Wouldn’t it be great if you had an indicator of how risky a stock is? It would make choosing a stock much simpler, right? You would pick one that best suits your risk appetite and minimise your losses. Well, you do have such an indicator and it is called beta. A beta value of a stock suggests the extent of its volatility as compared to the broader market.

Talking of beta, you may have heard about high beta stocks. And if you have the itch to learn more about this risk indicator of stocks and also what are high beta stocks, you have come to the right place. Let’s jump right in.

This article covers

Risk: the premise for high beta stocks

What are high beta stocks?

What is beta in a stock?

Significance and shortcomings of the beta value of a stock

High beta stocks are usually issued by high-risk companies?

A note on small and midcap companies

NSE high beta stocks list

How to find the beta of Indian stocks?

Should you invest in high beta stocks?

Merits of investing in high beta stocks

Demerits of high beta stocks

Conclusion

Risk: the premise for high beta stocks

Stock investing is a risky business and that’s true. But what comes without risk? Let us get this straight. Money only grows when invested. There’s no alternative to it. Naturally, when you entrust your money to someone else with a view to grow it, there is a risk factor associated with it. You may either not get your funds back at all or may have to accept lower than expected returns on it.

So, does this stop you from investing? No. You still invest in instruments that are relatively less risky. Or you may diversify thoughtfully. Same goes for stocks. While some are highly volatile, others may not be as much. The measure used to ascertain the risk associated with stock is beta.

What are high beta stocks?

Shares with a beta value or coefficient higher than 1 are high beta stocks. Simply put, high beta stocks are very risky. But it is a well-known notion that risk and returns are directly related to each other. As such, even though high beta stocks are risky, they have the potential to generate high returns as well. That’s why investors looking to create significant wealth by investing in shares, go for high beta stock.

Here’s some technical information, if you will.

What is beta in a stock?

Beta is a statistical measure of a stock’s volatility compared to that of the broader market. It is calculated using regression analysis, a statistical method used to find the relationship of a dependent variable with one or more independent variables. In the context of high beta stocks, the risk associated with stock is a dependent variable and the volatility in the broader market is the independent variable.

Significance and shortcomings of the beta value of a stock

A beta of 1 signifies that a stock’s volatility is parallel compared to the broader market or a related benchmark index. The stock in question will mostly move alongside the benchmark index. A beta higher than 1 means that the stock would be more volatile and rise more than the benchmark index in a bullish market. Conversely, a beta of lower than 1 signifies lower volatility and would fall less than the index in a bearish market.

Beta relies on past data. This makes it a good indicator of the past performance of the stock but doesn’t guarantee that the same trend would continue in the future. Let’s understand why. Assume that a well-established company, whose beta is less than 1, avails a huge debt for its expansion. Now, the beta accounts for the company’s risk profile before it took on the debt and not after the new development.

But the debt that the company has taken on adds to its risk. What if the proportion of debt is higher than the equity? It shows that the company’s debt-to-equity ratio is high. And if the company is unable to repay its debt on time, the creditors will have a higher stake on the company’s assets than its shareholders. As a shareholder, you will be at risk. See, how tables turn? That is why relying on beta information alone may not be a good investment decision when evaluating a stock.

High beta stocks are usually issued by high-risk companies

High beta stocks are typically those issued by small and midcap companies and are thus perceived to be risky. This is because companies having larger balance sheets or more physical assets are generally in a better position to survive economic disruptions than those with smaller balance sheets. As such, the risk associated with high beta stocks may accelerate in times of economic turmoil and eat into your returns.

Let’s understand this with an example. In order to flourish, small and midcap companies need cheap credit and high demand, both of which are scarce now, since the economy is hit by the pandemic. Once the economy shows signs of recovery—credit conditions get better and demand picks up—the performance of small and midcap companies could also get better (note that this is not a prediction, nothing in the stock market is predictable. So, always do your due diligence before relying on market-related information coming from any source).

