Hot Sectors to Watch Out: Top 3 Performing Sectors From Budget 2025 to Budget 2026

Among these, PSU Banks, Metals, and Banks have stood out, delivering significant returns and attracting both domestic and institutional investor interest. With the market bracing for new policy measures and potential growth catalysts in the upcoming Union Budget of 2026, it is worth reviewing which sectors have led the way and why they have outperformed over the last year.

Here are the Top 3 Performing Sectors Since from Budget 2025 to Budget 2026

Nifty PSU Bank (+44%)

Since the Union Budget 2025, PSU banks have emerged as the top-performing sector in Indian equities, with the Nifty PSU Bank index surging 44% from February 1, 2025, far outpacing the Nifty 50’s 8.11% gain. The rally has been driven by strong foreign portfolio inflows, with FY25 profits of ₹1.7 trillion, lower NPAs at 2.8%, and faster loan growth of 12% compared to private banks. 

Key performers include Canara Bank (+67%), Indian Bank (+65%,) and  Bank of India (+52%), supported by improved asset quality, operational efficiency, and RBI’s monetary easing measures like repo rate and CRR cuts.

Why Nifty PSU Bank Stood Out

Fundamental factors have played a central role in driving the outperformance of PSU banks over the past year, with public sector lenders reporting strong loan growth in the third quarter, supported by healthy demand across segments. Net interest margins also appear to have bottomed out in the second quarter, improving earnings visibility, while stronger traction in retail and RAM (retail, agriculture, and MSME) segments has helped diversify loan books beyond traditional corporate lending. 

The sector’s outperformance reflects a combination of Budget 2025 reforms, renewed institutional confidence, and favorable macro tailwinds. With ongoing infrastructure spending and potential Budget 2026 reforms, including the privatisation of select banks, the sector is well-positioned for sustained growth.

Nifty Metal (+42%)

Since the Union Budget 2025, the metal sector has emerged as one of India’s top-performing sectors, delivering strong returns to investors after years of underperformance. 

Metals Enter a Challenging Phase

The sector had faced challenges following the 2020-2022 rally, as softening global metal prices, driven by a slowdown in China’s property and construction markets, and high global interest rates with a strong US dollar, dampened investor sentiment. For Indian producers, high input costs such as energy and coking coal further pressured margins, slowing earnings growth and causing metals to lose favor among retail investors.

Fundamental Factors Behind the Nifty Metal Rally

The turnaround in 2025 has been fundamentally driven. The Nifty Metal index surged by 42% since February 1, 2025 as the global expectations of interest-rate cuts and a weaker dollar revived interest in cyclical commodities, while domestic demand surged. Steel consumption in India was projected to grow 8-9% in 2025 & 2026, supported by sectors such as infrastructure, housing, automobiles, renewable energy, EVs, and industrial capex. 

Government initiatives including Pradhan Mantri Awas Yojana, Gati Shakti, Make in India, and PLI schemes have strengthened the domestic metals ecosystem, while policy support like safeguard duties on steel imports and mining reforms has protected producers and enhanced the value chain. 

Nifty Bank (+19%)

Since the Union Budget 2025, the banking sector has delivered a strong performance despite early-year volatility, making it one of the best-performing spaces leading into Budget 2026. After falling in early 2025 due to deposit growth constraints, margin pressure, and elevated provisioning, the sector staged a solid recovery as liquidity conditions improved and credit demand accelerated. As a result, the Nifty Bank Index has gained over 19% since February 1, 2025, finishing among the top-performing indices, behind only metals and PSU Banks during the calendar year.

Key Reasons Behind Nifty Bank’s Emergence as a Top-Performing Sector

The turnaround was driven by a supportive policy backdrop. The Reserve Bank of India initiated a rate-cut cycle, from 6.5% to 5.25%, and implemented a phased 100 bps CRR reduction, which eased funding costs, infused liquidity, and helped stabilise net interest margins (NIMs). Government fiscal incentives, including GST cuts, further boosted loan demand. By mid-year, asset quality trends improved as repayment capacity strengthened, while rising demand in retail, MSME, and secured lending supported double-digit system credit growth. 

Heading into 2026, the sector’s fundamentals appear strong: asset quality is stable, credit costs are benign, repo-linked repricing has largely completed, and funding costs are easing as term deposit rates gradually decline. 

Conclusion

In summary, the period from Budget 2025 to Budget 2026 has clearly highlighted where market strength lies. Sectors such as PSU Banks, Metals, and Banking not only delivered strong returns but did so on the back of solid macro tailwinds, policy support, and improving fundamentals—rather than speculative flows alone. As we move closer to Budget 2026, investor sentiment remains constructive, with expectations that continued reforms, infrastructure spending, and monetary easing could sustain momentum