across the sector. This correlation between FPI sentiment and banking stock performance has become a key factor for investors to monitor.

Investment Approach and Fundamentals

Despite the potential for FPI-driven volatility, analysts recommend focusing on fundamental analysis rather than reacting purely to short-term price movements. The key consideration for investors should be the underlying financial health and balance sheet strength of banking institutions.

The current banking sector landscape suggests that institutional balance sheets have shown improvement compared to previous periods. This fundamental strengthening provides a foundation for potential returns, even amid external market pressures.

Market Outlook

The 17%+ return projection for select banking stocks reflects analyst confidence in the sector's underlying fundamentals, despite acknowledging the risks posed by FPI selling patterns. Investors are advised to evaluate individual banking stocks based on their financial metrics and operational performance rather than solely responding to market sentiment and price fluctuations.

The banking sector's performance will likely depend on balancing these external pressures with the improved operational metrics and balance sheet quality that many institutions have achieved.

Indian banks are staging an aggressive comeback in ATM deployment, with major lenders planning to install nearly 17,350 ATMs over the next six months extending to the first quarter of FY27. This expansion represents a significant technology-led transition as banks increasingly pivot toward cash recycling technology to enhance operational efficiency and reduce costs.

Major Banks Lead Deployment Drive

State-run banks are spearheading this ATM expansion, with four major lenders accounting for a substantial portion of the planned installations:

Technology Shift Toward Cash Recyclers

The deployment strategy reveals a strong preference for advanced cash recycling technology over conventional ATMs. Of the total RFPs floated, approximately 13,100 are specifically for cash recyclers, representing more than 75% of the planned installations.

This technology transition allows banks to recycle cash, reduce replenishment frequency, and improve machine uptime while lowering cash-handling costs and operational downtime.

Market Recovery After Industry Disruption

The ATM deployment surge follows significant market disruption in 2025, when AGS Transact, one of the largest ATM service providers operating nearly 40,000 ATMs, collapsed. This event forced several banks to either shut down older machines or migrate to new service providers, accelerating the adoption of newer technologies.

Anush Raghavan, chief business officer at CMS Info Systems, noted the cyclical nature of the market: "We see a fair bit of bank outsourcing and the RFP cycle coming up again in 2026. The last wave of asset replacement or expansion was seen in 2023 and 2024. In 2025, we had an increase in ATM interchange fees, which typically leads to expansion of the market and higher outsourcing."

Strategic Focus on Efficiency Over Scale

Banks are now adopting a more deliberate deployment strategy, prioritizing technology capability and long-term cost efficiency. An industry executive highlighted this shift: "The focus is no longer just on adding ATMs, but on deploying smarter machines that can recycle cash, reduce replenishment frequency and improve uptime. After the AGS episode, banks are prioritising vendor stability, technology capability and long-term cost efficiency over sheer scale."

Current Market Position

Despite the planned expansion, industry data shows the market is recovering from recent disruptions. As of end-November, banks had deployed around 207,000 ATMs and cash recyclers across the country, compared with about 215,000 a year earlier. This temporary decline reflects the technology transition rather than a retreat from physical cash infrastructure, with banks expected to see increased RFP activity and greater outsourcing in 2026.