Global tensions and the recent decline in equity markets have also affected banking sector stocks, with public sector bank shares registering a sharper correction. According to a report by Antique Stock Broking, the recent decline may create an investment opportunity in government-owned banks, with the possibility of a recovery in the coming months.
Recent market volatility and global uncertainties have weighed on the banking sector, particularly public sector banks. Shares of PSU banks have recorded a significant decline in recent weeks. However, market participants indicate that the correction may not persist over an extended period. A report by Antique Stock Broking states that government bank stocks could witness a recovery following the current decline.
The brokerage said that ongoing global uncertainties and market volatility may continue to exert pressure on these stocks in the near term. It added that the potential for an upward movement in PSU bank shares could strengthen once market conditions stabilize.
The report states that since February 28, 2026, shares of government-owned banks have declined by approximately 11 percent. In comparison, private bank stocks have recorded a smaller decline of about 7 percent over the same period.
The difference reflects investor behaviour during periods of market uncertainty, when market participants often shift toward comparatively lower-risk options. During such periods, PSU bank shares tend to experience higher pressure.
Historical trends indicate that during major global or geopolitical disruptions, PSU bank stocks typically decline more sharply in the initial phase but often recover at a faster pace thereafter.
According to Antique Stock Broking, a significant portion of public sector banks’ earnings is derived from treasury income. Treasury income refers to returns generated from investments in government bonds, or Government Securities (G-Secs).
During periods of heightened market volatility, yields on government bonds tend to increase. Higher yields exert pressure on bond prices, which can affect banks’ trading income from treasury operations.
As a result, PSU bank shares often face greater pressure during such periods. The report also noted that such corrections have historically created potential investment opportunities.
Data cited in the report indicate that PSU bank shares have often recovered within three to six months following periods of sharp declines. In several instances, these stocks have recorded ber gains than private sector banks during the recovery phase.
Following the recent decline, Antique Stock Broking has revised its view on two major public sector banks. The brokerage has upgraded Punjab National Bank and Canara Bank to a BUY rating.
The report states that at current price levels both stocks present valuation upside, indicating the potential for gains in the period ahead.
However, the brokerage also noted that margins and treasury income of public sector banks may remain under pressure in the near term due to rising government bond yields.
The report identifies deposit mobilisation as a key challenge for the banking sector in the coming period. Credit growth has remained b in recent months, indicating that banks have continued to expand lending. As a result, banks require higher deposit inflows to maintain balance within their loan portfolios. This has intensified competition among banks to attract deposits.
In January 2026, several public sector banks increased interest rates on term deposits in an effort to attract more customers and strengthen deposit growth.
Private sector banks have also raised interest rates on long-tenure deposits. Market participants indicate that competition for deposits could intensify further as banks seek to meet funding requirements.
According to the brokerage report, banking sector margins could remain slightly softer in FY2027 due to rising funding costs.
When banks increase interest rates on deposits, their funding costs rise. This can affect the spread between lending and deposit rates, known as Net Interest Margin (NIM).
The report also identifies several preferred banking stocks. In the private sector banking category, HDFC Bank, ICICI Bank, Kotak Mahindra Bank and Axis Bank are identified as preferred options.
Among smaller private sector banks, City Union Bank and Ujjivan Small Finance Bank are identified as attractive opportunities following the recent correction.
Among public sector banks, State Bank of India is identified as the most preferred option, while Union Bank of India is also cited as having the potential for improved performance.
