PSU stocks are expected to steal the spotlight ahead of Union Budget 2026, with analysts anticipating a potential rally driven by expectations of higher government spending, infrastructure push, defence allocation, and policy support. According to Finowings analysis, PSU stocks often witness strong momentum before and after the Union Budget due to expectations of increased capital expenditure, defence spending, and energy security initiatives. The Nifty PSU Bank index rose sharply from 6,317.30 on January 31, 2025, to 9,019.35 on January 31, 2026, registering a strong gain of around 42.8 per cent - a performance that has continued into the current budget cycle. Key sectors expected to benefit include infrastructure, defence, power, energy, and banking PSU stocks, with companies like BHEL, Coal India, Mazagon Dock Shipbuilders, and select PSU banks positioned for significant gains.
State Bank of India (SBI) closed at ₹766 after touching a low of ₹752.15, declining from its opening level of ₹774.80. As reported by ET Now, Bank of Baroda declined to ₹210.84 from an opening of ₹216, amid heavy trading volumes. Other PSU banks including Union Bank and Indian Bank also ended the session lower. The Nifty PSU Bank index rose sharply from 6,317.30 on January 31, 2025, to 9,019.35 on January 31, 2026, registering a strong gain of around 42.8 per cent. Experts note that PSU banks may have upside because of improving asset quality, recoveries, and reasonable valuations, with the sector showing resilience in Q3 FY26 with major lenders reporting year-on-year profit growth. PSU banks posted record profits of ₹1.78 lakh crore, with SBI's profits alone crossing ₹79,000 crore.
ICICI Bank closed higher at ₹1,255.55, near the day's high, while Axis Bank gained momentum, ending at ₹998.15 after crossing the ₹1,000 mark intraday. According to ET Now, HDFC Bank remained largely range-bound, closing marginally lower at ₹845.47. The Nifty Private Bank index increased from 24,386 to 28,553.15, marking a more moderate rise of around 17.1 per cent, indicating steadier but slower gains in private sector banking stocks compared to PSU banks. The private banking sector has shown relative resilience compared to PSU banks, with analysts maintaining positive outlook on the banking sector citing strong asset quality and sustained credit growth.
Following the Union Budget 2025, PSU bank stocks largely fell as markets reacted cautiously to fiscal and credit expectations, while private banks showed relative resilience. According to reports from ET Now, banking stocks witnessed mixed movement with both PSU and private sector banks reacting amid expectations around fiscal discipline, credit growth and government borrowing. The Budget 2025 introduced several reforms aimed at improving credit access and operational efficiency, including enhancement of credit guarantee cover from ₹5 crore to ₹10 crore for micro and small enterprises, and reduction in guarantee fees to 1 per cent for loans in 27 focus sectors.
Analysts continue to maintain a positive outlook on the banking sector, citing strong asset quality and sustained credit growth as key drivers. As reported by ET Now, Mihir Vora from TRUST Mutual Fund expects discretionary companies, auto makers, select banks and NBFCs to report healthy numbers. The sector has shown resilience in Q3 FY26 with major lenders reporting year-on-year profit growth, reinforcing confidence in the sector's earnings trajectory. Banking stocks have outperformed most other sectors in recent months, with several analysts highlighting banking as the biggest positive for the market. With Budget 2026 expected to focus on performance improvements and positive expectations from PSU budgets, the sector is positioned for continued growth across both public and private banking segments.