YES Bank turned out to be a falling knife, trapped retail investors

YES Bank turned out to be a falling knife, trapped retail investors thumbnail
Mumbai: Once again, retail investors fell prey and got trapped in their 'value hunting' as YES Bank shares eroded 85 per cent of value on Friday as they fell to their lowest levels after the Reserve Bank of India took over its board and imposed a month-long moratorium. RBI also put a cap on cash…

Mumbai: Once again, retail investors fell prey and got trapped in their ‘value hunting’ as YES Bank shares eroded 85 per cent of value on Friday as they fell to their lowest levels after the Reserve Bank of India took over its board and imposed a month-long moratorium.
RBI also put a cap on cash withdrawals from the bank, saying customers cannot withdraw more than Rs 50,000 over next one month. This is the first time that the central bank has taken such drastic action with respect to a big bank since July 2004, when the regulator got state-run Oriental Bank of Commerce to rescue and take over private lender Global Trust Bank.
Earlier in the day, YES Bank shares fell as much as 85 per cent to hit a low of Rs 5.55 a share. At 12:55pm, it was down 58.34 per cent at Rs 15.35.
Retail investors collectively held 48 per cent in the private lender at the end of December quarter, the highest ever compared with 29.9 per cent at the end of September quarter. The retail shareholding rose very fast since June 2018 quarter, when it had stood at a mere 8.8 per cent.
What they might have perceived as a value buy, turned out to be a falling knife.
Retail shareholders’ holding in YES BankQuarter ended
Retail shareholding (%)
Dec 2019
47.96
Sept 2019
29.94
June 2019
20.46
March 2019
13.96
Dec 2018
16.27
Sept 2018
11.19
June 2018
8.83

Source: Ace Equity
“Retail investors, even the savvy ones, get lured by a crash in stock prices, and think they are catching bargains at lower levels. But, it may turn out to be a graveyard, as we saw in the case of Suzlon, Jet Airways and Reliance Communications,” said Ajay Bodke, CEO for PMS at Prabhudas Lilladher
The buildup of liabilities is so high that the gap between that and net worth is enormous, said Bodke.
“People must stay away and not get lured. One must understand that the fact that depositors will be taken care of, it does not mean all is well for equity shares. People are not able to stomach the value can come to zero,” he said expressing his concerns.
Nomura said the recent developments implied “no” equity value in YES Bank.
“Placing the bank under moratorium implies that equity value in the bank would be negligible,” Nomura analysts said in a note
“Any resolution for YES Bank is more proposed from the perspective of deposit holders and systemic stability, and not from the perspective of YES Bank equity investors or even perpetual bond holders,” they added.
That was the consensus view. Kotak Institutional Equities maintained its “sell” rating on the stock.
“We maintain our ‘sell’ rating on the bank as the net worth is likely to see significant impairment to the extent that it could be higher than the reported net worth bringing our fair value to the stock at Re 1,” Kotak analysts said. “It looks challenging for the bank to raise equity capital in the current shape and form. We are less confident on the earnings projected for the bank,” they added.
Commenting feature is disabled in your country/region.
Read More