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If you are looking to invest in Pratibha Industries Limited’s (NSEI:PRATIBHA), 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. PRATIBHA is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. Not all stocks are expose 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.
Check out our latest analysis for Pratibha Industries
What is PRATIBHA’s market risk?
Pratibha Industries’s beta of 0.9 indicates that the stock value will be less variable compared to the whole stock market. 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. PRATIBHA’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.
Does PRATIBHA’s size and industry impact the expected beta?
A market capitalisation of ₹1.36B puts PRATIBHA in the category of small-cap stocks, which tends to possess higher beta than larger companies. In addition to size, PRATIBHA also operates in the construction 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 construction industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by PRATIBHA’s size and industry relative to its actual beta value. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
How PRATIBHA’s assets could affect its 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 PRATIBHA’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%, PRATIBHA 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 PRATIBHA 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 PRATIBHA’s actual beta value suggests, which is lower stock volatility relative to the market.