The Bank Nifty index has emerged as a relative outperformer in 2026, declining approximately 2% while the broader Nifty 50 has dropped over 4% during the same period. This divergence has caught market attention as both indices navigate through a correction phase after hitting record highs earlier this month.

Market Performance Comparison

Both indices reached their lifetime peaks on January 5, with Bank Nifty touching 60,437.35 and Nifty 50 hitting 26,373.20. However, their subsequent performance has diverged significantly. On January 20, Bank Nifty closed at 59,404.20, down 0.81% for the session, while Nifty 50 dropped to a three-month low of 25,171.35 before recovering to close at 25,232.50.

Factors Supporting Banking Sector Resilience

Santosh Meena, Head of Research at Swastika Investmart, attributes Bank Nifty's relative strength to robust momentum in PSU banks driven by strong quarterly earnings and broad-based positive sector trends. The Nifty PSU Bank index demonstrated this strength by hitting a fresh 52-week high of 9,093.65 during early trading on January 20, though it later erased gains and fell over 1.3%.

The resilience is further supported by renewed institutional interest as mutual funds identify attractive valuations within the banking space. Additionally, the RBI's monetary policy stance has provided structural support through prudent liquidity measures.

Fundamental Strength and Outlook

Pranav Koomar, Founder and CEO of PlusCash, emphasizes that the banking sector's relative resilience reflects strong balance sheets, steady credit growth, and greater earnings visibility. However, he cautions that some correction cannot be ruled out if the broader market slide continues, though any Bank Nifty decline would likely be more limited unless there's a significant macro or liquidity surprise.

Harshal Dasani, Business Head at INVasset PMS, notes that the index's composition provides natural protection. Unlike Nifty 50's exposure to global cyclicals and rate-sensitive sectors, Bank Nifty is tilted toward businesses with steadier cash flows, lower balance-sheet stress, and more domestic demand visibility.

Technical Analysis and Support Levels

Technical analysts provide a mixed but generally constructive view on Bank Nifty's near-term prospects. The index is expected to consolidate within the 58,700-60,400 zone as it digests recent gains and builds a foundation for future moves.

Drumil Vithlani, Technical Analyst at Bonanza, highlights that Bank Nifty maintains its major support near 58,650 while Nifty 50 has broken crucial support levels. The banking index remains in a sideways-to-positive range, trading near its 20-week EMA with healthier RSI readings compared to the broader market.

Market Positioning and Risk Assessment

Choice Broking notes that Bank Nifty has exhibited relative resilience around 59,800-60,000 levels, though hesitation around 60,000 indicates some indecision. A break above 60,000 could revive short-term bullish sentiment, while a breach of 59,500-59,600 might signal extended consolidation.

Axis Securities identifies 60,000 as a key pivot level for the current expiry, with 59,500 acting as strong support backed by heavy Put open interest. The 60,000 level remains major resistance, marked by the highest Call open interest, suggesting significant options activity around these levels.

Indian equity markets continue to face headwinds as the Nifty repeatedly fails to decisively cross the 26,200 level, even while global markets trade near record highs. Market expert Gautam Shah, Founder of Goldilocks Global Research, suggests this consolidation phase presents selective opportunities despite broader market weakness.

Market Outlook and Key Levels

Speaking to ET Now, Shah indicated that the market has developed resistance near the 26,200 mark after multiple failed breakout attempts over the past three months. However, he views the current phase as consolidation rather than a bearish trend.

"The 25,450 level is extremely important for the Nifty. As long as the index holds above this support, there is a strong possibility of a rebound, especially with the Union Budget just days away," Shah explained. A decisive break below this level would be concerning from a medium-term perspective.

Sector-Specific Opportunities

PSU Banks Show Continued Promise

Shah remains bullish on public sector banks, which have significantly outperformed private lenders over the past year. The PSU Banking Index has already achieved the 9,000 target outlined in earlier reports, yet further upside potential remains.

"There are no signs of topping out yet. There could be another 2,000-point upside in the PSU banking index, led by the top four or five names," Shah noted, adding that valuations remain comfortable and under-ownership continues to support the theme.

Metals Emerge as Multi-Year Trade

Shah reiterated his bullish stance on metals, calling it one of the strongest emerging themes in both Indian and global markets. Despite fundamentals appearing weak six months ago, price action indicated a shift now supported by improving fundamentals.

"Hard assets have been extremely exciting over the last six months," Shah observed. The rally is expected to broaden, with ferrous metals and steel producers participating alongside base metals such as copper, aluminium and zinc.

Sectors to Approach with Caution

Shah maintains a cautious stance on FMCG and IT stocks. FMCG companies continue trading at rich valuations while clarity on sustained consumption recovery remains lacking despite recent GST cuts.

"I would prefer to wait for a full quarter of results before taking a confident call on FMCG. The index has been among the worst performers, and valuations remain expensive," he stated.

Regarding IT stocks, Shah cited valuation concerns, AI-led disruption, and better technology opportunities in global markets as reasons for his negative outlook on Indian IT companies.

Investment Strategy

Shah advised investors to stay concentrated rather than over-diversified, focusing on sectors showing relative strength and reasonable valuations. While sentiment remains weak, particularly in small- and micro-cap stocks, technical indicators suggest risk-reward is gradually turning favorable for selective long positions.

Overall, Shah believes the current underperformance of Indian markets relative to global peers is temporary. A budget-led trigger combined with strong global markets could help the Nifty regain momentum, provided key support levels remain intact.