Assembly Election results: This bank makes you rich today, as it gains by 8% on BSE; Did you invest?

Sentiments in Indian Market were revolving around Urjit Patel decision to quit as the Governor of the Reserve Bank of India (RBI) along with the assembly poll results in five states, which will be announced today by 1730 hours. 

Even as the major stocks went low today, there was one stock that will make you rich quite impressively is Yes Bank, which is the top gainer on Indices. Yes Bank, which has witnessed so much of ups and downs in previous months, seems to have become the only resort of investors as they continued to have a buying sentiment.

Yes Bank is trading at Rs 178.75, up by Rs 13.40 or 8.10%, on the BSE at around 1520 hours. The bank, however, has touched an intraday high of Rs 179 which resulted in overall surge of 8.25% so far.

There seems to be no concrete ground as to why Yes Bank shares have risen today. Currently, the bank needs new CEO and MD as their chief Rana Kapoor will be exiting from his position by end of January 2019, something that can be blamed to RBI.

As per reports of Macquarie, the corporate governance issue at Yes Bank have pulled the stock down ~50% in the last three months vs a relatively flat market. Having said that we now assess what could really be the worst case scenario for Yes Bank.

The worst case fair value for YES bank could be Rs 140-160, which assumes a gross NPL ratio of 7-10% and a fair value multiple of 1.4x. This implies there is a very limited downside from current levels.

However, it all now depends on two key events – appointment of new CEO and divergence report. Confidence can be expected to return only if the new CEO is of credible pedigree and has a good track record. Getting the divergences down to minimum is very essential for a market to get back some confidence in the stock. Capital raising in the wake of these events will be an added trigger.

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The report also says that the search committee is meeting on the 12th December to finalize the name of candidates, while a board meeting on 13th December to consider the appointment of new board members, including the Chairman and possibly freezing a list of candidates for CEO position.

The shortlisted candidates will be sent to RBI for approval. It is expected that RBI will approve the new CEO, and the divergence report for FY18 too will be released somewhere in January 2019.