PSU Banks Jump Up to 8% as Axis Bank's 4.5% Slide Keeps the Nifty Under 23,100

Monday morning's trade delivered one of the clearest splits in Indian banking stocks this results season. State-run lenders rallied hard while the large private banks fell, and because the private names carry far more weight in the benchmarks, the headline indices ended up in the red even as the best-performing sector of the day was also a banking one.

By 10 AM, the Sensex was down 240.16 points, or 0.32%, at 74,489.11, and the Nifty 50 had slipped 90 points, or 0.39%, to 23,056.15. Both had opened slightly higher, with the Nifty near 23,151, before selling in Axis Bank, HDFC Bank and Infosys pulled them lower. The broader market held up better: the Nifty Midcap and Smallcap indices were down only 0.13% and 0.19%.

The PSU side: margins are doing the work

The Nifty PSU Bank index rose about 2% at the open and stretched its gain to as much as 3% intraday, making it the top-performing sector on the NSE. Punjab National Bank led with a jump of around 8%, while Canara Bank, Punjab & Sind Bank, Union Bank of India, Bank of India, Indian Bank and State Bank of India gained between 2% and 4%.

The trigger was PNB's September-quarter result, in which profit rose about 13% to roughly Rs 5,500 crore, ahead of analyst estimates (see our earlier coverage of the numbers). What moved the stock on Monday was the brokerage response. Jefferies raised its FY27 earnings estimate for PNB by 17%, citing a better net interest margin as the bank leaned less on bulk deposits and inter-bank participation certificates, and kept a buy call with a Rs 140 target. It described the stock as attractive at roughly 0.8 times FY28 adjusted book and 6 times earnings.

Canara Bank and Indian Bank also drew upgrades. PL Capital lifted its Canara target to Rs 160 from Rs 150, pointing to an 80% loan-to-deposit ratio that leaves room to lend into festive-season demand. Motilal Oswal expects Indian Bank's margin, now 3.31%, to widen by another 5-6 basis points next quarter. A common thread runs through all three notes: recent rate hikes are lifting loan yields at state-run banks faster than their deposit costs.

The private side: costs and funding bite

Axis Bank was the mirror image. The stock fell as much as 5% to an intraday low of Rs 1,225.30 and was the top loser on both benchmarks, even though consolidated profit rose 39.4% to Rs 7,704.67 crore. The problem sat lower in the income statement. Operating expenses jumped 11% from the previous quarter, including a one-time charge of about Rs 250 crore tied to the new labour codes, pushing the cost-to-income ratio up to 49.4% from 45.5%.

Margins were the second worry. Axis's net interest margin came in at 3.36%, and analysts estimate that raising costlier FCNR(B) foreign-currency deposits shaved about 11 basis points off it. Brokerages are divided: Motilal Oswal stayed at neutral with a Rs 1,475 target, while Elara and Jefferies kept buy ratings with targets of Rs 1,572 and Rs 1,700. HDFC Bank, which also reported over the weekend, was down about 1.5%.

Why the split matters

Put together, the morning suggests the market is rewarding banks whose margins are widening and punishing those still spending to raise deposits. That favours state-run lenders with surplus liquidity right now, but it also makes them more sensitive to any reversal in rates. The backdrop is not easy either: Brent crude closed Friday near $110 a barrel, and analysts flagged oil as the main headwind for the wider market. The rupee firmed 9 paise to 94.80 against the dollar in early trade.

Union Bank of India reports its Q2 numbers later on Monday, which will show whether the PSU rally has more to run, alongside results from UltraTech Cement, Hindustan Zinc and Bajaj Finance.

This is an original summary based on public reporting. See our editorial policy for how we source, write, and correct our stories.