For Infomedia Press Limited’s (NSEI:INFOMEDIA) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This is measured by its beta. Not every stock is exposed to the same level of market risk, and the broad market index represents a beta value of one. A stock with a beta greater than one is considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.
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An interpretation of INFOMEDIA’s beta
Infomedia Press’s beta of 0.38 indicates that the company is less volatile relative to the diversified market portfolio. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. Based on this beta value, INFOMEDIA appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Does INFOMEDIA’s size and industry impact the expected beta?
INFOMEDIA, with its market capitalisation of INR ₹166.14M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, INFOMEDIA also operates in the commercial services 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 commercial services industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both INFOMEDIA’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.
Can INFOMEDIA’s asset-composition point to a higher 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 examine INFOMEDIA’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Since INFOMEDIA’s fixed assets are only 3.68% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. Thus, we can expect INFOMEDIA to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. Similarly, INFOMEDIA’s beta value conveys the same message.