If you are looking to invest in HMT Limited’s (NSEI:HMT), 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. The beta measures HMT’s exposure to the wider market risk, which reflects changes in economic and political factors. Different characteristics of a stock expose it to various levels of market risk, and the market as a whole 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.
View our latest analysis for HMT
What does HMT’s beta value mean?
With a beta of 1.19, HMT 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. According to this value of beta, HMT 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.
Does HMT’s size and industry impact the expected beta?
HMT, with its market capitalisation of INR ₹49.79B, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, HMT also operates in the machinery 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 machinery industry, relative to those more well-established firms in a more defensive industry. This is consistent with HMT’s individual beta value we discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
Can HMT’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 examine HMT’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, HMT appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. As a result, this aspect of HMT indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. Similarly, HMT’s beta value conveys the same message.