Should you take a contrarian bet on Yes Bank now?

Shares of private sector lender Yes Bank got thrashed on Wednesday after Reserve Bank of India (RBI) announced more measures to tighten liquidity and rescue the falling rupee. Here are contrarian views from brokerages on the stock.  

Also read: YES Bank Q1 net rises 38.3% to Rs 401 cr on other income Bull Two topnotch brokerages have maintained outperform and overweight rating on Yes Bank. However, it is a tough call given the fact that the stock has seen such a negative reaction.  JP Morgan is overweight with the target price of Rs 560. It will revisit the forecast once the dust settles in the money market. It still sees a scope for consensus upgrades going forward. The Q1 FY14 numbers are not important this quarter and the ability cope with the higher rates is the key issue for Yes Bank. JP Morgan does believe that the markets have overreacted to the permanency of the high rates and the impact that Yes Bank could see in terms of earnings going forward. CLSA has maintained outperform on Yes Bank with the target price of around Rs 450. It believes that the numbers were ahead of estimates, but besides that given the sharp correction seen the stock may see a bit of a bounce back going forward. However, the valuations may remain suppressed at these levels. This is due to obviously the highest sensitivity of the rise in interest rates, but the fall in certificate deposit rates will be the key trigger to a re-rating in the Yes Bank stock from the current levels. However, the risk is the rise in the interest rates as well as any risk to corporate credit quality. Bear It is easier to be a bear on a stock like Yes Bank. Credit Suisse maintains an underperform rating and Morgan Stanley has reduced its rating from overweight to equal weight on the stock. Credit Suisse who is maintaining underperform rating on the stock have also reduced the target price from around Rs 466 to around Rs 376. As of now this stock is trading flat. But there are reasons why it has cited for this rating. 1) They say that the profits which were 38 percent higher are decent enough, but there is over reliance on treasury income over here. 2) The customer asset growth has also slowed. To add to this the operating expenditure is also 40 percent higher on a year-on-year basis, which is a negative. 3) It also see that the asset liability mismatch along with their higher reliance on the wholesale funding is a sort of a negative for the bank. The loan yield which the company is offering is much higher and is at a premium as compared to the peers. Additionally, Credit Suisse has also cut the earnings per share (EPS) estimates of the company for FY14 and FY15.  It expected that there could be some mark-to-market risk, which the bank might face of higher dependence on corporate bond portfolio as such. Morgan Stanley has reduced its rating from overweight to equal weight and it has also reduced the target price to Rs 440 from around Rs 670 levels. The worsening macros and the rising rates have increased the challenge for the bank and additionally it has reduced the EPS, at the same time the price target has been cut sharply with a rating which is maintained at equal weight.