The resounding victory of the Narendra Modi-led government in the recent elections has brought a wave of optimism across various sectors of the Indian economy. One of the most notable impacts has been observed in the Nifty PSU Bank Index, which surged by 4%, driven primarily by significant gains in Indian Overseas Bank (IOB), Central Bank of India (CBI), Union Bank, and Bank of Maharashtra. This article delves into the factors behind this rally and its implications for the banking sector.

The Nifty PSU Bank index surged by up to 4.4% in intra-day trading, marking the second consecutive session of gains. This follows a 2.5% rise on June 5 after confirmation that the BJP-led NDA would form the government at the Centre. This positive movement comes after a significant decline of over 15% on June 4, when the Modi-led NDA faced a tighter-than-expected election race and didn't secure as many seats as predicted by exit polls.

All constituents of the PSU Bank index experienced gains in intra-day trading, with Indian Overseas Bank, Central Bank of India, Union Bank of India, and Bank of Maharashtra each rising by over 5%. Other banks, including Indian Bank, SBI, Bank of Baroda, Punjab and Sind Bank, and UCO Bank, saw gains between 4-5%. Additionally, Canara Bank, Bank of India, and Punjab National Bank recorded gains of over 3%. The index has shown impressive performance, surging by 72% over the past year and by 28% year-to-date in 2024.

PSU bank stocks have rallied as investor sentiment improved following the confirmation of political stability with the 2024 Lok Sabha election results. The NDA's pledge to support the government for a third consecutive term has bolstered confidence in the market. Over the past decade, public sector undertakings have notably benefited under the NDA government, with many PSU stocks achieving substantial gains, reflecting strong investor confidence in continued economic reforms and growth.

The re-election of the Modi government has significantly bolstered the Nifty PSU Bank Index, driven by investor optimism and confidence in continued economic reforms. The strong performance of key banks like IOB, CBI, Union Bank, and Bank of Maharashtra underscores the sector's resilience and growth potential. As the government embarks on its third term, the banking sector is poised to play a crucial role in India's economic resurgence.