PSU Bank Shares Outperform: Returns Double The Nifty Bank, Triple The Nifty 50
In the last 12 months, the Nifty PSU Bank index surged 39.07%, nearly double the 20.65% return delivered by the Nifty Bank and almost three times the 10.79% gain in the Nifty 50.
PSU bank stocks have continued to outperform the broader market, delivering returns that are significantly higher than both the Nifty Bank and the Nifty 50 across multiple time frames. The recent rally has once again highlighted the renewed investor interest in public sector lenders, driven by improving fundamentals and a supportive operating environment.
Nifty 50 Vs Nifty Bank Vs Nifty PSU Bank
Over the past three months, the Nifty PSU Bank index has risen 16.07%, sharply outperforming the Nifty Bank, which gained 7.36%, and the Nifty 50, which advanced 4.33%.
The outperformance is also visible over shorter and longer periods. In the last one month, PSU bank stocks gained 5.45%, compared with 0.75% for the Nifty Bank and a marginal decline of 0.10% in the Nifty 50.
Over six months, the gap widened further, with the Nifty PSU Bank up 23.55%, while the Nifty Bank rose 5.62% and the Nifty 50 climbed just 2.76%.
The trend is even more striking over a one-year horizon. In the last 12 months, the Nifty PSU Bank index surged 39.07%, nearly double the 20.65% return delivered by the Nifty Bank and almost three times the 10.79% gain in the Nifty 50.
A closer look at index constituents shows that the rally in PSU banks has been broad-based. In the Nifty PSU Bank index, nine out of twelve stocks delivered positive returns over the past three months, with Canara Bank and Bank of India emerging as key leaders.
By comparison, gains in the Nifty 50 were more skewed, with Shriram Finance alone rising about 55% over the same period and accounting for a significant portion of the index’s performance.
The Nifty Bank index, meanwhile, saw all 14 constituents post positive returns, led by Federal Bank and AU Small Finance Bank, though overall index gains lagged PSU banks.
Why Is PSU Bank Outperforming Benchmark Indices?
Fundamental factors have played a central role in driving the outperformance of PSU banks. Public sector lenders reported strong loan growth in the third quarter, supported by robust demand across segments.
In addition, net interest margins appear to have bottomed out in the second quarter, improving earnings visibility. There has also been stronger traction in retail and RAM (retail, agriculture and MSME) segments, helping diversify loan books.
Asset quality has continued to improve, with lower slippages and better recovery trends, while credit costs are expected to remain stable in the near term.
From a valuation perspective, PSU banks have re-rated meaningfully but still remain within a reasonable range. The Nifty PSU Bank index is currently trading at a price-to-book multiple of 1.22x, slightly above its three-year average of 1.09x following the recent run-up.
In contrast, the Nifty Bank index trades at 2.09x book, below its three-year average of 2.20x. The broader market also appears fairly valued, with the Nifty 50 trading at a price-to-earnings multiple of 21.69x, marginally below its three-year average of 22.5x.
