Collateral Damage In Yes Bank Shares: Should Retail Investors Buy?

If there is one stock that is all over the place, it is the Yes Bank Stock. In two trading sessions on Monday and Tuesday, the stock lost 20 per cent and than recovered on Thursday and Friday. This is one stock that has been an investors nightmare and has eroded investor wealth significantly over the last 1-year. In fact, in April this year, the stock was quoting as high as Rs 286 and is now down to Rs 46. Even trying to enter the stock now, could be a frightening experience.

Is it worth investing in the shares of Yes Bank?

Crystal ball gazing into Yes Bank can be difficult. Several things have to happen for the bank to chalk the same ambitious growth it had since inception. To begin with, it needs to first desperately raise capital.

The problem is that the investors who have come forth to invest in the bank are not really the marquee set of investors one had hoped for. This means the Reserve Bank of India could have some serious reservations, pushing back the bank's ability to raise capital. In fact, Yes Bank is looking to raise as much as $2 billion and the set of investors that it has so far attracted is worrisome.

To be able to predict whether the bank would be up and running, would depend on the fund raising. Also, the damage done to the stock and the low current market price of Rs 46, means that the bank would have to raise capital at low price, which in the short term could lead to heavy equity dilution.

Another thing that needs to work in the bank's favour is that there should not be further deterioration in the asset quality of the bank. If there is a swift resolution to some of the NPAs at the bank, you would see the stock soar once again. On these two would depend the fate of the bank.

Of course, there is also speculation now that some of the larger private sector banks could possibly takeover the bank. If that were to happen, investors may reap rewards. But, that really is speculative.

What's most interesting also is that one of the promoters of the bank, Rana Kapoor himself has reduced his entire stake in Yes Bank and has just a miniscule holding.

In short, at the moment it is very difficult to hazard a guess on the future of Yes Bank. A big positive for the bank is that it has a good brand equity and a solid franchisee.