The Nifty PSU Bank index hit a fresh 52-week high on Wednesday, gaining 4.2 per cent to close at 4,938. The gauge has gained 10.5 per cent in September and is up 56 per cent in the last one year. In comparison, the Nifty 50 has gained 11.1 per cent in the past year.

The top gainers on Wednesday were J&K Bank (9.4 per cent), Punjab National Bank (8.5 per cent) and Indian Overseas Bank (8.2 per cent). State Bank of India, the country’s largest lender, was up 1.4 per cent.

Change in rules

Banking stocks were in focus after the RBI’s change in rules for banks investing that becomes effective April 1, 2024. This led to India’s bond yield curve steepening on Wednesday, with shorter bonds rallying more than longer-tenor debt in line with global standards, according to experts.

“PSU banks are well-placed in terms of credit growth, asset quality and valuations, and that’s the reason for the overall bullishness. A lot of these stocks are not enough-owned by institutions and traders are buying in these counters in anticipation of greater institutional participation,” said Deepak Jasani, head of retail research at HDFC Securities.

India’s retail inflation eased to 6.83 per cent in August from 7.44 per cent the previous month, which might prompt the RBI to lower rates sooner than expected and indirectly benefit banks. “The chart pattern suggests that this is just the beginning of a rally, but intermediate corrections cannot be ruled out. The 4,600-4,450 range has become a strong support zone. If the index sustains above this level, it could move up to the 5,800-6,000 range,” said Santosh Meena, Head of Research, Swastika Investmart.

Meena believes investors can add the top three PSU banks — SBI, Bank of Baroda, and Punjab National Bank — to their portfolios. They can also allocate a small portion of their portfolio to smaller PSU banks, as these stocks are high-beta and have the potential to generate higher returns.

The Nifty Pvt Bank index was up 0.8 per cent on Wednesday, with RBL Bank (4.6 per cent) and IndusInd Bank (1.8 per cent) being the top gainers.

The benchmark Nifty 50 closed above the 20,000 mark for the first time. The gauge rose marginally to settle at 20,070, 0.38 per cent higher.