India's banking sector appears well positioned to support the next phase of the equity market rally as improving credit growth, easing deposit pressures and stable asset quality create a favourable operating environment, according to Pankaj Pandey, Head of Research at ICICI Securities.Speaking to ET Now, Pandey said the concerns that weighed on the banking sector over the past year are gradually fading. Lower bond yields, easing foreign investor selling and improving liquidity conditions are expected to support both private and public sector banks."The credit growth has been getting better. The challenges were on the deposit side, but with RBI relaxation and lower 10-year bond yields, the outlook has improved. We do not see much stress on the asset quality side, so banking is in a pretty good shape. The FPI selling intensity has also cooled off, which points towards better price performance for both private and PSU banks. Most of the issues with the banking sector are getting addressed, and whatever margin pressure we were seeing earlier because of the RBI rate cut, most of those concerns are behind us."NBFCs could benefit from softer interest rate environmentPandey believes non-banking financial companies (NBFCs) are also likely to benefit as interest rate expectations become more favourable. He noted that comments from the Reserve Bank of India Governor regarding India's progress towards meeting the conditions for inclusion in global bond indices could further support bond markets."One also needs to watch out for the Governor mentioning that most of the conditions for inclusion in the global bond indices have been met. In the month of July, we could possibly hear some positive news on that front as well, which would be beneficial for bond yields to correct further and is also positive for the entire NBFC space. Banking, given its heavyweight status, is expected to do the heavy lifting for the Nifty," he said.IT acquisition may take time to deliver meaningful gainsCommenting on a major acquisition in the IT services space, Pandey said the strategic rationale appears sound, but investors should temper expectations regarding immediate gains."Our sense is that valuations are at rich multiples, the margin profile is lower, and growth has tapered to mid-single digits. Nagarro has over 180 clients in the $1 million account category. Although the overlap is limited, a lot will depend on how this segment shapes up because cross-selling is what they can look at. That is still some time away. From that perspective, we do not expect much price performance in the near term. Though we like the stock because it is one of the few Tier-II names guiding for double-digit growth, this acquisition does not help much in the near term," he added.Power financiers remain attractive long-term betsThe research head remains positive on power financiers, especially as India's renewable energy and infrastructure investments continue to gather pace. He believes Power Finance Corporation (PFC) stands to benefit significantly from structural changes within the sector."Within PFC and REC, our preference remains REC. The combined entity could have an AUM book of around ₹11.5 lakh crore and is expected to perform much better going forward. We have a target price of ₹520. The 30% holding company discount that we were assigning to PFC should eventually disappear. Banks will not have the capacity to fund large nuclear projects if capex picks up as expected, so PFC is expected to play a crucial role. The renewable energy space will also see much more action going forward. Whether it is PFC or IREDA, these are companies investors can consider to play the renewable energy opportunity," he said.HDFC Bank governance overhang easing; Kotak faces uncertaintyPandey drew a clear distinction between the outlook for HDFC Bank and Kotak Mahindra Bank following recent developments."Overall, Kotak's growth was expected to improve, but this announcement introduces leadership uncertainty. While we continue to like the stock, we do not expect much price performance in the near term until we get more clarity," he said.On HDFC Bank, he sounded considerably more optimistic."This legal review comes at the right time because it removes the key governance overhang that has been on the stock. HDFC Bank has been trading at a discount to some of its private sector counterparts. With a book value of around ₹444, if this overhang disappears, the valuation could improve significantly and provide meaningful support to the Nifty. Growth has already improved from about 5.5% to nearly 12%, and we expect the bank to grow broadly in line with the industry at around 16% to 17% this year," he said.Transmission remains the strongest opportunity in the power sectorWhile India's power sector continues to attract investment across generation, transmission and distribution, Pandey believes transmission offers the biggest long-term opportunity due to existing capacity constraints."Power transmission is a very interesting opportunity because that is where we are lacking in terms of capacity. Capex should pick up, particularly because we are still struggling with renewable energy transmission. One way to play this theme is through MNC names such as Siemens and Siemens Energy, where switchgear opportunities are expected to be significant, especially in medium and high voltage equipment. Among private companies, we like CG Power, and Kalpataru Power can also do very well. Transmission remains our preferred theme within the power sector," he said.Astral remains preferred building materials playPandey believes Astral's demerger is unlikely to materially alter its investment case, with the company's core businesses continuing to drive growth."The chemical business is not expected to do much because of its limited presence. On the adhesives side, the company is doing well and is looking to increase its market share from around 11-12% to nearly 20%. We also like the PVC business. The segment had struggled because of lower allocations under the Jal Jeevan Mission, but things are now looking incrementally better, while raw material price volatility is largely behind us. We expect constructive growth of around 12% to 14% across the sector, and Astral remains our top pick with a target price of ₹1,900," he said.Banking and infrastructure remain key market themesWith banking fundamentals improving, financing conditions easing and infrastructure investments accelerating, Pandey believes financials and power infrastructure will continue to remain among the strongest themes for investors. The combination of stronger credit growth, stable asset quality and expanding capital expenditure could provide meaningful support to corporate earnings and the broader market over the coming quarters.