Nifty PSU Bank Index Eyes Breakout As Sector Rotation, Macro Tailwinds Align: SEBI RA Rajneesh Sharma

The Nifty PSU Bank Index is setting up for a decisive breakout, supported by favorable macroeconomic tailwinds, according to SEBI-registered analyst Rajneesh Sharma.

PSU banks are often seen as late movers in the market cycle. With sector rotation underway and policy-driven tailwinds in effect, this may signal the start of a significant upward trend for public sector banks, Sharma said.

Historically, private sector banks have tended to lead in the early phases of a bull market, thanks to their stronger fundamentals. PSU banks, in contrast, usually lag due to structural inefficiencies and conservative practices, the analyst stated.

However, in mid-to-late cycle phases, investor focus often shifts toward value plays and sectors benefiting from improving economic activity, conditions under which PSU banks tend to outperform.

Sharma noted that the Nifty PSU Bank Index is consolidating near its previous high of 7,583.65, without signs of a sharp rejection. This kind of controlled movement suggests limited selling pressure. Meanwhile, the relative strength index (RSI) is making higher highs even as the index remains flat, forming a hidden bullish divergence. This pattern is often a precursor to a breakout.

On the macro front, recent rate cuts and liquidity injections by the central bank have made credit cheaper and more accessible. PSU banks have responded quickly by slashing lending rates, making them competitive across housing, SME, and infrastructure sectors. With government-led capital expenditure on the rise, PSU banks are well-positioned to ride the next wave of growth.

Sharma stated that if the index surpasses 7,583.65, the next target could be the 8,000 level, with strong support at 6,532.60.

Year-to-date (YTD), the index has gained over 10%.

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