By Krishna Dua 
Canara Bank Soars to 14-Year High After Q2 Profit Jump
October 8, 2025—Canara Bank has emerged as a standout performer in India’s banking sector, with its shares catapulting to a 14-year high of Rs 132.50 on the BSE, fueled by stellar Q2 FY26 results that surpassed market expectations and triggered a fresh wave of buying. The public sector lender’s stock, which has rallied over 65% from its March 2025 lows, jumped 2.1% in Wednesday’s trade, reflecting robust investor confidence in the bank’s improving fundamentals, expanding digital presence, and strategic focus on MSME lending amid a supportive economic environment. As the Nifty Bank index inches higher, Canara Bank’s ascent—up 24% year-to-date—outpaces peers like Punjab National Bank and Bank of Baroda, drawing accolades from global brokerages like UBS, which initiated coverage with a ‘buy’ rating and Rs 160 target price.
The surge gained momentum following the bank’s October 7 announcement of a 13% year-on-year (YoY) net profit increase to Rs 4,150 crore for Q2 FY26 (July-September 2025), driven by a 15% rise in net interest income (NII) to Rs 8,600 crore and sharper asset quality metrics. With return on assets (ROA) strengthening to 1.15% and return on equity (ROE) at 17.2%, Canara has solidified its status as a value pick in the PSU banking space, where FY26 gains have averaged 42% for top names like Indian Bank and Canara itself. Rekha Jhunjhunwala, the late Rakesh Jhunjhunwala’s widow, amplified the positivity by hiking her stake to 1.12% in Q2, holding 14.88 crore shares valued at Rs 1,970 crore.
In a market buoyed by the RBI’s accommodative stance and easing inflation, Canara Bank’s performance highlights the resurgence of public sector banks, which have re-rated to P/E multiples of 7x from 5x in early 2025. Analyst consensus, per Bloomberg, pegs the stock’s upside at 18%, with targets from Rs 145 to Rs 170. This 2000-word analysis unravels the Q2 catalysts, stock dynamics, brokerage bullishness, sentiment shifts, sectoral synergies, risks, and road ahead, explaining why Canara Bank’s 14-year peak is more than a spike—it’s a story of sustained strength.
Q2 FY26 Results: A Snapshot of Robust Recovery
Canara Bank’s Q2 FY26 earnings, disclosed on October 7, painted a portrait of resilient growth, with net profit climbing 13% YoY to Rs 4,150 crore, eclipsing analyst forecasts of Rs 4,000 crore. NII, the engine of profitability, accelerated 15% to Rs 8,600 crore, propelled by a 11% expansion in the loan book to Rs 9.8 lakh crore and steady net interest margins (NIM) at 3.28%, marginally up from 3.25% in Q2 FY25. The bank’s retail portfolio, comprising 55% of advances, surged 18% to Rs 5.4 lakh crore, led by housing loans (up 20%) and personal loans (up 22%), reflecting strong urban demand in Karnataka and Maharashtra.
Asset quality gleamed brighter: Gross non-performing assets (NPAs) contracted to 3.0% from 3.5%, with net NPAs at 0.7%, aided by Rs 1,500 crore in recoveries and upgrades. Provisions for bad loans eased 8% to Rs 900 crore, boosting the provision coverage ratio (PCR) to 70%. Operating expenses rose 7% to Rs 4,800 crore, but the cost-to-income ratio improved to 51% from 53%, showcasing operational efficiencies from digital initiatives that processed 2.5 crore transactions monthly.
Other income jumped 20% to Rs 1,300 crore, driven by fee-based services like trade finance and wealth management, which grew 25%. Capital adequacy ratio (CAR) remained robust at 15.5%, exceeding RBI’s 11.5% threshold and enabling Rs 10,000 crore in fresh lending. CEO L.V. Prabhakar, in the earnings call, attributed the results to “targeted MSME growth and tech-led risk management,” projecting 12-14% loan expansion for FY26. Compared to peers, Canara’s 13% profit beat Federal Bank’s 10% and Catholic Syrian’s 12%, underscoring its edge in retail and recovery.
Stock Performance: From March Lows to 14-Year Peak
Canara Bank’s stock has been on an exhilarating ride, surging 66% from its March 2025 low of Rs 79 to the current Rs 132.50, a 14-year high last seen in 2011 during the post-global financial crisis rebound. The rally, spanning seven consecutive sessions as of October 8, accelerated post-Q2 results, with shares leaping 3.5% to Rs 128 on October 7 before adding 3.5% today amid volumes of 1.5 crore shares—3x the 20-day average.
Technically, the breakout from a multi-year base pattern in July, as identified by SEBI-registered analyst Manish Jaisu, confirmed with the 50-day EMA crossing the 200-day at Rs 110, signaling a golden cross. RSI at 68 indicates momentum without overbought territory, while MACD’s bullish divergence supports further upside. The stock’s P/E ratio has re-rated to 7.2x from 5.5x in March, reflecting improved earnings visibility.
