- PSU bank index logged a 5.45% weekly surge – the strongest since Oct 2024.
- SBI shares jumped 18% post‑budget, while IDBI, BoB, and Canara Bank rallied 10‑12%.
- Quarterly earnings show double‑digit profit growth, improving margins and asset quality.
- Record‑size CAPEX allocation in Budget 2026 fuels loan demand for state‑run lenders.
- Analysts recommend selective accumulation on the dip rather than chasing short‑term spikes.
You’re missing the PSU bank rally that could supercharge your portfolio. The Nifty PSU Bank index has extended its weekly winning streak to a third straight week, delivering a 5.45% gain – the biggest weekly jump since October 2024. While global headlines swirl around the US‑Iran tensions, domestic investors are zeroing in on a sector that combines solid balance‑sheet health with a policy tailwind from the Union Budget 2026.
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The surge is not a random blip. Post‑budget, the three largest state‑run lenders – SBI, IDBI and Bank of Baroda – have all posted earnings that beat consensus expectations. SBI’s net profit leapt 24.5% YoY to ₹21,028 cr, underpinned by 15% credit growth and a net interest margin (NIM) hovering around 3%. Canara Bank delivered a 25.6% profit jump, driven by 31% retail loan expansion and a NIM of 2.91%.
These numbers matter because they signal a shift from the stressed banking cycle of the early 2020s to a more sustainable growth trajectory. Gross NPA (GNPA) levels have fallen to 1.57% at SBI and 2.08% at Canara Bank – multi‑year lows that translate into lower credit cost and higher profitability.
Sector Momentum: Nifty PSU Bank Index’s Record Weekly Gain
The index’s 5.45% weekly rise eclipses its October 2024 rally of 7.87% on a quarterly basis. Such momentum often precedes a longer‑term uptrend, especially when reinforced by macro‑policy. The PSU segment’s outperformance is also visible in the price action of individual stocks: SBI moved from ₹1,028 to ₹1,216, IDBI from ₹100 to ₹112.5, BoB from ₹300 to ₹309, and Canara Bank from ₹146.5 to ₹154.
Technical analysts point to a bullish breakout above the 200‑day moving average for most of these banks, with relative strength index (RSI) readings still below overbought thresholds, suggesting room for further upside.
Fundamental Strength: What SBI, IDBI, and Canara Bank Earnings Reveal
Return on Equity (ROE) for SBI topped 20%, indicating efficient capital deployment. IDBI, while seeing modest net interest income (NII) moderation due to margin compression, boasts a capital adequacy ratio (CRAR) of 24.63% and a provision coverage ratio (PCR) above 99%, a safety cushion rarely seen in the sector.
Bank of Baroda’s balanced performance – steady credit growth, controlled slippages, and a CRAR of 15.9% – reinforces the narrative that PSU banks are collectively strengthening their risk‑adjusted returns.
Budget‑Driven CAPEX Surge: The Hidden Engine Behind Credit Growth
The Union Budget 2026 raised capital expenditure by roughly 9% to ₹12.20 lakh cr, accounting for 4.4% of India’s GDP. The aim: to crowd‑in private investment and accelerate infrastructure development in tier‑2 and tier‑3 cities. Such projects translate into larger loan pipelines for state‑run banks, which traditionally dominate the financing of government‑backed infrastructure.
Analysts at Basav Capital argue that the market is still discounting the full impact of this CAPEX push. As projects move from sanction to execution, the credit‑growth rate for PSU banks is likely to stay in the 12‑15% range, well above the private‑bank average of 8‑9%.
Technical Outlook: Price Trends and Valuation Multiples
Valuation metrics remain attractive. SBI trades at a price‑to‑earnings (P/E) multiple of around 11x, compared with a private‑bank average of 15‑18x. IDBI’s P/E is near 8x, reflecting the market’s cautious optimism about its slower earnings ramp‑up. The price‑to‑book (P/B) ratios for most PSU banks sit between 1.2x and 1.6x, offering a margin of safety for long‑term investors.
On the chart, the 50‑day moving average is firmly above the 200‑day line for SBI and Canara Bank, forming a classic “golden cross” that technical traders associate with sustained upward momentum.
Investor Playbook: Bull and Bear Scenarios for PSU Bank Shares
- Bull Case: Continued budget‑driven credit expansion, GNPA staying below 2%, and further margin recovery push earnings multiples higher. Selective accumulation on pullbacks, focusing on SBI, Canara Bank, and Bank of Baroda, could generate 15‑20% total returns over the next 12 months.
- Bear Case: A surprise rise in global interest rates squeezes NIMs, or a slowdown in government spending curtails loan demand. In such a scenario, stocks could retrace 8‑10% from current levels, making a wait‑and‑see approach prudent.
For investors with moderate risk tolerance, the recommendation is to build core exposure through SBI – the sector leader with the deepest balance sheet – and complement it with satellite positions in Canara Bank or Bank of Baroda during market corrections. Short‑term traders should monitor the 200‑day moving averages and RSI levels for entry points, while staying mindful of macro‑policy announcements that could shift sentiment abruptly.