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Commentary

Saying No to Yes

Yes Bank has been in all kinds of bad news in recent times and that has shown up in its stock price % with the stock falling 60% from its peak in a matter of months. From being one of the most expensive Private Sector Banks it’s now one of the cheapest around – and all this without a sniff of a scandal of the sort that bring down companies.

Yes, there is the issue of deviation in NPA recognized by the Bank versus what RBI thinks is the right number, but this has been known for quite some time now. Yes, Rana Kapoor not being given an extension which was the first negative trigger in the current episode is negative for the bank for he was a key guy in the Bank’s growth.

But that doesn’t mean end of the story. Yes Bank is a fairly large bank with a good second line of leadership that can take up the mantle and grow the bank.

The fact that the one of the promoter has pledged in an indirect way their shareholding is wrong for it asks the question of what more is hidden. But in terms of risk, this is negligible since the risk lies with the lender who has no recourse to the asset on which the lending has been carried out.

Retail Investors love fallen angels and Yes is no different. Since 1st September of this year, 93 Crore of Equity has changed hands in NSE alone. Assuming that the promoters haven’t sold anything, that is equivalent to 50% of Yes Bank shares changing hands.

It will be quite a while before we know who bought and sold during this period, but I would assume that Retail holding would have bumped up quite a bit from the 11.19% stake they held at end of September 30. This itself was a bump up from 8.83% retail shareholders held at the end of June 2018. Given that the stock saw a huge fall in September, this isn’t surprising.

Every company operates on the basis of Trust, break that Trust and it’s easy to bring down a company faster than any other event ever can. When it comes to finance, the Trust factor is even higher for a small spark can set alight a raging fire that destroys the company in no time.

Long back, I had analysed stocks that fell a large percentage in a single session / short time frame. Most of the stocks never recovered its earlier glory. But then again, there are stocks like Satyam where investors who bought it on the final low double or tripled their money in no time.

Betting on stocks that fall down is not Value Investing even though the company may seem to be valuable when looked at using historical numbers. While there is no change fundamentally, Rating Agencies have now downgraded the Bank.

Unlike other companies, I would be surprised if the government or RBI didn’t swing into action at some point of time if this continues. After all, which government will wish to go into Elections with a Bank going down taking investors’ money with it.

“What you find is there’s never just one cockroach in the kitchen when you start looking around,” said Warren Buffett on Wells Fargo when the Bank was beset with issues, many of it its own making. Well Fargo has survived and thrived, so that may have been one hell of a opportunity

Yes Bank may recover and prosper from here, but unless you know better that anyone else on the street, it makes no sense to bet big on it at the current juncture. Better for more clarity to come and while you may miss catching the bottom, better evidence lets you bet bigger since there is a higher factor of comfort.

Or if you are technically inclined, I would suggest waiting for it to cross the 200 day EMA and if that is too much of a wait, at least wait for a higher high, higher low formation. Let the markets show the path rather than one speculating on the path before its formed.

Then again, I may be biased since I myself so thoroughly believed in Global Trust Bank that even today I hold its worthless share. Once burnt, Twice Shy as the saying goes.

 

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