Mumbai: Shares of public sector banks witnessed a sharp sell-off on Saturday after Finance Minister Nirmala Sitharaman presented the Union Budget 2026 in Parliament. The reaction was swift and broad-based, with heavy selling pressure seen across all PSU banking stocks.
The Nifty PSU Bank index dropped nearly 7 percent intraday, slipping to a low of 8,387.95, compared to its previous close of 9,019.35. By around 2:00 PM, the index was trading at 8,684.95, down 334.40 points or 3.71 percent, reflecting persistent investor caution.
Broad-Based Selling Across PSU Banks
All constituents of the PSU Bank index were trading in the red. Stocks such as Bank of India, Bank of Maharashtra, Indian Bank, Bank of Baroda, Union Bank of India and State Bank of India declined in the range of 3 to 7 percent during intraday trade.
Other PSU lenders including Indian Overseas Bank, Central Bank of India, Punjab & Sind Bank, Canara Bank, Punjab National Bank and UCO Bank also fell, losing up to 3 percent.
The selling pressure indicated a sector-wide reassessment rather than stock-specific weakness.
Why PSU Banks Fell After the Budget
Market participants pointed to multiple budget-related triggers behind the decline.
First, the Union Budget 2026 did not announce fresh capital infusion for public sector banks. Over the past few years, PSU banks have benefited from government-led recapitalisation, which strengthened balance sheets and supported credit growth. The absence of any explicit capital support in this budget raised concerns about future growth funding.
Second, the budget’s focus on fiscal consolidation signalled tighter government spending. While positive from a macro stability perspective, it reduced expectations of aggressive public-sector credit expansion, which typically supports PSU banks more than private lenders.
Third, PSU bank stocks had rallied strongly ahead of the budget, driven by improving asset quality, lower NPAs and better profitability trends. The sharp fall is also being viewed as a profit-booking reaction, with investors locking in gains after the budget failed to deliver major positive surprises for the sector.
Valuations and Market Sentiment
Despite recent improvements in fundamentals, PSU banks still remain highly sensitive to policy direction. Investors were expecting clarity on reforms, privatisation timelines or balance-sheet support, which largely remained absent.
Analysts noted that while the long-term structural story for PSU banks remains intact, near-term sentiment has turned cautious, especially as bond yields and interest rate expectations remain volatile.
What Should Investors Watch Now
Going forward, market focus will shift to quarterly earnings performance, credit growth numbers, and asset quality trends of PSU lenders.
Any indication from the government regarding bank consolidation, strategic stake sales or future capital plans could act as a trigger for recovery in PSU bank stocks.
In the near term, volatility is expected to remain elevated, with investors adopting a stock-specific approach rather than a blanket sector bet.
Bottom Line
The sharp fall in PSU bank stocks post Budget 2026 reflects disappointment over missing policy cues, combined with profit booking after a strong rally. While fundamentals have improved significantly over the past two years, the sector now needs earnings support and policy clarity to regain investor confidence.