Does Gillanders Arbuthnot and Company Limited (NSE:GILLANDERS) Go Up With The Market?

If you are a shareholder in Gillanders Arbuthnot and Company Limited’s (NSEI:GILLANDERS), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. Broadly speaking, there are two types of risk you should consider when investing in stocks such as GILLANDERS. The first risk to consider is company-specific, which can be diversified away when you invest in other companies in the same industry as GILLANDERS, because it is rare that an entire industry collapses at once. The second risk is market-wide, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks.

Different characteristics of a stock expose it to various levels of market risk. A popular measure of market risk for a stock is its beta, and the market as a whole represents a beta value 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.

An interpretation of GILLANDERS's beta

With a five-year beta of 0.53, Gillanders Arbuthnot appears to be a less volatile company compared to the rest of the market. This means that the change in GILLANDERS's value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. GILLANDERS’s beta indicates it is a stock that investors may find valuable if they want to reduce the overall market risk exposure of their stock portfolio.

How does GILLANDERS's size and industry impact its risk?

With a market cap of ₹1.56B, GILLANDERS falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, GILLANDERS also operates in the industrials industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the industrials industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both GILLANDERS’s size and industry indicates the stock should have a higher beta than it currently has. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

How GILLANDERS's assets could affect its beta

An asset-heavy company tends to have a higher beta because the risk associated with running fixed assets during a downturn is highly expensive. I test GILLANDERS’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. GILLANDERS's fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice. Thus, we can expect GILLANDERS to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. However, this is the opposite to what GILLANDERS’s actual beta value suggests, which is lower stock volatility relative to the market.

What this means for you:

GILLANDERS may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as GILLANDERS is valuable to lower your risk of market exposure, in particular, during times of economic decline. In order to fully understand whether GILLANDERS is a good investment for you, we also need to consider important company-specific fundamentals such as Gillanders Arbuthnot’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:

1. Financial Health: Is GILLANDERS’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
2. Past Track Record: Has GILLANDERS 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 GILLANDERS'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.