Despite volatility in the Indian stock market due to the US-Iran war buzz, investors’ interest in state-owned bank stocks remained upbeat. The Nifty PSU Bank index extended its weekly winning streak to a third consecutive week, signalling Dalal Street’s confidence in the segment’s growth prospects. Finishing four of the last five trading sessions higher, the index recorded a weekly gain of 5.45%, the biggest weekly gain since October 2024. In October 2024, the Nifty PSU Bank index had rallied 7.87%.
Post-Budget 2026, PSU bank major SBI’s share price has risen from ₹1,028 to ₹1,216 apiece, logging over 18% rise. IDBI share price has risen from around ₹100 to ₹112.50 per share, logging around 12.50% gain in the post-budget rally. Likewise, BoB share price rose from around ₹300 to ₹309, and Canara Bank shares rose from ₹146.50 to ₹154 apiece.
According to stock market experts, the bull trend in Nifty PSU Bank shares can be attributed to robust December-quarter earnings, supported by an acceleration in system-wide credit growth, margin recovery, and improved asset quality. They said that the Union Budget’s record CAPEX push ignited buying in PSU bank shares, as higher government spending is expected to drive credit expansion at state-owned banks.
Why are PSU bank shares skyrocketing?
Highlighting the reason for the bull trend on PSU bank stocks, Seema Srivastava, Senior Research Analyst at SMC Global Securities, said that the Q3 FY26 results across major PSU banks reflect a structurally improved banking cycle, strengthening the long-term investment case for the sector. She said that State Bank of India reported a strong 24.5% YoY rise in net profit to ₹21,028 crore, supported by 15% credit growth, stable NIM near 3%, and significant asset quality improvement with GNPA at 1.57% and credit cost at 0.29%. A return on equity of over 20% highlights strong capital efficiency.
Canara Bank Limited delivered similar momentum, with net profit up 25.6% YoY, robust 31% retail loan growth, improving NIM at 2.91%, GNPA declining to 2.08%, and a healthy CRAR of 16.50%. IDBI Bank Limited, while witnessing NII moderation due to margin compression, maintains exceptional balance sheet strength with PCR above 99% and capital adequacy of 24.63%, ensuring stability despite slower earnings growth. Bank of Baroda has also demonstrated steady credit growth, controlled slippages, improved asset quality, and comfortable capital buffers, positioning it as a balanced PSU franchise with improving return ratios.
The SME Global Securities expert, who is an ICAI-certified CA, also said that PSU banks show healthier balance sheets, multi-year low NPAs, disciplined underwriting, and improving profitability compared to the stressed cycle of the past decade. Credit growth in the 12–15% range, strong provision coverage, and stable capital levels provide earnings visibility over the medium term.
Pointing towards the record CAPEX push in the Budget 2026, Sandeep Pandey, Co-founder of Basav Capital, said, “The record CAPEX push in the Union Budget 2026 is also a major reason for the skyrocketing of the PSU bank stocks.” He said the Government of India raised CAPEX by around 9% to ₹12.20 lakh crore, which is about 4.40% of India’s GDP.
“The CAPEX push aims to crowd-in private investment and target the development of urban infrastructure in the tier-2 and tier-3 cities. This is expected to fuel the lending business of the PSU banks, and the market is trying to discount this,” Sandeep Pandey of Basav Capital said.
How to make money from PSU bank shares?
Unveiling the investment strategy in PSU bank stocks, Seema Srivastava of SMC Global Securities said that while PSU banks are cyclical and sensitive to interest rate movements and macroeconomic risks, their current valuations are reasonable relative to improved fundamentals.
“For long-term investors and tolerance for moderate volatility, selective accumulation—preferably led by stronger franchises like SBI and supported by Canara Bank or Bank of Baroda—appears prudent, particularly during market corrections rather than chasing short-term rallies,” Seema concluded.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
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