PSU Bank Stocks Decline Sharply; Bank of India Falls Over 8 Percent Amid Market Turmoil

On Sunday, PSU bank stocks experienced a significant drop, mirroring the broader equity market's decline on Budget day. Bank of India shares fell by 8.41%, while Indian Bank saw a 7.30% decrease. Bank of Maharashtra's stock dropped by 7.21%, Bank of Baroda declined by 6.60%, and Union Bank of India fell by 6.31% on the BSE.

The State Bank of India was the most affected among the 30-share BSE Sensex companies, with its stock diving 5.61%. Canara Bank's shares decreased by 4.38%, Indian Overseas Bank by 3.40%, Punjab National Bank by 2.92%, Central Bank of India by 2.67%, and UCO Bank by 2.19%. The BSE PSU Bank index fell sharply, losing 285.43 points or 5.60% to settle at 4,807.19.

Market Reaction to Budget Announcements

In her Budget speech for the fiscal year 2026-27, Finance Minister Nirmala Sitharaman announced an increase in the Securities Transaction Tax (STT) on derivatives, raising it from 0.02% to 0.05% for futures contracts. This announcement led to a reversal of early gains in the market, with the 30-share BSE Sensex plummeting by 2,370.36 points or 2.88% during afternoon trade, dropping below the 80,000-mark to reach 79,899.42.

The benchmark index eventually closed at 80,722.94, down by 1,546.84 points or 1.88%. Ponmudi R, CEO of Enrich Money, noted that the lack of immediate Budget incentives such as aggressive credit growth measures or PSU bank recapitalisation led to profit-booking across banking counters.

Fiscal Deficit and Borrowing Plans

The government plans to borrow Rs 17.2 lakh crore in the next financial year to address its fiscal deficit, projected at 4.3% of GDP. This borrowing plan exceeds the previous estimate of Rs 14.80 lakh crore for FY26. The government relies on market borrowings to fund its fiscal deficit.

Net market borrowings from dated securities are estimated at Rs 11.7 lakh crore, with additional financing expected from small savings and other sources. Despite achieving a fiscal deficit of 4.4% for FY26 and projecting a deficit of 4.3% for FY27, Vishal Goenka, Co-Founder of IndiaBonds.com, expressed concerns over the larger-than-expected gross borrowing plan.

Goenka highlighted that while fiscal prudence is evident in the deficit figures, the gross borrowing target of Rs 17.2 lakh crore may cause market apprehension despite net borrowing aligning with expectations at Rs 11.7 lakh crore.

With inputs from PTI