PSU Bank Rally and Market Opportunities in India
Indian equity markets, particularly the public sector banking sector, have demonstrated strong performance in Q3 FY26, signaling a potential structural shift within the banking landscape. Experts suggest a convergence in valuations and performance between public sector and private sector banks, alongside promising opportunities in capital goods and infrastructure.
PSU Banks Closing the Gap with Private Sector Peers
A multi-decade convergence is underway between PSU banks and their private sector counterparts, according to Dipan Mehta, Director at Ellxir Equities. Historically, private banks enjoyed superior growth rates and asset quality. However, PSU banks are now demonstrating improved balance sheets and growth, challenging the previous dominance of the private sector.
Mehta notes that PSU banks are now “giving private sector banks a run for their money,” with investors recognizing the improved financial health of public sector lenders. While a gap remains in valuations, the rerating of PSU banks is expected to continue.
Capital Goods Sector Driven by Capex Cycle
The capital goods sector is experiencing an upward trajectory, fueled by a robust capex cycle. Companies like BHEL, L&T, and KEC International are benefiting from record order books and strong earning visibility for the next two to three years. Execution remains a key risk, but the overall outlook is positive, particularly for companies with diversified order bases, including overseas projects.
L&T, in particular, is highlighted for its diversified revenue streams, with a significant portion of its order book originating from outside India, and its ability to execute projects that are often exclusive to its capabilities.
Cautious Outlook for FMCG Stocks
Despite the broader market rally, Mehta expresses caution regarding FMCG stocks, specifically citing Dabur as an example. He suggests that many FMCG companies are not meeting the benchmark of growing topline revenue by at least 11%, leading to a negative outlook and a recommendation for investors to diversify out of the sector.
Opportunities in Infrastructure and Engineering
Companies involved in infrastructure and engineering, particularly those with large and diversified order books, are also favored. VA Tech Wabag, focused on water projects, and power equipment companies covering renewable energy sources (solar, wind, and electric distribution) are identified as potential investment opportunities.
Wires and Cables Sector Showing Resilience
The wires and cable industry has demonstrated strong quarterly performance despite rising copper prices, successfully passing on price increases to maintain margins. This resilience is attributed to established brands and increased demand from renewable energy projects, industrialization, and data centers. However, Mehta cautions that valuations in this sector are currently rich, trading at multiples of 40 to 60 times earnings.
Disclaimer: This article is based on information available as of February 18, 2026, and reflects the views of Dipan Mehta, Director at Ellxir Equities. Investment decisions should be made based on individual research and consultation with a financial advisor.