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PSU banks outpace private lenders as Nifty PSU Bank climbs 4%

The Nifty PSU Bank index is up 4% month to date, helped by lower year-on-year slippages, treasury gains from softer bond yields, and a sector rotation away from private banks.

Reported · Written up by our desk · Asia

PSU banking stocks have been attracting buying interest this month, driving the Nifty PSU Bank index up nearly 2% in morning trade on Wednesday, 26 August. The index was up 1.8% in early deals, with Bank of Maharashtra, Bank of India, Canara Bank, Punjab National Bank, and SBI rising between about 1% and 6%.

Despite cautious broader market sentiment, the Nifty PSU Bank has gained 4% month to date, versus a 0.60% rise for the Nifty Private Bank index and a flat, negative bias for the Nifty 50. LiveMint Markets attributes the relative outperformance to several factors, including a macro backdrop of currency weakness and higher crude oil prices.

The report says many PSU banks have shown better-than-expected asset quality, including lower year-on-year slippages. It also points to softer bond yields boosting treasury gains because PSU banks hold larger SLR books, while a consolidation narrative and sector rotation have kept upside optionality alive across smaller names.

INVAsset PMS business head Harshal Dasani said the divergence reflects rotation with underlying reasons, not speculation. He added that earnings season has delivered sharp moves, noted private lenders absorbing NIM compression while PSU banks are less exposed due to CASA-driven deposits and government-linked or fixed-rate lending, and cited valuation discounts to book that can narrow risk premiums as clean asset quality improves.

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