State Bank of India (NSE:SBIN): What Does It Mean For Your Portfolio?

If you are looking to invest in State Bank of India’s (NSE:SBIN), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. Broadly speaking, there are two types of risk you should consider when investing in stocks such as SBIN. The first type is company-specific risk, which can be diversified away by investing in other companies to reduce exposure to one particular stock. The second type is market risk, one that you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks in the market.

Not every stock is exposed to the same level of market risk. The most widely used metric to quantify a stock’s market risk is beta, and the market as a whole represents a beta of one. A stock with a beta greater than one is expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.

Check out our latest analysis for State Bank of India

What does SBIN’s beta value mean?

State Bank of India has a beta of 1.04, which means that the percentage change in its stock value will be higher than the entire market in times of booms and busts. A high level of beta means investors face higher risk associated with potential gains and losses driven by market movements. According to this value of beta, SBIN will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.

NSEI:SBIN Income Statement June 21st 18
NSEI:SBIN Income Statement June 21st 18

Does SBIN’s size and industry impact the expected beta?

SBIN has a market capitalization of ₹2.48t, putting it in the category of established companies, which are found to experience less relative risk compared to small-sized companies. Conversely, the company operates in the banks industry, which has been found to have high sensitivity to market-wide shocks. Therefore, investors can expect a low beta associated with the size of SBIN, but a higher beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from SBIN’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

Can SBIN’s asset-composition point to a higher beta?

During times of economic downturn, low demand may cause companies to readjust production of their goods and services. It is more difficult for companies to lower their cost, if the majority of these costs are generated by fixed assets. Therefore, this is a type of risk which is associated with higher beta. I test SBIN’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, SBIN seems to have a smaller dependency on fixed costs to generate revenue. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. However, this is the opposite to what SBIN’s actual beta value suggests, which is higher stock volatility relative to the market.

What this means for you:

You may reap the gains of SBIN’s returns during times of economic growth by holding the stock. Its low fixed cost also implies that it has the flexibility to adjust its cost to preserve margins during times of a downturn. I recommend analysing the stock in terms of your current portfolio composition before deciding to invest more into SBIN. In order to fully understand whether SBIN is a good investment for you, we also need to consider important company-specific fundamentals such as State Bank of India’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for SBIN’s future growth? Take a look at our free research report of analyst consensus for SBIN’s outlook.
  2. Past Track Record: Has SBIN been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of SBIN’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.