India's Top Two Sectors Poised For Rare Joint Gains Amid Key Macro Events

Banks and information technology stocks — India's biggest sectors by weightage — are all set for a rare joint outperformance, amid dovish comments by the central bank and the expected economic growth pick-up.

Since 2010, Nifty IT and Nifty Bank have moved in opposite directions for 70% of the time, analysts at Jefferies said, noting that the both have moved in tandem 30%. Banks and IT account for 31% of MSCI India Index and 43% of Nifty index, according to Jefferies.

On a trailing six month or 12-month basis, both the IT index and the banks index have outperformed 21% and 24% of the times, respectively, the brokerage said.

Nifty Bank closed 2024 with muted gains of 2%, while Nifty IT gained 22%. In 2025, banks and IT index have fallen by 1.2% and 0.7%, compared to a 0.02% gain in Nifty 50.

The reason for divergent performance was that banks outperformed during times of favourable domestic macros, while IT tends to gain during weaker macro and falling rupee. This time, however, the earnings outlook for both banks and IT are favourable, along with having acquired a defensive characteristic that could be picked over staples, Jefferies said.

Further, the upcoming policy decision by the Reserve Bank of India should be positive for the top two sectors. The central bank's tightening of lending had been a key reason for downward earnings revision in the sector, it said. "But we believe that the liquidity tightening and regulatory tightening is now behind."

Of the 28 economists polled by Bloomberg, 24 expect the MPC to cut the repo rate on Friday. SBI Research expects two cumulative 25-bps rate cuts from February and one in April.

Any dovish change will, however, be considered a negative for the currency, which will be a positive for IT from a macro standpoint, Jefferies said.

Banks also look attractive from a valuation standpoint while improving demand commentary is a key positive for the technology sector. "Valuation on a higher side, but continued positive news on demand, alongside likely rupee depreciation, should aid further outperformance."

Tech heavyweights like Tata Consultancy Services Ltd. and Infosys Ltd. eye revival in the upcoming quarters, with improved guidance. However, banking guidance will have to be accessed after public lender State Bank of India's earnings, which is slated to be released on Thursday.

Nifty IT trades at price to earnings of 33 times, while Nifty Bank trades at 12.9 times, compared to the average 10-year forward valuation of 24 times and 15.4 times, respectively.