New Delhi, Dec. 4 -- The Street is positioning mid-cap banks at the front of the next financial sector rally, betting on stronger small-business and retail loan growth in 2026 and easing funding costs.

Investors view these lenders as prime beneficiaries of the next credit upcycle, given their increased exposure to high-yielding retail and micro, small and medium enterprise (MSME) loans.

Credit to micro and small enterprises jumped 26% year-on-year in October, the strongest in two years, while medium enterprise lending climbed to a six-month high of 18% after a soft patch, Mint's analysis of Centre for Monitoring Indian Economy's (CMIE) latest data showed.

Retail credit growth also picked up to a 14-month high of 14% in October, though ...