Yes Bank Crisis – What You Should Do?

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Yesterday, the price of the Yes Bank share has tanked to the Rs. 5.65 due to the RBI’s announcement of capping the withdrawal limit to Rs. 50000 per month. There is a panic situation in the market and on the street. I have literally seen people gathering at the Yes Bank’s branch to withdraw their money. Let’s discuss what you should do during this Yes Bank Crisis.

Many people have asked me whether this is the right time to invest in Yes Bank as the price is very low. There are many others who already hold this stock at a higher level and they want to average their buying price.

yes bank crisis
Yes Bank Share Price – as on 06.03.2020

This can be a bad decision buying a share just because it has fallen from the top or averaging it out due to holding it at a higher price.

Yes Bank Crisis – Lessons to learn

As a retail investor what you should know before investing in such volatile stock. This is not the first instance where the share price of any company has fallen to such a low level.

There is a concept called bottom f ishing. Let’s understand what is bottom fishing?

Bottom Fishing

Bottom fishing is an investment strategy in which investors seek out securities whose prices have recently dropped and are considered undervalued.

Now you must be thinking what is undervalued stock price and how to find it? Mr. Warren Buffette has derived a concept of intrinsic value of the share.

The intrinsic value of a stock is a price for the stock based solely on factors inside the company. It eliminates the external noise involved in market prices.

Average Buying

SBI to acquire 49% in Yes Bank. This is the big news yesterday. Hence there are many people who are stuck at a higher price level. They must be thinking of buying more at the lower level to average out their buying.

They are thinking that the SBI Bank and RBI have intervened to resolve the yes bank crisis. No! That’s not true.

The sole purpose of RBI’s intervene is to safeguard the deposits of the individuals who have accounts in Yes Bank. SBI will pay the deposits to the retail account holders and in turn, will acquire the stake in the Yes Bank.

This is not going to help the stock price to move up. There are a lot of issues like corporate governance, company strategy, etc. which will remain unchanged.

Only the retail investors will be caught during this SBI takeover. Do not get carried away by the RBI’s intervene in the whole issue. RBI’s whole intention is to protect the deposits of the retail customers of Yes Bank.

Read Also: How to shortlist stocks on your own?

Don’t catch the falling knife – Yes Bank Crisis

When the stock price is going down very fast there must be a reason behind it. Let the price go down, don’t buy more at the lower price to just average your buying price.

Who has sold the stake in Yes Bank?

Let’s check who is the seller in Yes Bank in the past year when the price was at around Rs. 400/-. For doing so, we will check the shareholding pattern of last year.

FIIs are the net seller in YES Bank over the period of the last year.

QuarterRetail InvestorsFII + DII
Mar 201919%61%
June 201929%51%
September 201941%45%
December 201962%29%

Check the stock price movement during the same period. It is clearly coming out that the institutional investors (FII + DII) have sold their stake from the Yes Bank.

yes-bank-2019-20

Now let’s check why FII and DII have sold their stake from the bank. To find out the same, we will check the quarterly results of the bank.

yes-bank-financials

If you check the March 2019 quarter, the net profit of the bank has declined to Rs. 1508 crores. Same scenario for the next two quarters as well. The net profit is constantly decreasing and hence there is heavy sell-off from the FII and DII investors.

Yes Bank Crisis – FAQs

Can I buy Yes Bank stock at the current level of Rs. 16 for the long term?

When the bank is facing such issues and the stock price is falling like a free knife, you should not invest in the stock even if it is available at rs. 1.

As SBI will take over the bank, Will the stock price go up soon?

There are many issues in Yes Bank like corporate governance, company strategies and so on. SBI has intervened as it was directed by the RBI to safeguard the deposits of the retail customers. The stock price will not go up in the near future.

IS this Rs. 50000 withdrawal limit is per day?

No, the Rs. 50000 withdrawal limit is per month.

Can I transfer the balance online?

No, the online money transfer from Yes Bank is temporarily stopped by the RBI.

What will be the future stock price of Yes Bank?

Well, nobody can tell you that. But one thing is sure that the future of Yes Bank stock price is not bright.

Conclusion

There are many past incidents where such a sharp fall in the stock price has taken place. Retail investors are still not learning from past mistakes and invest in such companies at such low levels thinking that they have done bottom fishing.

Please do not invest in such companies where there are multiple issues like corporate governance.

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