Stocks to buy for the long term: Even as the recent sharp selloff in the Indian stock market has dragged all major indices significantly lower, the banking sector has been among the top laggards this month so far.
The Nifty Bank index has lost 11% in March so far compared to an 8% fall in the benchmark Nifty 50. The Nifty Private Bank index, too, is down 11% for the month. However, the PSU Bank index has lost more than 13% this month so far.
The main reason behind the fall in shares of PSU banks, or the public sector banks(PSBs), is bond price volatility. When bond yields rise, bond prices fall, leading to mark-to-market (MTM) losses on banks’ bond portfolios. Rising bond yields directly reduce the treasury income and profits of PSU banks.
Moreover, rising concerns about the impact of higher crude oil prices on the country’s macroeconomic health are prompting investors to sell PSB shares, as PSU banks are seen as a proxy for economic growth.
However, Nandish Shah, AVP– PCG Research and Advisory, (Fundamental) Wealth Management at Motilal Oswal Financial Services, appears to have a positive view on PSBs.
Shah highlighted that the Indian banking sector delivered resilient NIMs in 3Q, and domestic banks appear well-positioned to sustain these NIMs, with a recovery expected over FY27E.
“With a positive growth outlook and systemic growth consistently exceeding 13% YoY over the past few fortnights, we anticipate steady growth trends led by retail, increased SME and corporate demand, and a revival in consumption,” said Shah.
Shah expects credit growth to sustain at a healthy 14% CAGR over FY26-28E.
He believes that with asset quality remaining healthy and credit costs trending lower, incremental profitability will increasingly be driven by operating leverage, productivity gains, and tighter cost discipline across select franchises.
“We expect earnings growth to lead loan CAGR over the medium term, as banks benefit from stable-to-improving NIMs, easing deposit cost pressures, and a favourable rate backdrop,” Shah said.
Top PSU banking stocks to buy
From the PSU banking space, Nandish Shah recommends buying PNB, SBI, and Indian Bank for the long term. Here’s his investment rationale for these stocks:
Punjab National Bank (PNB) | Current market price: ₹111.70 | Target price: ₹145 | Upside potential: 30%
According to Shah, Punjab National Bank’s structural recovery story remains intact, supported by steady balance-sheet strengthening, improving asset quality, strong provision buffers, and normalised credit costs.
All these factors position the bank for sustainable profitability despite a challenging margin environment.
“NIMs remain under pressure due to faster growth in corporate and international advances. However, floating provisions of ₹9.6 billion and total buffers of ₹17.8 billion mitigate ECL transition risks (nearly ₹90–100 billion), asset quality remains stable with PCR at 90%, and with credit growth guidance of 11–12% and LCR at 130%,” Shah noted.
SBI | Current market price: ₹1,046.80 | Target price: ₹1,300 | Upside potential: 24%
Shah underscored that SBI delivered a strong all-round performance in Q3FY26, driven by robust business growth, margin expansion, and healthy asset quality.
The bank expects NIMs above 3% in FY26 and over the long term.
“We increase our earnings estimates by 3% and 4.3% for FY27E and FY28E, respectively, and estimate FY27E RoA and RoE at 1.1% and 15.9%, respectively,” said Shah.
Indian Bank | Current market price: ₹874 | Target price: ₹1,025 | Upside potential: 17%
Shah noted that Indian Bank delivered an in-line Q3FY26 performance with PAT of ₹30.6 billion, up 7% YoY, driven by steady margins and healthy loan growth.
The bank maintained best-in-class provision coverage and made accelerated SMA-1 provisions, supporting lower incremental credit costs and balance sheet resilience.
Liquidity remained comfortable despite a higher CD ratio of 79.1%, as deposits grew 12.6% YoY and CASA stood at 37.4%.
“We increase our earnings estimates by 4% and 4.5% for FY27 and FY28, respectively, and anticipate the bank to deliver FY27E RoA and RoE of 1.4% and 17.8%,” said Shah.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
