Nifty PSU Bank index climbs 2% as Bank of Baroda, Canara Bank stocks lead gains after strong Q2 earnings

Bank of Baroda

The Nifty PSU Bank index climbed over 2 percent on Monday, propelled by a sharp 3-5 percent rally in Bank of Baroda and Canara Bank shares after Q2 FY26 earnings, supportive news flow on policy and consolidation. Brokerages strengthened their bullish stance on Bank of Baroda following better-than-expected margins and asset quality performance, while Canara Bank showed steady improvement in asset quality. All 12 constituents of the index traded in the green.

Bank of Baroda shares rose 4.6 percent to Rs 291.2 as of 11 am, helping lift the Nifty PSU Bank index by 2.19 percent to 8,363.2. The stock hit an all-time high after the lender reported a better-than-expected July-September-quarter performance. It reported a 5-basis-point rise in net interest margin to 2.96 percent despite the 100-basis-point repo rate cut in June, and improvement in asset quality. Profit after tax fell 8 percent year-on-year but grew 6 percent sequentially, aided by a sharp reduction in provisions.

• Also read | Shriram Finance shares rally 5% after Q2 results beat Street, top Nifty gainer; brokerages bullish

Brokerages turned more constructive following the results.

• HSBC reiterated a buy on Bank of Baroda, and raised its target price to Rs 340, citing broad-based sequential loan growth, NIM expansion and healthy asset quality.
• Citi maintained a buy with a Rs 350 target, highlighting an eight percent beat on profit and strong corporate loan traction.
• Nomura upgraded the stock to buy and raised its target to Rs 320, noting inexpensive valuations.
• CLSA kept an outperform rating with a Rs 325 target, flagging better-than-expected asset quality despite softer fee income and lower CASA.

Canara Bank shares gained 2.88 percent to Rs 140.94 after the public sector bank reported an improvement in gross and net NPAs on a sequential basis in its September-quarter results last week. Net profit rose 19 percent year-on-year to Rs 4,774 crore, while global advances and deposits grew 13.74 percent and 13.40 percent, respectively.

Investor sentiment in public-sector banks also found support from policy-linked developments. Earlier, last week, reports said the government is considering permitting up to 49 percent direct foreign investment in state-owned lenders, more than double the current 20 percent cap.

The finance ministry has been in talks with the RBI for several months on the proposal, according to reports, with the move aimed at reducing the regulatory gap between public- and private-sector banks -- where foreign ownership is allowed up to 74 percent. Such a shift could open the door to greater overseas capital participation and improve capital-raising flexibility for PSU lenders in the years ahead.

Separately, another report indicated the government is exploring a merger between Union Bank of India and Bank of India, potentially creating the country’s second-largest public-sector bank after SBI. The effort, according to the report, is part of a broader reform plan to scale up state-owned lenders and streamline overlapping operations.

Among other top movers on the index, Indian Bank rose 3.22 percent, Union Bank gained 2.35 percent, and Bank of India added 1.99 percent.

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