So far in calendar 2026, the Nifty has fallen nearly 10%. The Nifty Bank has declined about 5%, while the Nifty IT index has lost 21% of its value. , which is down 29% this calendar year, is the biggest drag on Nifty where it carries a weightage of 9.85%.
The latest setback has come from foreign flows. have withdrawn around ₹14,000 crore from Indian equities in September so far, after investing nearly ₹50,000 crore in the previous two months. Rising global bond yields and soaring crude oil prices have revived pressure on emerging market flows.
“It is difficult for the Nifty and Sensex to deliver any meaningful performance, even if FII flows were to turn dramatically favourable, unless their largest constituents - financials and IT - begin to participate,” said N ArunaGiri, Founder and CEO of TrustLine Holdings.
Banks and IT are on different clocks
The two sectors are recovering from different problems. Banks are dealing with the near-term earnings impact of a large influx of FCNR(B) deposits, even as the new liquidity could support credit growth and funding costs over time.IT companies, meanwhile, are navigating uncertainty around artificial intelligence, automation and the possibility of weaker demand for traditional technology services.
“Banks and IT are on different recovery clocks,” Manish Bhandari, CEO and Portfolio Manager at Vallum Capital, told ET Markets.
He said exceptionally strong FCNR(B) inflows had pushed banking system liquidity to a multi-year high and meaningfully lowered wholesale funding costs, including certificate of deposit rates. That is likely to weigh on net interest margins in the near term, but the cheaper funds should gradually work through bank balance sheets and support margin recovery and earnings through fiscal 2027.
Bhandari described the banking benefit as “a slow-burn tailwind rather than an immediate one.”
That distinction could be critical for investors. Banks may have better earnings visibility, but the sector may not deliver an immediate re-rating if margins remain under pressure while the deposits are deployed.
Why banks may recover faster
Sunny Agrawal, Head of Fundamental Research at SBI Securities, expects banking stocks to recover faster than IT over the next one to two years.The recent FCNR deposit mobilisation, which exceeded $130 billion, should help banks improve their credit-to-deposit ratios. As these deposits are deployed over the next four to six quarters, credit growth could accelerate and support net interest income.
“Net interest margins could remain under some pressure in the near term, as the deployment of these newly mobilised deposits will take time,” Agrawal said.
Once the liquidity is deployed, however, the operating backdrop could improve. Agrawal expects the banking sector to deliver mid-teen growth, providing stronger earnings visibility. Industry credit growth is already tracking at 15% or higher, and the upcoming festive season could help sustain that momentum.
“Therefore, between banking and IT, we believe banking is better positioned to outperform over the next one to two years,” he said.
The view also reflects the relative performance of the two sectors. Banking stocks have declined about 5% this year, compared with a 21% drop in IT. Banks therefore have a liquidity and credit-growth catalyst ahead, while IT must first overcome concerns around AI-led productivity and demand disruption.
IT has a lower bar to clear
The case for IT is not necessarily one of a broad-based sector recovery. It is more a valuation and expectations story.“IT looks more mispriced,” Bhandari said. Current valuations appear to price in near-permanent demand stagnation for large IT incumbents. But order book momentum at the sector bellwether remains healthy, which does not fit neatly with a “demand destruction” narrative.
With expectations set so conservatively, IT companies have greater scope to deliver positive surprises. Bhandari believes the sector could see a sharper rerating over the next two years if order book strength translates into revenue growth and earnings stability.
The AI threat is nevertheless real. ArunaGiri said the technology sector must navigate growing uncertainties and headwinds arising from AI. Even a sharp turnaround in FII flows may not be enough to trigger a meaningful rally in large-cap