PSU bank stocks surge as Axis and HDFC Bank drag private lenders post Q2 results

Public sector bank shares rallied on Monday, led by an 8% surge in Punjab National Bank, following strong second-quarter earnings that highlighted improving asset quality across state-run lenders. In contrast, major private sector banks including Axis Bank and HDFC Bank saw their stock prices decline up to 5% despite reporting solid profit growth.

The divergence reflects elevated market expectations and profit-booking for private lenders, while public sector banks continue to gain from structural balance sheet strength, treasury relief, and strong domestic economic expansion.

State-run banks lead market gains

State-owned lenders posted strong advances on the back of Punjab National Bank's Q2 results, which beat market estimates. PNB reported a 13% year-on-year increase in standalone net profit to ₹5,532 crore for the September quarter, driven by an 11% rise in net interest income to ₹11,601 crore and sustained recovery in asset quality.

The strong performance lifted sentiment across the public banking sector, pushing the Nifty PSU Bank index up by more than 2%. Canara Bank and Union Bank of India advanced around 3%, while Bank of Baroda and Bank of India gained over 2%. State Bank of India added more than 1%. Analysts noted that state-run lenders were also aided by a easing in global bond yields, which provided relief on treasury income.

Private lenders drop despite profit expansion

Private sector lenders faced market corrections after high baseline valuations led investors to lock in gains, even as underlying business metrics expanded.

Axis Bank experienced the sharpest fall among major private lenders, declining 5% to ₹1,225 on the National Stock Exchange despite delivering a 38% rise in net profit to ₹7,003 crore. The lender recorded net interest income of ₹15,371 crore and improved its gross non-performing asset ratio to 1.16%.

HDFC Bank slipped over 2% to ₹712.35 after reporting a 4.7% increase in net profit to ₹19,509 crore, with net interest income climbing 9.7% to ₹34,619 crore. ICICI Bank dropped nearly 1% despite a 20.1% jump in net profit to ₹14,843 crore and an improvement in gross NPAs to 1.20%.

Resilience underpins banking outlook

Despite the temporary market divergence, overall banking stability remains high, backed by declining non-performing assets and robust capital buffers across both sectors. The credit growth environment continues to benefit from national infrastructure investments and steady domestic demand.

Market analysts indicated that private bank valuations remain attractive for long-term investors following the pullback, while public sector lenders are reaping the long-term benefits of sustained balance sheet cleanup and disciplined governance over recent years.