Whalesbook
FPI Inflows Drive Surge
Foreign portfolio investors have significantly boosted their stake in public sector banks (PSBs) during the October to December 2025 quarter. This increased allocation contributed substantially to the Nifty PSU Bank index's remarkable 21% surge since October, far outpacing the Nifty 50's 3.7% rise over the same period. Several individual PSBs have delivered exceptional returns, with Bank of India, Union Bank of India, and Canara Bank share prices appreciating between 29% and 34%. Bank of Maharashtra, Bank of Baroda, Indian Bank, and Punjab National Bank also saw gains ranging from 15% to 20%.
Analyst Outlook Remains Positive
Brokerage firm Motilal Oswal Financial Services (MOFSL) highlighted a slight upgrade to FY26E earnings estimates for PSU banks, increasing them by 7% over three months and 3% over twelve months. While State Bank of India's estimates remain steady, Canara Bank and Indian Bank saw upgrades of 12% and 10% respectively for FY26E. MOFSL projects a robust 11.3% compound annual growth rate (CAGR) in earnings from FY26 to FY28, following an estimated 6% year-on-year profit growth in FY26.
Sector Performance Drivers
MOFSL anticipates PSU banks will report approximately 5.8% year-on-year profit after tax growth in the December 2025 quarter. This is expected despite flat to marginally declining net interest margins, supported by modest treasury gains and stable asset quality. The firm's Q3 earnings estimates for Canara Bank and Punjab National Bank are higher than consensus, indicating potential for further upside. MOFSL has maintained its earnings estimates for FY26 and FY27, having previously raised them by 3% and 1% respectively following Q2FY26 results.