For Maral Overseas Limited’s (NSE:MARALOVER) 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. 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 expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.

See our latest analysis for Maral Overseas

How volatile is MARALOVER’s share price?

Maral Overseas has a beta of 1.04, which means that its stock price experiences greater change than most. Based on this beta value, MARALOVER can help magnify your portfolio return, especially if it is predominantly made up of low-beta stocks. If the market is going up, a higher exposure to the upside from a high-beta stock can push up your portfolio return.

Could MARALOVER’s size and industry cause it to be more volatile?

A market capitalisation of ₹1.25b puts MARALOVER in the category of small-cap stocks, which tends to possess higher beta than larger companies. In addition to size, MARALOVER also operates in the luxury 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 luxury industry, relative to those more well-established firms in a more defensive industry. This supports our interpretation of MARALOVER’s beta value discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.

How MARALOVER’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 MARALOVER’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%, MARALOVER 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 MARALOVER 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. This is consistent with is current beta value which also indicates high volatility.