In This Article:
If you are looking to invest in Bhushan Steel Limited’s (NSEI:BHUSANSTL), 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 BHUSANSTL’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 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.
See our latest analysis for Bhushan Steel
An interpretation of BHUSANSTL’s beta
Bhushan Steel’s beta of 0.45 indicates that the stock value will be less variable compared to the whole stock market. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. Based on this beta value, BHUSANSTL appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Does BHUSANSTL’s size and industry impact the expected beta?
With a market cap of IN₨12.19B, BHUSANSTL falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Furthermore, the company operates in the metals and mining industry, which has been found to have high sensitivity to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the metals and mining industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both BHUSANSTL’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 BHUSANSTL’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 examine BHUSANSTL’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%, BHUSANSTL 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 BHUSANSTL 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 BHUSANSTL’s actual beta value suggests, which is lower stock volatility relative to the market.