Among the front-runners, shares of Canara Bank, Indian Bank, Bank of India, and Union Bank of India have rallied between 25% and 47% in CY25 so far, driven by strong earnings and a decline in NPAs.
However, not all public sector banks have participated in the rally. Punjab & Sind Bank, UCO Bank, Central Bank of India, and Indian Overseas Bank saw their stock prices decline by 30–43%, reflecting uneven performance within the sector.
The current rally marks a notable shift in investor sentiment, with public banks gaining attention after years of private lenders dominating the market narrative.
Mayuresh Joshi, Head of Equity at Marketsmith India, said, “Valuations remain relatively inexpensive for many PSU banks. Strong Q2 performance and supportive commentary give us confidence that the next few quarters could be better as well.”
Ambareesh Baliga, independent market analyst, added that he currently favours PSU banks over private sector peers. “Private banks have underperformed recently, while PSU banks have delivered a strong run. That trend could continue over the next two to three quarters,” he noted.
Baliga highlighted improving balance sheets, stronger quarterly results, and potential consolidation in the PSU banking space. “Even though the ministry has denied consolidation plans, we could see meaningful consolidation in the next three to four quarters. Large banks like SBI, Bank of Baroda, Punjab National Bank, and Canara Bank are likely to be key beneficiaries.”Looking ahead, market watchers are focused on fiscal policy cues from the upcoming Union Budget 2026, as well as trends in deposit growth and interest rate movements, which could influence the sector’s momentum in the coming quarters.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)