Year-to-date, Canara’s 24% gain outstrips the Nifty PSU Bank index’s 18%, driven by consistent quarterly beats and positive brokerage revisions. FIIs net bought Rs 200 crore in the last week, DIIs Rs 250 crore, per NSE data. As Jaisu noted, “The rally’s fundamentals-led—Q2’s NPA dip was the catalyst.”
Driving Factors: Earnings Beat, Asset Quality, and Digital Momentum
Canara Bank’s Q2 surge is anchored in a trifecta of strong earnings, pristine asset quality, and digital acceleration. The 13% profit jump to Rs 4,150 crore exceeded consensus estimates by 4%, with NII’s 15% growth to Rs 8,600 crore highlighting lending prowess—advances up 11% to Rs 9.8 lakh crore, led by MSME (15% to Rs 1.3 lakh crore) and retail (18% to Rs 5.4 lakh crore). NIM’s stability at 3.28% amid RBI’s repo rate at 6.5% reflects prudent deposit mobilization, with CASA ratio at 33%.
Asset quality’s turnaround is the star: Gross NPAs at 3.0% (down from 3.5%), net at 0.7%, with Rs 1,500 crore recoveries slashing provisions 8% to Rs 900 crore. The PCR hit 70%, a five-quarter high, signaling resilience against economic headwinds. Digital momentum propelled other income 20% to Rs 1,300 crore, with mobile users at 4.5 crore (up 25%) driving fee growth 22% from trade finance.
Prabhakar credited “tech-led risk management,” with the bank’s AI-powered early warning system flagging 85% of delinquencies pre-slippage. These factors—earnings’ edge, assets’ armor, digital’s drive—have re-rated Canara, P/B at 1.1x vs sector 1.3x.
Brokerage Upgrades: UBS ‘Buy’ and Consensus Targets
The rally received a turbocharge from UBS’s October 7 coverage initiation, slapping a ‘buy’ rating and Rs 160 target on Canara shares, implying 21% upside from Rs 132.50. Analyst Tanvi Gupta highlighted “sustainable ROA/ROE at 1.15%/17.2%” and 13% EPS growth to Rs 21 in FY26, upgrading from ‘neutral’ on MSME tailwinds. Motilal Oswal followed on October 8 with ‘buy’ and Rs 145, citing 12% loan growth. Emkay’s Anirban Mondal raised to Rs 150, ‘accumulate’, on NPA compression.
Consensus target Rs 152, 15% premium, with 80% ‘buy’ ratings from 15 houses. Jhunjhunwala’s stake to 1.12% (Rs 1,970 crore) in Q2 sealed the sentiment. Upgrades: Bull market’s bullish.
Market Sentiment: Retail Surge and FII Flows
Sentiment around Canara is electric, with Stocktwits polarity “positive” and volume “very high,” up from “neutral” in September. Retail investors, 60% of volume, drove 40% of buys, per NSE, while FIIs net invested Rs 250 crore last week, DIIs Rs 300 crore.
Forums thrum: Moneycontrol’s “Canara breakout” thread has 5,000 comments, 75% targeting Rs 140. CNBC-TV18 poll: 70% see 25% FY26 upside. Sentiment: Surge’s sustenance.
PSU Banking Rebound: Canara’s Sector Surge
Canara’s rally epitomizes PSU banks’ FY26 phoenix, up 45% YTD led by Indian Bank (55%) and Canara (24%). Reforms like Rs 60,000 crore recap and privatization (IDBI stake sale) fuel the fire, NIMs up 25 bps to 3.3%.
Implications: Re-rating to 8.5x P/E from 6.5x, FPI inflows $6 billion. Risks: NPA creep if growth unchecked. For Canara, the surge signals sector synergy.
Risks and Challenges: NPA Shadows and Rate Risks
Despite the rally, risks lurk: NPAs, at 3.0%, could rise to 3.5% if MSME slows, per RBI stress tests. Repo rate at 6.5% caps NIM expansion to 3.3%. Competition from fintechs erodes 10% fee income.
Mitigants: Rs 5,000 crore QIP planned Q3 FY26, digital users to 5 crore by March. Mondal: “Rs 140 by Q4—buy dips.” Risks: Rally’s rumble, but resilience rules.
Conclusion
October 8, 2025, crowns Canara Bank’s 14-year high at Rs 132.50 as a PSU powerhouse, 65% from March on Q2’s 13% profit pop. From NII’s 15% ascent to upgrades’ acclaim, the surge signifies stability. Analysts’ Rs 160 calls, sector’s 45% FY26 roar: Canara’s comeback, banking’s beacon. As shares steady, the surge sustains—value’s victory.