Published on: May 29, 2024
Yes Bank, one of India’s prominent private sector banks, has been a significant player in the Indian financial sector since its inception in 2004. Founded by Rana Kapoor and Ashok Kapur, Yes Bank quickly rose to prominence with its innovative banking solutions, customer-centric approach, and retail and corporate banking focus. However, over the past few years, the bank has faced various challenges that have significantly impacted its performance and reputation.
The Reserve Bank of India (RBI) recently penalised Yes Bank for violating its guidelines. The bank had levied charges on customers for non-maintenance of minimum balances in certain savings accounts, even when those accounts had insufficient or zero balances. This practice is against RBI’s regulatory norms, which are designed to protect customers from unfair banking charges.
Yes Bank’s stock price trajectory has been a dramatic tale of highs and lows. In 2018, the stock reached an all-time high of Rs. 398, reflecting strong investor confidence and robust financial performance. However, this was followed by a precipitous decline, with the stock plummeting by 98% to a low of Rs. 5.65 in 2020. A combination of poor asset quality, governance issues, and a loss of investor confidence triggered the sharp decline.
Since its lowest point in 2020, Yes Bank’s stock has shown promising signs of recovery, oscillating between Rs. 10 and Rs. 30. This period of volatility and uncertainty can be seen as a golden opportunity for potential investors, as the stock has already experienced a significant six-fold rally. The stock’s performance, therefore, presents a potential for substantial growth and a topic of enthusiastic discussion among investors.
Benjamin Graham, a renowned investor, famously advised that stocks should be purchased with the same prudence and due diligence as groceries, not with the capriciousness associated with buying perfume.
While the allure of buying a stock at its perceived lowest point might be tempting, it’s crucial to delve deeper and understand the underlying reasons behind a company’s significant loss of value. This understanding empowers potential investors, forming the bedrock of informed investment decisions and ensuring they have the necessary knowledge to make sound choices. By doing so, they take on the responsibility of their investment outcomes.
Since the market bottomed during the pandemic, many mid-cap and small-cap stocks have surged, often delivering returns of up to 10 times their value. Large-cap stocks, on the other hand, have generally seen more modest gains, trading between two to five times their pre-pandemic values. Yes, the Bank has indeed rallied six times from its lowest point, yet this does not inherently qualify it as a wise investment choice. The bank’s ongoing restructuring efforts, including changes in its logo and corporate culture, are positive steps but represent a long-term process that may not yield immediate returns.
A technical analysis of Yes Bank’s weekly chart reveals several critical insights.
Weekly Bar Chart
Source: TradePoint
1. 200-Week Exponential Moving Average (200WEMA):
The stock has consistently failed to close above its 200WEMA since May 2019, indicating a long-term bearish trend. The current 200WEMA stands at Rs. 36.22. A weekly close above this level would significantly indicate a potential recovery and a bullish reversal.
2. 50-Week Exponential Moving Average (50WEMA):
In the medium term, Yes Bank has closed above its 50WEMA. Sustaining this position is a positive sign for short-to-medium-term traders, suggesting potential stability or minor uptrend phases.
3. Volume Analysis:
A concerning factor is the need for consistent follow-up volumes accompanying price rises. While the stock has seen volume spikes on several occasions, the absence of sustained volume suggests caution. Consistent high volumes are crucial for a strong bullish trend to confirm investor confidence and support price increases.
Conclusion
Yes Bank remains in transition, attempting to regain its foothold in a highly competitive and regulated industry. The penalties from RBI highlight the ongoing compliance challenges, while the stock’s historical performance underscores the volatility and risks associated with the bank. Investors considering Yes Bank should carefully weigh long-term restructuring efforts and technical indicators.
