PSU Bank Stocks: Good news amid the outcry in IT stocks! Strong comeback of government banks, what should be the investment strategy? – market

foreign investors friendly

In contrast, foreign investors sold tech shares worth about Rs 1,100 crore in the first half of February, their biggest monthly withdrawal from the IT sector since August. The strength of public sector banks indicates that foreign funds are returning to sectors that are seen as areas with continued earnings visibility and protection from AI-volatility.

Why are shares of public sector banks shining?

Public sector banks have caught up with private banks in digitizing their operations and its impact is now visible in their performance. Dalal Street investors now see optimism in these firms and this has narrowed their valuation discounts to peers. Nowadays there is a lot of talk regarding disinvestment and consolidation of public sector banks. Many banks have shown growth in credit and have reduced bad loans.

The Nifty PSU index is now trading at around 11 times its one-year forward earnings, while it is around 15 times for the Nifty Bank index.

On Tuesday, February 24, three of the five most active banking options were related to public sector banks. Traders bought call options on Bank of Baroda, Punjab National Bank and Union Bank of India, indicating expectations of further gains.

Even in the declining market, buying is being seen in the shares of public sector banks, which has brought new life to the banking sector. Nifty PSU Bank index is trading with a strength of around 0.32%. It was trading at Rs 9828.35. This surge shows that investors’ confidence in public sector banks is getting stronger again.

Why is trust in PSU banks increasing?

Many strong reasons are believed to be behind this rise –

asset quality improvement

Recent quarterly results indicate that the asset quality of banks has now stabilized. The pressure of NPA is less than before and the recovery trend remains better.

Expectation of decline in credit cost

When less provisioning has to be made for losses on loans, banks’ net profits directly increase. If we look at the results of the third quarter, it can be expected that credit costs will remain under control in the coming time.

Strength from retail and personal loans

Growth continues in the personal loan and secured retail segments. The slight pressure that was there in the microfinance and credit card portfolio is also gradually showing signs of improvement.

Valuation becomes attractive

Shares of government banks are still considered cheap compared to private banks. This is the reason why big investors are creating positions in these stocks.

How about the next picture?

Market experts estimate that the earnings of public sector banks may strengthen further by financial years 2027 and 2028. For example, Union Bank of India’s Return on Assets (RoA) is estimated to be in the range of 1.15% to 1.25%, which is a positive sign for public sector banks.

However, some pressure still remains in the small-ticket SME and retail-CV segments, but this too is expected to see improvement in the next few quarters.

Overall, PSU banks currently remain firmly on the radar of investors due to strong balance sheets, controlled risks and attractive valuations.

Which stocks should investors keep an eye on?

SEBI registered market expert Vipin Diksena said that PSU banks are currently in the structural re-rating phase due to better fundamentals, valuation catch-up and capital rotation. He said the broader trend shows a cyclical upcycle supported by a strong balance sheet and improved profitability metrics, reflecting a shift from recovery to growth leadership in the banking space.

Union Bank of India

Vipin Diksena said Union Bank has made a strong breakout above the resistance zone of 188–190, indicating fresh momentum after a long base formation. The stock is trading firmly above its rising 50-week EMA and forming a higher high–higher low structure. RSI at 78 indicates strong momentum in the stock.

He said the stock could reach Rs 238 in the next 3-6 months. On the downside, 185–190 is now acting as a strong support zone for the stock, where stoploss should be placed.

Bank of Maharashtra

Bank of Maharashtra is trading on the verge of breakout of resistance level 71. The stock is making higher lows since early 2025 and trades above the rising 50-week EMA, indicating continued accumulation. The RSI remains in bullish territory without significantly overbought readings, suggesting scope for continuation of the momentum.

He said the stock may gain momentum towards 83 in the medium term by showing continuous breakout above 71. The main support is at 70 where stoploss should be placed, below which the structure may weaken.

Bank of India

Bank of India has given a clean breakout above the Rs 150 resistance zone and is now trending inside a well-defined bullish channel. The stock is continuously making higher-highs and higher-lows, while remaining above its rising weekly moving average. The RSI is elevated but currently shows healthy bullish momentum. The immediate resistance of the stock is at 215 where the stock can reach in the medium term. Strong support is seen at 160, which should act as stoploss.

Disclaimer: This article is for informational purposes only and should not be construed as investment advice in any way. ET NOW Swadesh recommends its readers and viewers to consult their financial advisors before taking any money-related decisions.