The Indian stock market has been a roller coaster ride recently, with several sectors emerging as surprise leaders. One such sector that has caught the attention of investors is the Public Sector Undertaking (PSU) banking stocks. Much like the Defence stocks, which saw an impressive rally following the India-Pakistan conflict, PSU banking stocks are now showing signs of a strong bullish reversal.
The Nifty PSU Bank Index surged by 6.6% in May 2025, signalling a powerful rebound and potentially setting the stage for further gains. As the broader market reversed its fortunes from lower levels, the PSU banking stocks are starting to align with the upward momentum, drawing comparisons with the Defence sector, which experienced similar bullish behaviour.
But is this rally sustainable? Let us analyse the charts and some standout PSU bank stocks that could be poised for growth.
Nifty PSU Bank Index
On the daily chart, the Nifty PSU Bank Index has made an exciting breakout, crossing a 10-month falling trendline. This signals a shift in market sentiment, with the index moving into bullish territory. A Golden Cross further confirms the breakout on the moving averages, a classic technical signal that highlights a potential upward trend.
In addition, the Relative Strength Index (RSI) has remained firmly above the 50 marks, suggesting that momentum is on the bull’s side. This is an encouraging sign for investors as it indicates sustained strength in the index and the potential for further price appreciation.
Nifty PSU Bank / Nifty Private Bank Ratio
Looking at the ratio chart of Nifty PSU Bank versus Nifty Private Bank (PVT Bank), a clear outperformance trend is emerging. The slope of the ratio has turned northwards, meaning the PSU banks are starting to outperform their private counterparts. As the ratio moves above its 200-Day Exponential Moving Average (200DEMA), the probability of continued outperformance for PSU banks increases, further boosting the positive sentiment surrounding this sector.
Three PSU Bank Stocks to Watch
With the overall bullish outlook for the PSU banking sector, let’s highlight three stocks that are showing strong technical setups and could be worth adding to your watchlist.
1. Bank of India (BOI)
Bank of India, one of the largest and oldest public sector banks, has been on a recovery path after facing significant challenges in recent years. It has consistently worked on improving its asset quality and capital position.
On the weekly chart, Bank of India has formed a solid base around the 200-Week Exponential Moving Average (200WEMA) and is now poised for a potential breakout. The stock is currently trading near a crucial resistance zone, and a close above the 125-mark could open up a new range for further gains.
Additionally, the RSI on the weekly chart is approaching a breakout, suggesting strength in the potential bullish trend. If the stock manages to break the resistance level, it could potentially enter a new phase of upward movement.
2. Indian Bank
Indian Bank, another prominent player in the PSU banking space, has demonstrated consistent performance and resilience over the years. With a strong balance sheet and strategic expansion plans, the bank is well-positioned to capitalise on the growth opportunities in India’s banking sector.
Indian Bank is one of the outperformers in the PSU banking basket, and its stock is on the verge of breaking out above its previous all-time high of 632. A breakout above this level would mark the beginning of a “no-resistance zone,” where the stock could see rapid gains due to the absence of significant overhead supply.
The RSI on the weekly chart has already broken out of its resistance zone, indicating that the momentum is shifting in favour of the bulls. This adds to the potential bullish case for Indian Bank, suggesting it may be a top pick in the PSU banking space.
3. Union Bank of India
Union Bank, with its expansive branch network and strong presence in the retail and corporate banking sectors, has seen its stock gain significant attention from investors. The bank’s focus on cost efficiency and improving its asset quality has garnered investor confidence.
On the weekly chart, Union Bank has broken out from an ascending triangle pattern, a bullish chart formation that often signals the start of a strong uptrend. The breakout is supported by a strong bullish crossover on the RSI, indicating a potential move towards the 2024 highs.
The bullish setup on both price and momentum indicators suggests that Union Bank could continue its upward trajectory, making it a stock worth watching in the coming months.
Is the PSU Bank Rally Sustainable?
The PSU banking sector has shown impressive strength over the last month, with key technical indicators pointing toward a potential continuation of the bullish trend. The breakout in the Nifty PSU Bank Index, coupled with outperformance relative to private banks, paints an optimistic picture for the sector.
For investors looking to ride the wave, potential stocks like Bank of India, Indian Bank, and Union Bank are well-positioned to benefit from the positive technical setups and sector-wide strength.
As the PSU bank sector enters its next phase of growth, it may very well be the next big bullish sector to follow in the footsteps of the defence stocks, making it an exciting opportunity for investors looking to diversify their portfolios.
Disclaimer
Note: We have relied on data from http://www.definedgesecurities.com throughout this article. Only in cases where the data was unavailable have we used an alternate but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Brijesh Bhatia has over 18 years of experience in India’s financial markets as a trader and technical analyst. He has worked with UTI, Asit C Mehta, and Edelweiss Securities. Presently, he is an analyst at Definedge.
Disclosure: The writer and his dependents do not hold the Stocks discussed in this article. However, clients of Definedge may or may not own these securities.
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