If you are looking to invest in Jindal Cotex Limited’s (NSEI:JINDCOT), 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. Generally, an investor should consider two types of risk that impact the market value of JINDCOT. The first risk to consider is company-specific, which can be diversified away when you invest in other companies in the same industry as JINDCOT, because it is rare that an entire industry collapses at once. 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 all stocks are expose 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.View our latest analysis for Jindal Cotex
What does JINDCOT’s beta value mean?
With a beta of 1.36, Jindal Cotex is a stock that tends to experience more gains than the market during a growth phase and also a bigger reduction in value compared to the market during a broad downturn. Based on this beta value, JINDCOT may be a stock for investors with a portfolio mainly made up of low-beta stocks. This is because during times of bullish sentiment, you can reap more of the upside with high-beta stocks compared to muted movements of low-beta holdings.
Could JINDCOT’s size and industry cause it to be more volatile?
With a market cap of ₹425.28M, JINDCOT falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Moreover, JINDCOT’s industry, luxury, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. As a result, we should expect higher beta for small-cap stocks in a cyclical industry compared to larger stocks in a defensive industry. This supports our interpretation of JINDCOT’s beta value discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
Can JINDCOT’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 JINDCOT’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, JINDCOT appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. Thus, we can expect JINDCOT 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. Similarly, JINDCOT’s beta value conveys the same message.
What this means for you:
You could benefit from higher returns from JINDCOT during times of economic growth. Its higher fixed cost isn’t a major concern given margins are covered with high consumer demand. Though, in times of a downturn, it may be safe to look at a more defensive stock which can cushion the impact of lower demand. What I have not mentioned in my article here are important company-specific fundamentals such as Jindal Cotex’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 JINDCOT’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 JINDCOT 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 JINDCOT’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.