Should you buy when there is blood in the streets?



After the troubled Yes Bank restructuring project, investors have high hopes that the bank will survive. This was reflected when the lender’s share price jumped over 400% from an all-time low in just 2 trading sessions after the restructuring plan was announced.

On March 6, 2020, Yes Bank shares hit their all-time low of Rs 5.55 each on BSE.

The worse the market, the better the opportunities for profit. Is this principle of investing against the grain true for Yes Bank?

Brokerage firm JP Morgan had earlier said the stock rally was unwarranted as new capital would come in at a steep discount.

While Yes Bank shares have seen a rally in recent days, analysts believe it is a short-term rebound that will not hold up.

“There is an expectation that the private lender will survive after a break given by the SBI. However, the risk remains with an unhealthy balance sheet with huge NPAs, ”said Sunil Shah, co-founder of Turtle Star PMS services.

The recent rise in stock prices is driven only by short-term bets from retail investors. Large financial institutions will stay away from Yes Bank, Shah added.

So, is it time to buy Yes Bank shares or is the story over?

Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, is credited with saying: “Buy when there is blood on the streets, even if the blood is yours.”

However, in the case of Yes Bank, analysts said investors should wait for the bank’s fundamentals to change. Weak finances and the rise in the NPA remain the main risks.

“The bank’s situation needs to be much more stable before investing in its stocks,” said a senior analyst at a large brokerage firm.

Global investment firm Nomura has previously warned that the repeated relief measures by the government and the Reserve Bank of India are symptomatic of the wider credit risks still lurking in the Indian financial system.

The failure of Yes Bank may result in a transfer of deposits from small private sector banks to the perceived security of public sector banks, which may limit the ability of these private banks to grow their loan portfolios, Nomura noted.

He believes that even if the financial stability risks surrounding Yes Bank are well managed, the underlying problems in the telecommunications and power sectors could continue to disrupt the banking sector.

Meanwhile, after the Yes Bank fiasco, experts believe raising capital through AT1 bonds has become riskier.


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