For RattanIndia Power Limited’s (NSEI:RTNPOWER) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. RTNPOWER 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 every stock is exposed 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 expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
View our latest analysis for RattanIndia Power
What is RTNPOWER’s market risk?
With a five-year beta of 0.5, RattanIndia Power appears to be a less volatile company compared to the rest of the 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. Based on this beta value, RTNPOWER appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Could RTNPOWER’s size and industry cause it to be more volatile?
With a market cap of ₹14.68B, RTNPOWER falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. However, RTNPOWER operates in the renewable energy industry, which has commonly demonstrated muted reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap RTNPOWER but a low beta for the renewable energy industry. It seems as though there is an inconsistency in risks from RTNPOWER’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Is RTNPOWER’s cost structure indicative of a high 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 RTNPOWER’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given a fixed to total assets ratio of over 30%, RTNPOWER seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. As a result, this aspect of RTNPOWER indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts RTNPOWER’s current beta value which indicates a below-average volatility.