"The Fascinating (and Volatile) Tale of Yes Bank's Shares: What's Driving the Ups and Downs?"

It's been quite a wild ride for Yes Bank lately! Just a few days ago, the bank's share price skyrocketed by a whopping 32% in three sessions between 8th December and 13th December and reached its 52-week-high. But then, just as quickly as it rose, it fell back down by more than 8%. So what's been causing all this volatility?

Well, there are a few reasons for the recent surge in Yes Bank's stock price. For starters, the bank has been performing exceptionally well this year. It recorded a Net profit of INR 1064 crore after booking losses straight for two years. It also posted spectacular results in the recent quarter. For instance, In Q1FY23, it reported a year-on-year jump in net profit of nearly 50 percent at ₹311 crores.

Its advances also grew 14 percent YoY, and its deposits in this period grew by around 18 percent YoY, in the same period.

Its asset quality has also improved drastically. In Q1FY23, it had a Gross NPA ratio of 13.40 percent, down from 15.6% last year.

But the real catalyst to Yes Bank's rally was that the bank got RBI’s approval to raise fresh capital from Verventa Holdings and Carlyle Group, both private equity firms would invest INR 8,898 crore (about $1.2 billion) in Yes Bank for a 9.99% stake. PE funds' fresh investment has reinstilled confidence in retail investors.

Another contributing factor to the rally would be the selling of a massive INR 48,000 crore (about $6.5 billion) worth of bad loans to an asset reconstruction company. 

What does this mean?

In simple terms, the bank would sell its bad loans to an asset reconstruction company for a discounted price and that company would take care of recovering the loans. 

This exercise would allow Yes Bank to focus on its core operations and would bring down its Gross NPA from 12% to 2%

So with all these positive developments, why did Yes Bank's share price suddenly plummet? 

Well, many analysts believed that Yes Bank's share was overbought and investors should book profit and exit the share.

Morgan Stanley initiated coverage on the bank and handed out an “underweight” rating. It mentioned in its report,

"We expect strong cyclical improvement over the next few years. Having cleaned its balance sheet, we expect Yes Bank's loan growth and margin profile to improve as the macro recovery gains pace. Yes Bank's recent strategic decision around the sale of stressed assets to asset reconstruction company (ARCs) will help clean up its balance sheet," 

"Current valuations at 1.6x F24 book are already pricing in strong earnings over next few years. Much stronger execution on funding and/or high margin retail assets could lead us to revisit our thesis."

Investors started selling its stock and booked profits. Another thing that contributed to investors’ fear was the end of the lock-in period.

You see, back in 2020, Yes Bank was in serious trouble. Its NPAs had been steadily increasing for years due to major loans given to fraudulent companies, and the Reserve Bank of India (RBI) eventually stepped in to take control of the bank and appoint new directors. The State Bank of India (SBI) also joined forces with several other private banks to rescue Yes Bank and inject some much-needed capital into the bank by buying its shares.

However, these shares have been locked in for the past three years, as the RBI didn't want the banks or other investors to suddenly sell off Yes Bank's stock and create more problems for the bank and the RBI as they worked to revive it. Now, with this three-year lock-in period set to end in March 2023, there's a chance that these banks could finally sell their shares, potentially causing Yes Bank's stock price to plummet.

So, with all this in mind, it's no wonder that some investors are deciding to cash out now while the share price is still relatively high, rather than risk waiting until March 2023 and potentially seeing the price drop. However, it's worth noting that Yes Bank's performance in Q2 FY23 was not as strong as expected, and with a recession potentially on the horizon, it's possible that the bank (and other banks in general) could face some tough times ahead.

Despite these challenges, there's still reason to be optimistic about Yes Bank's future. With the new capital infusion and the sale of bad loans, the bank is now in a much stronger position to grow and succeed. So what do you think, will Yes Bank continue to soar or will it take a downward turn? 
Only time will tell