New Delhi, April 14 -- After a strong year for PSU bank stocks, the focus is now shifting to sustainability as the Q4 earnings season approaches. While public sector lenders have delivered sharp gains backed by improving fundamentals, brokerages believe underlying trends in deposits, margins and earnings quality could drive a shift in investor preference.

Over the past 12 months, PSU banks have significantly outperformed, with the Nifty PSU Bank index rising 41%, compared to a 5% gain in the Nifty Private Bank index. This rally was supported by improving asset quality, profitability and growth momentum across PSU lenders.

According to a recent report by Axis Securities, sector-wide credit growth has picked up to around 15% year-on-year,...