BTL 896 - Value Investing

 

The Banking Tutor’s Lessons

BTL 896                                                                               06-05-2026

Value Investing

Value investing is an investment strategy that involves buying stocks trading at a significant discount to their intrinsic value, often coined as buying "dollar bills for 50 cents". Popularized by Columbia Business School professors Benjamin Graham and David Dodd in the 1930s, this approach views a stock not just as a trading ticker, but as a direct percentage of ownership in a real business.

Value investing is a disciplined, long-term investment strategy focused on purchasing securities at a price significantly lower than their intrinsic value.

The 4 Pillars of Value Investing

Intrinsic Value: The true financial worth of a business based on fundamentals like cash flows, assets, earnings, and competitive advantage.

Margin of Safety: The discount between the calculated intrinsic value and the market price. Graham recommended buying at two-thirds or less of true value to absorb analytical error or market downturns.

Market Inefficiency: A rejection of the Efficient Market Hypothesis (EMH). Value investors believe stock prices temporarily diverge from true value due to fear, greed, and short-term noise. The strategy relies on the market eventually recognizing a company's true value, which can take years.

Contrarian Mindset: Moving against prevailing market trends—buying when others are fearful and selling or holding cash when the herd is exuberant. 

Key Metrics Used by Value Investors

Price-to-Earnings Ratio (P/E): Low P/E  ratios compared to the industry average often indicate potential value stocks.

Price-to-Book Ratio (P/B): Used to determine if a stock is cheap relative to its assets.

Dividend Yield: High, consistent dividends are often favoured as they provide returns while waiting for price appreciation.

Value investing requires patience and the conviction to hold fundamentally strong companies during market downturns.

Sekhar Pariti

+91 9440641014

DBC 2426 - Investment Bank

 

The Banking Tutor 

                Daily Banking Concept -  2426 

Investment Bank

 

An investment bank facilitates large financial transactions and offers advisory services for IPOs and mergers.

Release of Book 191 & 192 - RSA - IBC

                                          Happy to inform that today

 I have shared my 

Book 191 - RSA - IBC - Notes - 2026

Book 192 - RSA - IBC - Only Points - 2026

(related to IBC Code examination of IIBF)

Those who need may send a message in WhatsApp to me. 

Sekhar Pariti

+91 9440641014

DBC 2425 - Group of 7

 

The Banking Tutor 

                Daily Banking Concept -  2425 

Group of Seven (G7)

 

The Group of Seven is an intergovernmental political and economic forum consisting of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States; additionally, the European Union is a "non-enumerated member".

DBC 2424 - Knowledge process outsourcing (KPO)

 

The Banking Tutor 

                 Daily Banking Concept -  2424 

Knowledge process outsourcing (KPO) 

Knowledge process outsourcing (KPO) is the outsourcing of core, information-related business activities. KPO involves contracting out work to individuals who typically have advanced degrees and expertise in a specialized area.

BTL 895 - ECL-Based NPA Provisioning

 

The Banking Tutor’s Lessons

BTL 895                                                                                03-05-2026

ECL-Based NPA Provisioning

The RBI is shifting to an Expected Credit Loss (ECL) framework from April 1, 2027, replacing the "incurred loss" model to require banks to provide for potential bad loans in advance based on forward-looking risk.

ECL classifies loans into three stages based on credit deterioration—

Stage 1 (12-month ECL)

Stage 2 (Lifetime ECL)

Stage 3 (NPA/Lifetime ECL)—requiring higher provisions as risk increases.

Key Aspects of ECL-Based NPA Provisioning:

Three-Stage Classification (ECL Approach):

Stage I (Low Risk): Loans with no significant risk increase; 12-month expected loss is provided.

Stage II (Significant Risk Increase): Loans with elevated risk but not yet NPAs; requires lifetime expected loss provisioning.

Stage III (Credit Impaired/NPA): Loans overdue for over 90 days.

ECL Definition: Instead of waiting for a default (incurred loss), banks must calculate loss based on Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD).

Stricter Provisioning: Provisions are required immediately upon a "significant increase in credit risk," even before a loan becomes an NPA.

NPA Threshold: The definition of NPA remains at 90 days overdue, but the provision amount changes from flat rates to risk-based estimations.

Comparison with Old System:

The old system focused on "incurred loss," where provisions were made only after the 90-day overdue threshold was passed. The new approach is forward-looking and brings Indian banks in line with global standards (IFRS 9).

Effective Date:

The new framework will come into effect on April 1, 2027.

Sekhar Pariti

+91 9440641014

DBC 2423 - GARCH Process

 

The Banking Tutor

Daily Banking Concept -  2423

                           GARCH Process 

The generalized autoregressive conditional heteroskedasticity (GARCH) process is an econometric model for estimating volatility in financial markets. GARCH is widely used by financial institutions to forecast returns, optimize portfolios, and manage the risk of stocks, bonds, and other assets.