PSU Banks Continue Impressive Winning Streak
In a remarkable display of resilience, public sector lenders including State Bank of India, Bank of Baroda, and Union Bank of India have extended their weekly winning streak, defying broader market weakness. The sustained upward movement reflects growing investor confidence in these counters, supported by strengthening fundamentals, attractive valuations, and reports of potential government policy changes regarding foreign investment limits.
Individual Performers Lead the Charge
The banking sector witnessed significant momentum with seven out of twelve constituents of the Nifty PSU Bank index ending the week in positive territory. Bank of Baroda emerged as the standout performer, registering an impressive 3.83% gain to reach ₹289. Other notable gainers included Union Bank India, Canara Bank, Indian Bank, and Bank of Maharashtra, with advances reaching up to 4.70%.
Adding substantial weight to the rally, State Bank of India (SBI)—the index's heaviest weighted stock—climbed 2% this week to ₹955.85. This marks SBI's sixth consecutive weekly gain, representing its longest winning stretch since May 2021. The collective strength across individual banking counters propelled the Nifty PSU Bank index to a 2.05% weekly advance, marking its third consecutive week of gains.
Fundamental Improvements Fuel Optimism
The current rally builds upon the stellar comeback witnessed in March, when PSU banking stocks broke out of a 10-month consolidation phase. The uptrend gained additional momentum following the government's consumption-boosting measures, including GST rate cuts that improved liquidity and enhanced demand outlook.
Recent data underscores the improving operating environment for banks, with system credit growth accelerating to 11.4% year-on-year as of October 18, 2025. This represents a significant improvement from the 10.4% YoY growth recorded as of September 19, 2025, highlighting the steady recovery in lending activity across the sector.
Market analysts maintain a positive outlook on banking stocks, citing the gradual improvement in credit growth, bottoming out of Net Interest Margins (NIMs), and benign to improving asset quality metrics.
Potential Policy Changes and Financial Performance
Adding to the positive sentiment, reports indicate that the Indian government is considering allowing direct foreign investment in state-run banks of up to 49%, more than double the current limits. According to a Reuters report, this potential policy shift could significantly enhance foreign participation in the sector.
A Nuvama Institutional Equities report suggests that India's state-run banks could witness a windfall of up to $4 billion in passive inflows if the government raises the foreign institutional investment (FII) limit to 49% from the current 20%.
The financial performance of public sector banks further validates the positive trend. Public sector banks reported a record cumulative net profit of ₹49,456 crore in Q2FY26, reflecting a 9% improvement compared to ₹45,547 crore in the same period last year. State Bank of India contributed the largest share, accounting for 40% of total earnings.
For the first half of FY26, public sector banks collectively earned ₹93,674 crore, up nearly 10% from ₹85,520 crore in the same period last year. This marks the first time aggregate PSB profits have crossed the ₹90,000 crore mark, signaling a robust turnaround for the sector.
Sustained Growth Trajectory
The Nifty PSU Bank index is on course to extend its annual winning streak to a fifth consecutive year, having already advanced 28% so far in 2025. This makes it the best-performing sectoral index this year, demonstrating sustained investor confidence in the public sector banking space.
After underperforming for three consecutive years, state-owned bank stocks staged a remarkable comeback in 2020, propelling the index to surge nearly 70% that year. The rally has continued in subsequent years, with the index delivering over 25% returns in four of the last five years, including 2025.
Among individual constituents, Indian Bank has been the standout long-term performer, soaring an astonishing 1,349% over five years. Other major gainers include Canara Bank, Bank of Baroda, Union Bank, Bank of Maharashtra, Punjab National Bank, SBI, and Indian Overseas Bank, each rising between 300% and 665% during the same period.
The combination of improving fundamentals, attractive valuations, potential policy support, and strong financial performance continues to drive investor interest in public sector banks, positioning them as a compelling investment opportunity in the current market landscape.
