Is Yes Bank a Good Buy at Current Levels?
In today's highly competitive financial landscape, Indian banks and non-banking financial companies (NBFCs) play a crucial role. There are a total of 91 commercial banks, 31 cooperative banks, over 10,000 NBFCs, 10 small finance banks, and about 474 fintech lenders in India. With 80% of lending coming from the top 10 lenders, the question arises: does India really need so many lenders?
Yes Bank: A Promising Franchise with Challenges
Yes Bank, as a prestigious franchise, has faced significant challenges due to the actions of past promoters. To prevent its bankruptcy, multiple banks have invested capital and become shareholders. As a result, the bank is currently undergoing a thorough restructuring process that is expected to take 2-3 years to bear fruit.
The book value of Yes Bank has fallen from 116 to 14 in the past two years, primarily due to the cash investments made by other banks. Despite this, the bank is trading at a market capitalization of 35,500 crore. For a bank facing such issues, this price tag seems rather high, making it difficult to predict if the market cap will reach 75,000 crore or more.
Risk vs. Reward in Investing in Yes Bank
If you still decide to invest in Yes Bank, it is wise to limit your investment to 4-5% of your portfolio. It is crucial to have a well-diversified portfolio when venturing into the volatile world of equity markets, as the potential for high returns comes with high volatility and risk.
The Current Market Sentiment and Future Prospects
Despite the challenges, Yes Bank has shown positive signs. According to historical charts, if the stock price rallies to 26-27 rupees in the next 2-3 months, it will be unstoppable. If the stock can sustain at this level, one can expect it to reach 50 rupees within the next six months. This potential for upward movement is significant.
Personal Insights and Recommendations
A recent conversation with a friend who is considering investing in Yes Bank highlights the complexities of making such decisions. My friend, who has been observing the market for only 15 days, insisted on purchasing the stock, despite my advice to consider a more attractive option like Tata Motors currently trading at 315 rupees. He intended to buy at 16 rupees and sell at 25 rupees. While I encouraged him to take advantage of the current low price of Tata Motors, he was determined to invest in Yes Bank. This bold move is a testament to the allure of high-risk, high-reward investments.
To all who are considering investing in Yes Bank, I urge you to be prepared for the risks involved. Only if you are ready to face potential volatility and downturns should you consider this investment. The potential gains could be significant, but so can the risks.
As a seasoned equity market player, it is essential to approach such investments with a clear understanding of the risks and the potential rewards. If you meet these criteria, investing in Yes Bank could be a fitting choice.