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PSU Banks Surge: 28% Gains Lead Market Rally!
20 Dec
Summary
- Nifty PSU Bank index leads sectoral performance with 28% gains in 2025.
- State-owned banks significantly outperform private peers and benchmark indices.
- PSU banks are on track for a fifth consecutive year of positive annual returns.
The Nifty PSU Bank index has demonstrated exceptional performance in 2025, surging by 28% and significantly outperforming the benchmark Nifty 50's 10% rise. State-owned banks are currently the top picks in the Indian stock market, with Canara Bank, Indian Bank, and State Bank of India leading the charge and outpacing their private sector counterparts. This strong performance is underpinned by investor optimism regarding sustained earnings momentum, driven by anticipated credit growth, margin recovery, and improving asset quality.
The current rally follows a breakout from a 10-month consolidation phase in March 2025, further accelerated by government measures aimed at boosting consumption. The Nifty PSU Bank index is now set to extend its annual winning streak to five years. Since the Covid-19 lows, the index has seen a remarkable surge of nearly 678%, delivering multibagger-like returns. Bank of India, Union Bank, and State Bank of India have all shown impressive returns of 41%, 28%, and 23% respectively in 2025 so far, with SBI surpassing ₹9 lakh crore in market capitalization.
Analysts project full-year loan growth at 13%, with stable credit costs. Margin recovery in the second half of FY26 is expected to be a key profit driver, fueled by deposit repricing and CRR cuts. Despite a moderation in retail loan growth, overall credit expanded 11% year-on-year in Q2FY26, primarily in the MSME, agriculture, and corporate segments, indicating continued economic activity and a positive outlook for the banking sector.
