Money managers’ apathy towards the bank has come at a time when it has proven itself to be one of the best-performing ones. The stock is up nearly 60 percent from its 52-week low in September last year. So far, in the current year, it has delivered 27 percent.
Yes Bank has definitely surprised many on the Street with its spirited performance. There has been some triggers that have improved the outlook of the bank. The bank has sold its toxic assets to an asset restructuring company (ARC).
Kranti Bathini of Wealth Mills Securities, a Mumbai-based broking firm, said the stock has risen due to a number of positives – prominent among them being deposit growth that shows confidence is coming back for Yes Bank.
NPAs likely to come down
The bank signed a binding term sheet with JC Flower to transfer stressed assets worth Rs 48,000 crore. This is likely to bring down the non-performing assets (NPA) levels. The proceeds from the sale will also add to capital infusion.
This infusion is in addition to the stock issuance to Carlyle and Advent International, with each potentially acquiring up to a 10 percent stake in the bank. Beyond this, the bank’s financial performance has also improved substantially. Its profits have increased while credit growth is in the mid-teens - on par with many of its peers.
Despite that, there are very few active funds that hold the stock; in fact, just two – SBI Multi Asset Allocation Fund and Tata Quant Fund. The latter incidentally booked partial profits by selling some shares of Yes Bank during August.
MF managers see better opportunities
It is not that MF managers have anything against the bank. Their apathy is likely due to the simple reason that there are better opportunities in the private banking space. MF managers usually avoid talking about individual stocks but they have not shied away from talking in favour of large private banks. Their recent actions are also walking the talk.
SBI Mutual Fund, the largest mutual fund company, bought more shares of ICICI Bank, Kotak Mahindra Bank, Axis Bank and HDFC Bank during August. HDFC MF also bought shares of HDFC Bank, Kotak Bank and Axis Bank. ICICI Pru MF is the only one in the top three that sold shares of private banks rather than buying them.
Analysts have also been gung-ho about large private banks. Analysts from Morgan Stanley see up to 40 percent upside in ICICI Bank. Incidentally, there is not a single ‘sell’ call on the bank. Besides, analysts’ opinion on HDFC Bank, IndusInd Bank and Federal Bank are also quite positive. In comparison, Yes Bank is not coveted by analysts.
An analyst with Nirmal Bang who has a ‘sell’ rating on the stock said the stock may have risen due to cash infusion and bad loan sale, but return ratios are not favourable. Thus, he is pessimistic about the stock.
Some analysts also point towards the fact that Yes Bank’s margins are nothing to write home about. At 2.4 percent (in Q1FY23), the net interest margin is significantly below many of its peers.
Moreover, most of its shares are locked right now. Analysts at ICICI Securities said “supply overhang post the expiry of lock-in shares” is another concern. The broker has a target price at Rs 14 with a ‘hold’ rating on the stock.
According to data available on Bloomberg, just one analyst from ULJK Financial has a buy rating while eight have ‘sell’ and five have ‘hold’ calls on Yes Bank. Consensus return potential is negative 19 percent from hereon.
“Is everything perfect for Yes Bank? No. It still needs to show better performance in other aspects such as credit growth,” Bathini said, adding that, at this juncture investing in Yes Bank is only suitable for high-risk investors.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
SHUBHAM RAJ is a journalist with over five years of experience covering capital markets. His last stint was with The Economic Times where he wrote on daily happenings in stock markets and led IPO reportage. He also wrote on mutual funds and cryptocurrencies.
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