Sector rotation in May 2026: Banking vs IT vs Energy; what may work now?

The sector rotation in the near future is likely to reward those with banking stocks. However, investors in the IT sector are likely to be disappointed   despite the ongoing rally led by rupee fall, says Amish Shah, head of India research at BofA Global Research.

Banking stocks have been recently batterred by the high market volatility. Shah told Reuters some large private lenders are available near their cheapest levels. 

Financial stocks have the heaviest weight among sectors on the benchmark Nifty index with four banks featuring in the flagship index's top 10 heavyweight stocks.

Bank Nifty has slipped 8% since the Iran war. 

"The valuations are extremely attractive," Shah told Reuters. BofA expects a rate hike by the Reserve Bank of India later this financial year, which would boost banks by raising margins and strengthening their overall earnings outlook.

On the other hand, the IT stocks could take a hit from the artificial intelligence disruption story in the short run as clients reassess spending and the impact of automation on outsourcing demand.

Over the medium to-long term, however, Shah said broader AI adoption across enterprises could create a new growth runway for the sector as companies increase spending on implementation.
The IT index has risen 3.1% since the beginning of the ?war at ?the end of February.

BofA has an "Underweight" rating for India's IT sector, while it rates large private sector banks "Overweight".

Energy 

Volatility in oil prices due to the ongoing geopolitical tensions is likely to affect the energy prices in near future. Th energy sector faces risks such as geopolitics and inflation. The sector can witness short term momentum.