Bank of Maharashtra has emerged as the standout performer, gaining for the third consecutive session and hitting fresh highs with a 5.35% intraday surge to ₹86.07 as of 12:49 IST on Wednesday, August 26. According to Business Standard, the stock is up 63.85% over the past year, significantly outperforming the NIFTY's 0.91% decline and the Nifty PSU Bank index's 28.29% slide. The stock has demonstrated strong recent performance with gains of 6.75% in the last one month, while the Nifty PSU Bank index has risen 3.97% over the same period. Trading volume surged to 445.78 lakh shares today, compared to the daily average of 104.81 lakh shares in the last one month, indicating heightened investor interest. The September futures contract is quoting at ₹86.97, up 5.83%, reflecting positive sentiment among derivatives traders.
The Nifty PSU Bank index has risen by 4% this month so far, significantly outperforming the Nifty Private Bank index's 0.60% rise and the flat, negative Nifty 50. According to Mint, PSU banking stocks saw healthy buying interest on Wednesday, 26 August, with the Nifty PSU Bank index rising 1.8% in morning trade despite cautious market sentiment. Bank of Maharashtra, Bank of India, Canara Bank, Punjab National Bank, and SBI jumped between 1% and 6%, with the sectoral outperformance driven by healthy Q1FY27 results and improved asset quality across PSU banks. NSE data showed the Nifty PSU Bank index surged 1.8% to touch an intraday high of 8,762 points on Wednesday, August 26, in comparison to 8,603.65 points at the previous equity market close, before retracing some gains to trade 1% higher at around 8,694 points during the session.
This is a rare phenomenon in the Indian banking industry - no listed bank has even 1% net NPA in Q1 FY27, with only nine banks having half a per cent or more net NPAs. According to Business Standard, Bank of Maharashtra boasts the cleanest balance sheet with the lowest net NPA ratio at 13 bps, followed by Indian Bank (15 bps), IDBI Bank Ltd (16 bps), Tamilnad Mercantile Bank Ltd (17 bps), Federal Bank Ltd and Indian Overseas Bank (18 bps each), and Karur Vysya Bank Ltd (19 bps). Among the mega-lenders, State Bank of India reported net NPAs of 38 bps, while HDFC Bank recorded 41 bps. In absolute terms, gross NPAs of listed banks are ₹3.7 trillion in June, down 11.76% from the year-ago period, with net NPAs at ₹84,293 crore, down 9.51%. The steady depletion of bad debt, coupled with slowing fresh slippages, allowed banks to trim risk provisions, with total industry provisioning for bad debt falling to ₹25,448 crore - a sharp 41.61% decline YoY.
Market experts predict that PSU banks are expected to witness a marginal improvement in profitability in the upcoming period and resilience on the margin front, as reported by The Economic Times. Experts from global investment firm Bernstein noted there is a convergence happening between private and public sector banks, though they expect private banks' outperformance remains distant from current levels. A lower oil price essentially reduces rate hike uncertainty against the backdrop of cooling inflation fears, as banks hold significant amounts of government securities. A reduced and stable oil price increases the potential for treasury earnings, with softer bond yields handing PSU banks outsized treasury gains given their larger SLR books. PSU banks are showing resilience on the margins front, which is expected to increase their profitability marginally in the upcoming period, according to Bernstein analysts, though concerns remain about the Reserve Bank of India's ECL method in the medium term.
Bank of Maharashtra emerged as the top performer with a 6.4% intraday gain to ₹84.76, followed by Bank of India at ₹146 (+2.7%), Indian Bank at ₹890 (+3%), Union Bank of India at ₹188 (+2.8%), and Bank of Baroda at ₹243 (+2%). State Bank of India traded at ₹1,055 (+1.3%), Canara Bank at ₹129 (+1.6%), and Punjab & Sind Bank at ₹23.62 (+2.2%). Union Bank of India showed strong 5-day returns of 10.7% and Indian Bank delivered 7.8% monthly returns, while Bank of Baroda and SBI posted modest 1-month gains of 4% and 4% respectively. Kotak Mahindra Bank led Wednesday's gains, surging 3.76% to close at ₹416.7, followed by Axis Bank (up 1.62%) and State Bank of India (up 0.38%). HDFC Bank slipped 0.04%, while AU Bank and IndusInd Bank slid 1.34% and 1.08% respectively. The heavy buying momentum in PSU bank stocks amid a flat broader market reflects investor focus on falling oil prices and improved hopes for margin gains in the upcoming period. The stock's PE ratio stands at 8.44 based on TTM earnings ending June 26, indicating attractive valuations despite the strong performance.
Experts recommend selective accumulation in banking stocks, with Master Capital Services' Ravi Singh suggesting HDFC Bank, ICICI Bank and Axis Bank remain preferred picks for portfolio and long-term investors. ICICI Securities has buy recommendations on HDFC Bank, Axis Bank, Kotak Mahindra Bank, RBL, DCB Bank, Karur Vysya, and IDFC First Bank from the private banking space. Ventura's Bolinjkar emphasizes that many private bank stocks have underperformed for some time, making current valuations more reasonable. According to INVAsset PMS's Harshal Dasani, within their constructive view on financials, private banks remain the core holding for compounding, while PSU banks are the tactical value expression, best owned through the margin-advantage window and trimmed when the discount to book meaningfully narrows. Market experts predict that investors should monitor the convergence in growth rather than expecting a sharp reversal in the trend.
