Stocks to buy: The Nifty PSU bank index jumped over 1% in intraday trade on Friday, February 20, looking set to extend its weekly gains to its second consecutive week.
The index is up over 5% this week after an over 3% gain in the previous week. On a monthly scale, the Nifty PSU index has gained 7% in February so far, looking set to extend its winning streak for the sixth consecutive month. In these six months, the index has cumulatively jumped over 40%.
Nandish Shah, AVP-PCG Research and Advisory, (Fundamental) Wealth Management, Motilal Oswal Financial Services, remains constructive on the banking space.
He highlighted that the credit growth in PSU banks outpaced private sector banks, driven by MSME and retail credit.
“Advance growth remained in the range of more than 10%-11% as compared to 5-6% for private sector banks. On the asset quality front, PSU banks continued to see improvement. SBI, one of the largest PSU banks, saw GNPA of 1.6% in the December quarter as compared to 1.73% in the September 25 quarter. Even in absolute amount, there was a reduction,” Shah noted.
Most PSBs have reported a stable improvement in priority sector lending. Asset quality has improved over the past few years as they have strengthened credit discipline and underwriting frameworks across priority segments.
As per Shah, most banks expect healthy momentum in Q4FY26, supported by steady NIMs and improving credit cost metrics.
“We remain constructive on the banking sector, with positive earnings momentum expected to continue over the coming quarters. We estimate 11.3% CAGR in earnings over FY26-28E after earnings bottom out at 6% YoY in FY26E,” said Shah.
PSU banking stocks to buy
SBI and Indian Bank are the two top picks of Nandish Shah from the PSU banking space.
SBI | Target price: ₹1,300
Shah pointed out that SBI reported a strong all-round performance, led by robust business growth, margin expansion and healthy asset quality.
“SBI expects NIM at 3%+ in FY26 and in the long term. PAT was driven by fee-based income. C/I ratio (cost-to-income ratio) is expected to remain around 50%. Credit growth was healthy at 15.6% YoY, while a robust credit pipeline is expected to support a healthy outlook going forward,” Shah observed.
“Management raised FY26 credit growth guidance to 13-15% (versus 12-14% earlier). The bank sounded confident about the overall credit environment. We increase our earnings estimates by 3% and 4.3% for FY27E and FY28E, respectively, and estimate FY27E RoA and RoE at 1.1% and 15.9%, respectively,” said Shah.
Indian Bank | Target price: ₹1,025
Indian bank reported an in-line quarter, led by steady margins, robust asset quality and healthy loan growth.
Shah highlighted that the bank’s NIMs improved sequentially and are expected to remain resilient despite MCLR repricing. Advances growth was healthy, while deposits grew by a modest 1.8% QoQ. CD ratio increased to 79%, which still remains comfortable.
The bank has made accelerated provisions on SMA-1 again and aims to bridge the entire provisioning gap within the first year of the ECL transition against a prescribed timeline of five years.
“Asset quality ratios improved, with INBK maintaining the best in-class coverage ratio and lower slippages, which provides comfort on incremental credit cost. We increase our earnings estimates by 4.0% and 4.5% for FY27 and FY28, respectively, and anticipate the bank to deliver FY27E RoA and RoE of 1.4% and 17.8%, respectively,” said Shah.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
