For GTN Textiles Limited’s (NSEI:GTNTEX) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. GTNTEX 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 market as a whole represents a beta of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.
See our latest analysis for GTN Textiles
What does GTNTEX’s beta value mean?
GTN Textiles’s beta of 0.27 indicates that the company is less volatile relative to the diversified market portfolio. 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. GTNTEX’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 GTNTEX’s size and industry impact the expected beta?
A market capitalisation of ₹186.25M puts GTNTEX in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, GTNTEX’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 a high beta for the small-cap GTNTEX but a low beta for the luxury industry. It seems as though there is an inconsistency in risks portrayed by GTNTEX’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Can GTNTEX’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 GTNTEX’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%, GTNTEX 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 GTNTEX 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 GTNTEX’s actual beta value suggests, which is lower stock volatility relative to the market.