Thread by @nooreshtech

Small PSU Banks & Yes Bank - Future multibaggers or just a frenzy?

One will think that it is the best time for PSU bank investors given the recent rally in psu banking stocks!!

Is it really the best time? Let’s find out !!

#yesbank #psubanks #multibagger #frenzy

First of all let me get this clear, if you are a new investor in PSU bank stocks who bought it 50-100% lower , then you have clearly made money and kudos to you for that…The question now to ask is whether the rally is sustainable or not

But, over the last 10-12 years the stocks have fallen a lot. From 50-80% even after such a rally.

But the next thought that comes to mind is will they regain their lost glory and go back to prices of 2020/2018/2015/2010.

That looks difficult given the amount of Money these companies have raised in last decade

Due to this the no. of shares have gone up from 3-15x in many cases

Even though prices are down 50-80% from the highs of 10 years but in a some cases the Mkt Caps are at an all time highs

Market cap is a factor of number of equity shares outstanding * cmp

What has happened in major PSU banks is that the number of equity shares have gone up significantly and hence the market cap increase is the game of equity dilution by raising funds and not by the share price

Let us take few examples

Union bank of India

Company is currently trading at its peak market cap of $7.37bn vs previous high of $4.4bn in 2010, while the stock price is at Rs 88 vs its all time high of Rs 425 in 2010.

Majority of the market cap accretion has come from issuing new equity shares and not from price.

Same is the case with many other PSU Banks

Let us now take an example of Yes Bank

The stock is down from a peak of ₹400 to ₹20 i.e -95%, however the market cap has just come down from $12.92bn to $6.1bn presently.

Now if you think that the price can go from ₹20 to ₹40, it will surpass the mkt cap of Indusindbk and if you think that the stock price can go to ₹100 the mkt cap will be higher than Axis bank or say at ₹200 it will be closer to mkt cap of SBI

Think this is really possible ?

After today’s move in Yes bank, most retail shareholders will search or think of it to have a multibagger potential. It can definitely move up from here but not to a great extent.

So beware if you are buying into it !!

Keep low expectations.

In many of these cases the Prices may be in two digits and look like Penny Stocks but the Market Caps are large

Expect them to move like LargeCaps/Midcaps and keep lower expectations and be careful in the choices you make. There may be better alternative investment opportunities

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