Valuations

The most-sold sector is the cheapest it's been since the COVID crash

Aabhas TripathiAabhas Tripathi16 August 2026

For eighteen months, foreign investors sold Indian financials harder than any other sector. Net FPI outflows from financials ran to roughly ₹1.4 lakh crore between January 2025 and June 2026, ahead of IT and consumption, and private banks bore most of it. The result, as of 30 June 2026: private sector banks trade at 2.0× one-year-forward book value against a long-term average of 2.5×. That is a 20% discount to their own history, and the cheapest the group has been since the COVID crash of March 2020.

Private banks · avgPrivate banks long-term average · 2.5× forward book2.5×Private banks · nowPrivate banks as of 30 June 2026 · 2.0× forward book · 20% below long-term average2.0× · 20% belowPSU banks · avgPublic sector banks long-term average · 0.9× forward book0.9×PSU banks · nowPublic sector banks as of 30 June 2026 · 1.2× forward book · ~30% above long-term average1.2× · ~30% above
One-year-forward price-to-book, banks, as of 30 June 2026. Data: Bloomberg, Anand Rathi via HDFC MF Lighthouse (July 2026).

The market has not turned against Indian banking as a whole. Public sector banks trade about 30% above their own long-term average, on the same metric, on the same date. The discount sits specifically on the part of banking that foreign investors own most of. FPI ownership in the four largest private banks fell by between three and eleven percentage points over the two years to March 2026, and those banks’ share prices compounded between −1% and +8% a year over the period. A valuation gap this wide inside one industry is a statement about who is selling, and less about what is being sold.

The price has also fallen faster than the business. Private bank profits did decline 4% in FY26 as lending margins compressed through the rate-cut cycle, so part of the de-rating had a real cause. But the same institutional estimates now project 14% profit growth in FY27 and again in FY28, helped by cheaper deposits and a lighter drag from unsecured lending. A 20% discount to history attached to double-digit expected profit growth is a gap that closes one way or the other: either the earnings disappoint, or the price catches up.

The swing variable is the seller. FPI selling has tracked the rupee’s slide and the pull of AI-heavy markets, and the RBI’s measures on deposits and bond-market access are aimed at exactly that flow pressure. If foreign money stabilises, the sector that absorbed the most selling holds the most spring.

What we’ll watch: first-half FY27 bank earnings against the 14% estimate, and whether monthly FPI flows into financials turn positive as the rupee finds its footing.

Source: Data: Bloomberg, Anand Rathi, Motilal Oswal, Kotak Institutional Equities (estimates); as of 30 June 2026.
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