PrimeInvestor - Articles and Reports

Value investing is often mistaken for buying ‘cheap’ stocks. Therefore, you often simply look for a stock with a low PE ratio, or a low price to book value or with good dividend yield. These are easy ways to assess the relative value of a company. But value investing is not about buying companies that appear cheap based on these parameters. Value investing is a philosophy of buying a company at a price that is lower than its intrinsic value.

What is Sensex, how is it computed and why is it so important? It is highly unlikely that one would go through a stock market related conversation and not hear the word ‘Sensex’. Frequently described as the pulse or a barometer of market sentiment and the economy, which way and how much the Sensex moves, can make or break their day for may.

As an investor, your approach to analysing and choosing banking and finance stocks needs to be distinct too. In the first part of this article, I had dwelt on the CAMEL approach to deep-diving into a bank’s business.

In this article, we’ll explore where risk premiums come from in debt and equity. This is important because risk premiums are not fixed and change with time. So, if you base your return expectations wrong, you may wind up with a different corpus that you originally planned to.

There are certain characteristics which make evaluating banking and finance stocks different from others which produce goods and services. Money cannot be lent to someone unless there is an inflow by way of capital or debt. Since it is not practical to lend only from capital, borrowing (or leverage) is the sustaining food for this business. Naturally in using this leverage, there are good and bad apples.