Foreign investors have stakes in major state-owned lenders including State Bank of India Ltd., Bank of Baroda, Canara Bank Ltd. and Punjab National Bank, increased to the highest level in at least a year, shareholding data as of December 31 showed. The optimism has continued into 2026, with an indicator that these companies have posted a gain of 12% from the start of the year to emerge as the best performing sector index.
The resilience of state-owned banks is in stark contrast to net foreign outflows of $19 billion from national equities last year, suggesting global funds are moving to areas that offer a more stable view of earnings and protection against AI-driven volatility. Many of these lenders have also reduced bad loans while posting growth in lending.
“These banks have overtaken private banks in digitalizing their operations – and the impact is now visible in their performance,” said Kranthi Bathini, strategist at WealthMills Securities Pvt. “The Street is now finding promise in these companies, and that has narrowed their valuation discount to peers.”
The Nifty PSU Index now trades at almost eleven times forward one-year earnings, compared to around fifteen times the Nifty Bank Index.
This comes as the total holding of foreigners in the NSE 500 Index fell to 18.1% as of December 31, the lowest level in several years, according to IIFL Capital.
Derivatives data suggests that bullish momentum in banks could continue. On Tuesday, three of the five most active bank options were tied to state-owned lenders, with traders buying call options at Bank of Baroda, Punjab National Bank and Union Bank of India – signaling expectations for further gains. This trend continued on Wednesday.
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Published on February 19, 2026
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