Defence, PSBs, auto, & metal indices outpace Nifty50 in CY25; what's next?

PSBs have benefited from the Reserve Bank of India's (RBI) cumulative 100 basis points (bps) repo rate cut in three tranches till June 2025, and liquidity measures that lowered borrowing costs

Defence, PSU banks (PSBs), auto, and metals indices have outperformed the benchmark Nifty50 both year-to-date (YTD) and over the past year, buoyed by policy tailwinds and strong sector outlooks.

 

In contrast, the Nifty50 gauge has lagged due to weak showings from heavyweight sectors, hurt by US trade tariffs, H-1B visa fee hike, slowing corporate earnings, and persistent foreign institutional investor (FII) selling.

 

So far this year, Nifty Metal has gained 14.32 per cent, Nifty Auto rose 16 per cent, Nifty Defence climbed 22.4 per cent, and Nifty PSU Bank advanced 11.02 per cent. In comparison, Nifty50 was up 4.27 per cent, amid a ₹1.48 trillion selloff by FIIs in the domestic market, according to NSDL data.

 

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In the last year too (September 29, 2024, to September 26, 2025), Nifty PSU Bank was up 7.26 per cent, Nifty Defence rose 18.36 per cent, Nifty Metal slipped 0.88 per cent, and Nifty Auto was down 3.8 per cent, outperforming Nifty50, which slipped 5.5 per cent.  CATCH STOCK MARKET LIVE UPDATES TODAY

Decoding sectoral rally: Defence to PSU banks

PSU Banks

PSBs have benefitted from the Reserve Bank of India's (RBI) cumulative 100 basis points (bps) repo rate cut in three tranches till June 2025, and liquidity measures that lowered borrowing costs.

 

"Loan growth in the financial year 2025 (FY25) rose 12 per cent, outpacing private banks' 10 per cent growth for the first time in 15 years. A comprehensive balance sheet clean-up, improving asset quality, and consistent return on assets of around 1 per cent have further boosted confidence," said Sneha Poddar, vice president – research, wealth management at Motilal Oswal Financial Services.

 

Attractive valuations have also fueled the rally; Nifty PSU Bank trades at 7 times (x) price to earnings (P/E), versus its 5-year average of 11.4x. Looking ahead, Ankit Soni, AVP fundamental research, Mirae Asset Sharekhan expects advances to grow 11-12 per cent in FY26, supporting momentum. A sector re-rating could follow if operational improvements are sustained, Soni said.

Metals

Ferrous, non-ferrous, and precious metals have rallied amid tight supply and rising industrial demand in electric vehicles (EVs), solar, data centres, and electrification. Prospects of anti-dumping duties on Chinese electrical steel have also boosted sentiment.

 

In this calendar year so far, MCX spot silver has surged 61 per cent, and copper has rallied 18 per cent.

 

Soni projects Indian steel demand to grow 8-9 per cent in CY25, much higher than the global average of 1.5-2 per cent, supported by an infrastructural push and manufacturing revival. Still, analysts caution that global macro headwinds could drive near-term volatility.  ALSO READ | These 2 cable & wire stocks are a must have in your portfolio; details here

Autos

The auto sector has gained from GST rationalisation, with uniform 18 per cent tax on components making vehicles more affordable.

 

Nuvama Institutional Equities expects September two-wheeler volumes to rise 8 per cent Y-o-Y, and passenger vehicle sales to increase 7 per cent Y-o-Y. Poddar said demand is also supported by rural recovery, normal monsoons, and lower financing costs.

Defence

The defence sector is riding on higher government spending, supportive policy, and deeper indigenisation. Exports hit a record ₹23,622 crore in FY25, up 12 per cent from ₹21,083 crore in FY24, according to the Ministry of Defence.

 

Sharekhan projects the sector to grow at a 20 per cent compound annual growth rate (CAGR) in FY24-FY29, cementing India’s position as a global hub.

Sharekhan investment strategy:

The domestic brokerage's top picks among these sectors include State Bank of India (SBI), Bharat Electronics (BEL), and Hindustan Aeronautics (HAL).

Motilal Oswal recommends:

• Accumulating defence stocks for long-term compounding.
• Focus on strong PSU Banks with liability strength.
• Take a selective approach in metals, preferring low-cost producers.
• Is ‘Overweight’ on autos, and suggests focusing on leaders in passenger, commercial, and premium two-wheelers, while tracking EV opportunities.