Down And Now Up; What To Do With Yes Bank Shares?

70% returns in three weeks

The stock of Yes Bank, which was trading at around Rs 31 levels on Oct 1, has now rallied to Rs 51, thereby giving returns of 70 per cent in three weeks. The rally has rather been fuelled by reports that certain industrialists are likely to pick a stake in the bank.

The question that now arises is: Do we buy Yes Bank? This is one stock that has trapped everybody having sunk from levels of Rs 280 to Rs 50. Most traders, who have shorted the stock have made money, while those who were long of or bullish at anytime, except the last 21-days have ended losing money in the shares of Yes Bank.

Should you buy Yes Bank?

Clearly, it depends on how bad debts pan out in the next few quarters. The bank has exposure to certain groups, which are debt ridden and facing a liquidity crisis. If the loans to these groups turn bad, Yes Bank has a problem on its hands for sure.

The other problem for Yes Bank is the ability to raise capital. Even if it does raise capital, the stock price is just Rs 51, which means there would be heavy dilution of equity.

This is likely to result in stock fundamentals getting worse, if equity is raised when the current market price is low. So, there are multiple pressure points for the stock.

Also, the reports from time to time have been more speculative. There were reports that Microsoft would pick a stake in the bank, which was then denied by the bank.

Clearly, speculators and traders have enjoyed on the basis of speculation, which has resulted in the stock being exceedingly volatile.

At the moment there are just too many risks to buy into the stock. However, it is also worth mentioning that a bank like Yes Bank could be a strong candidate for a takeover. One must also not forget that the institution has a solid brand equity and retail franchisee. It is the fourth largest private sector bank in the country. If things turnaround swiftly on the economy front, we may see a sharp rally in the stock.

So, things could move both ways in the shares of Yes Bank.

Wait for quarterly numbers

The quarterly numbers of the bank would be worth waiting for. Yes Bank has already said that it has comfortable Liquidity/ Funding Position. The Bank had a Liquidity Coverage Ratio in excess of 125% as on September 30, 2019, which is well above the minimum regulatory requirement of 100%. The Gross Advances aggregated to Rs. 2.32 Lakh Crores as on September 30, 2019 (compared to Rs 2.42 Lakh Crores as on June 30, 2019) with a higher share of Retail Advances as compared to June 30, 2019. The reduction in Advances was effected to enhance capital efficiency Further, Deposits aggregated to Rs. 2.09 Lakh Crores as on September 30, 2019. CASA Ratio improved to 30.8% as compared to 30.2% as on June 30, 2019.

The bank released these numbers, ahead of its quarterly numbers after the share price dived, triggered by pledged shares.

Disclaimer

The article is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.

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