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Is Yes Bank ready for takeoff? Some say pain will last one more quarter

The stock was under intense selling pressure for over the last months.

, ETMarkets.com|
Jul 09, 2019, 12.21 PM IST
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NEW DELHI: Amid market-wide selloff, shares of YES Bank jumped 4 per cent in morning trade on Tuesday and looked on course to extend the gains into the second consecutive session.

The gains came on the back of the lender’s claim on Monday that its financial position is sound and stable. “The financial position of YES Bank is sound and stable and its liquidity and operating performance continue to be robust,” YES Bank said in a regulatory filing on Monday.

The stock was under intense selling pressure for whole the last months amid speculations over asset quality issues, management changes and future growth prospects.

At Monday’s close, the stock was down 49 per cent for calendar year 2019 against a 7 per cent rise in the benchmark Sensex.

In its filing to BSE, the private lender termed such buzz as ‘malicious attempt to create instability’.

“We strongly refute such speculations which we suspect are deliberate and malicious attempts to create instability in the institution by undermining investor and client confidence. We have apprised the authorities of these developments,” it said.

When fears rule the market or a stock counter, investors tend to blow up negative things while the good ones get supressed.

What dented the stock more was a negative perception about the entire banking and NBFC counters post the IL&FS and DHFL crises, which was one of the key reasons behind the weakness in broader market.

“The weakness on the YES Bank counter did not come in isolation. There was weakness in the broader market too,” said Sanjiv Bhasin, Executive VP markets and corporate affairs, IIFL Securities.

The fear was overdone. “Yes, they have lent to some of the murky names, but they are adequately collateralised against that,” Bhasin explained.

Investors also turned sceptical after the bank revealed plans to raise money. There was a buzz that the fundraising was to meet provisioning and balance the books.

“The management has clarified that the capital it is going to raise is for growth and not for balancing the books. They have indicated that some of the equities they have converted from debt is more of a standby arrangement for the stake sale which may take place in the next three to six months,” Bhasin said.

Last week, the bank acquired over 9 per cent shares of battery maker Eveready by invoking pledged shares following loan default by a group company, McLeod Russel India.

Bhasin emphasised on changing the perception for YES Bank. "The transition of some of the MSME corporate loans to retail probably resulted in an asset-liability mismatch. But if PSU banks are getting recapitalised and you are rerating them, it is just a matter of time for YES Bank to raise money. They can raise it anytime soon,” he said.

Some analysts said while the fundamentals of the stock look set for a positive change, cheaper valuation makes the stock an attractive ‘buy’. Last week, it traded below the book value for the first time in five years.

“The valuations are at a very comfortable level. If you have a six-month or one year window, this stock is very attractive. We are relatively bullish on the banking space and we think this can be an outperformer,” Bhasin said.

He has a target price of Rs 150 on the stock by the year-end, but said the weakness may last one more quarter.

"After one more quarter of weakness, with yields being low and credits starting to expand, we should see good consumption coming through the festive season, which will give financial stocks a boost," he said.

Sameer Kalra, Founder at Target Investing, investor confidence about any upgrade of the stock will come only after June quarter results.

The bank’s board will meet on July 17 to consider and approve the financial results for June quarter.

Kalra said the stock looks attractive at this juncture and he has a ‘buy’ call on it.

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