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If you are looking to invest in Swelect Energy Systems Limited’s (NSEI:SWELECTES), 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 SWELECTES’s exposure to the wider market risk, which reflects changes in economic and political factors. Not every stock is exposed to the same level of market risk, and the market as a whole represents a beta 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.
View our latest analysis for Swelect Energy Systems
What does SWELECTES’s beta value mean?
Swelect Energy Systems’s beta of 0.61 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in SWELECTES’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. SWELECTES’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
Does SWELECTES’s size and industry impact the expected beta?
A market capitalisation of IN₨4.33B puts SWELECTES in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the electrical industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect a high beta for the small-cap SWELECTES but a low beta for the electrical industry. This is an interesting conclusion, since both SWELECTES’s size and industry indicates the stock should have a higher beta than it currently has. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Is SWELECTES’s cost structure indicative of a high 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 test SWELECTES’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. SWELECTES’s fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice. Thus, we can expect SWELECTES 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 SWELECTES’s actual beta value suggests, which is lower stock volatility relative to the market.