Nifty PSU Bank index logs 7% gain in 4 sessions; Bank of India and 5 other constituents rise up to 10%

Shares of Indian PSU lenders have made a strong recovery in recent sessions, reversing the weak performance seen in the first half of the current month. This resurgence is largely attributed to the BJP-led NDA’s victory in the Maharashtra assembly elections. The win has sparked optimism that the central government will prioritise increasing capital expenditure (capex) to drive economic growth, especially as current spending lags behind FY2025 budget estimates.

Beyond capex, the election outcome has also raised expectations that the government will strengthen social welfare programs, potentially providing significant benefits to rural India and spurring broader economic activity.

Government spending in the first half of FY25 has remained flat year-on-year, with capex spending declining by 17%. This shortfall has led to growing anticipation that the government will expedite the completion of numerous ongoing projects to revive growth momentum.

An increase in capex is expected to directly benefit banks, as higher government spending typically boosts corporate lending demand, improving the business outlook for lenders.

Reflecting this optimism, the Nifty PSU Bank Index has gained 7.35% over the last four trading sessions, climbing from 6,318 to its current level of 6,783. However, the index remains 15.5% below its all-time high of 8,053 hit in June 2024.

Among the 12 constituents of the index, Bank of India has seen the highest gains, rising 10% over the past four sessions. It was followed by Central Bank of India (up 9.5%), Bank of Maharashtra (up 9%), Punjab National Bank (up 8.3%), Bank of Baroda (up 8%) and Canara Bank (up 7.5%). 

Additionally, the recent recovery in PSU stocks can be attributed to their limited loan exposure to Adani Group companies. Following bribery allegations against Gautam Adani made by US prosecutors last week, the market initially reacted with panic, fearing potential financial fallout from the group’s legal troubles.

However, analysts said that Indian banks have limited exposure to Adani Group companies. JPMorgan analysts said Indian banks’ exposure to the group was around 0.3% of outstanding loans as of March and that the loans were backed by asset cover.

Indian banks’ exposure to Adani Green, which is at the centre of the allegations, is “materially lower” at just six basis points of banking system credit as of September, JPMorgan said.

Meanwhile, Financial Services Secretary M. Nagaraju on Tuesday said that public sector banks will introduce new products in the next few months to boost credit growth. These products will target all sectors, including MSMEs, he added. 

Strong performance in Q2FY25

PSBs delivered a robust performance in the September quarter (Q2FY25), surpassing their private sector peers. This was driven by a drop in provisions and a notable improvement in asset quality. Additionally, a surge in non-interest income and Treasury profits helped state-run lenders report a strong show in Q2.

The combined net profit of 12 Indian PSBs rose by 35.39 per cent to ₹45,550 crore in Q2 FY25, according to data compiled by LiveMint. The country’s largest lender, State Bank of India (SBI), accounted for about 40.24 per cent of the net profit of PSBs in Q2 FY25.

In the same quarter last year, PSBs reported a combined net profit of ₹33,643 crore. Sequentially, net profit also increased, with PSBs recording ₹39,974 crore in the first quarter of the current fiscal year.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.