In recent times, the Indian banking sector has been witnessing significant shifts and transformations. The Nifty public sector undertaking (PSU) bank index, in particular, has been on a remarkable upward trajectory. This index has surged by an impressive 16.7 percent in the current month alone and has witnessed an astounding 61 percent increase compared to levels from the previous September. While this growth has been broad-based, some standout performers have taken center stage, notably UCO Bank, Central Bank, Indian Overseas Bank (IOB), and Bank of Maharashtra.

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However, it's not just the PSU midcaps that are making waves. Several midcap private sector banks have also recorded noteworthy surges, including J&K Bank, Karnataka Bank, and South Indian Bank.

Digant Haria, Co-Founder of GreenEdge Wealth Services, who shared insights into the evolving landscape of midcap and PSU banking, said that the PSU banking rally commenced in 2021 with the State Bank of India (SBI) leading the way.

Subsequently, in 2022, he added, Bank of Baroda (BoB), Union Bank of India, and Canara Bank caught up and experienced substantial rallies. Now, in 2023, the momentum has spread to the entire long tail of PSU banks, including Punjab National Bank (PNB), Bank of India (BoI), IOB, and UCO Bank, which have witnessed strong upward trends.

“The whole PSU banking rally started in 2021 with State Bank of India (SBI) and in 2022 we saw that Bank of Baroda (BoB), Union Bank of India, Canara Bank caught up and rallied and in 2023 we are seeing the whole long tail of the PSUs – which is Punjab National Bank (PNB), Bank of India (BoI) and all the smaller ones IOB, UCO Bank have seen a very strong rally,” he said.

However, Haria cautioned that while these smaller PSU banks have experienced significant growth, serious investors should approach them with caution. On the other hand, the larger and more strategically positioned PSU banks continue to offer considerable value to investors.

In particular, he expressed optimism about Canara Bank and Union Bank of India, emphasising their gradual recovery from past challenges and their robust lending capabilities when compared to PNB, BoI, and other smaller PSU banks.

Haria stated, "We are quite bullish on Canara Bank and Union Bank of India," projecting an expectation of more than 1 percent Return on Assets (RoA) for both banks.

For more details, watch the accompanying video

(Edited by : C H Unnikrishnan)