A note on small and midcap companies

Small and midcap companies are sensitive to macroeconomic factors. Therefore, any ongoing problem in the economy can almost immediately impact these stocks. Small and midcap companies are usually risky businesses. They offer products that are in high demand and generate high turnover. Though their balance sheets are not large, the efficiency of their operations and internal management aid their growth and attract investors. Such steady inflow of funds via equity and debt fuel small and midcap companies and create high beta stocks.

Read more about how companies are classified into smallcap, midcap, and largecap stocks here. EQ is one of the NSE stock series that allows equity delivery and intra-day transactions. Learn more about NSE stock series here.

NSE high beta stocks list

Here is a list of high beta stocks in Nifty 50:

Company NameSymbolSeries
Adani Ports and Special Economic Zone Ltd.ADANIPORTSEQ
Adani Power Ltd.ADANIPOWEREQ
Apollo Tyres Ltd.APOLLOTYREEQ
Ashok Leyland Ltd.ASHOKLEYEQ
Axis Bank Ltd.AXISBANKEQ
Bajaj Finance Ltd.BAJFINANCEEQ
Bajaj Finserv Ltd.BAJAJFINSVEQ
Bandhan Bank Ltd.BANDHANBNKEQ
Bank of BarodaBANKBARODAEQ
Bharat Heavy Electricals Ltd.BHELEQ
Bharat Petroleum Corporation Ltd.BPCLEQ
Can Fin Homes Ltd.CANFINHOMEEQ
Canara BankCANBKEQ
Cholamandalam Investment and Finance Company Ltd.CHOLAFINEQ
Coforge Ltd.COFORGEEQ
DLF Ltd.DLFEQ
Edelweiss Financial Services Ltd.EDELWEISSEQ
Equitas Holdings Ltd.EQUITASEQ
Escorts Ltd.ESCORTSEQ
Federal Bank Ltd.FEDERALBNKEQ
Godrej Properties Ltd.GODREJPROPEQ
Hindalco Industries Ltd.HINDALCOEQ
Hindustan Petroleum Corporation Ltd.HINDPETROEQ
Housing Development Finance Corporation Ltd.HDFCEQ
ICICI Bank Ltd.ICICIBANKEQ
ICICI Prudential Life Insurance Company Ltd.ICICIPRULIEQ
IDFC First Bank Ltd.IDFCFIRSTBEQ
Indiabulls Housing Finance Ltd.IBULHSGFINEQ
IndusInd Bank Ltd.INDUSINDBKEQ
JSW Steel Ltd.JSWSTEELEQ
Jindal Steel & Power Ltd.JINDALSTELEQ
L&T Finance Holdings Ltd.L&TFHEQ
LIC Housing Finance Ltd.LICHSGFINEQ
Mahindra & Mahindra Financial Services Ltd.M&MFINEQ
Manappuram Finance Ltd.MANAPPURAMEQ
Max Financial Services Ltd.MFSLEQ
Motherson Sumi Systems Ltd.MOTHERSUMIEQ
Muthoot Finance Ltd.MUTHOOTFINEQ
NMDC Ltd.NMDCEQ
Piramal Enterprises Ltd.PELEQ
Power Finance Corporation Ltd.PFCEQ
RBL Bank Ltd.RBLBANKEQ
Radico Khaitan LtdRADICOEQ
Shriram Transport Finance Co. Ltd.SRTRANSFINEQ
State Bank of IndiaSBINEQ
Steel Authority of India Ltd.SAILEQ
Tata Motors Ltd.TATAMOTORSEQ
Tata Steel Ltd.TATASTEELEQ
Ujjivan Financial Services Ltd.UJJIVANEQ
Vodafone Idea Ltd.IDEAEQ

EQ is one of the NSE stock series that allows equity delivery and intra-day transactions. Learn more about NSE stock series here.

How to find the beta of Indian stocks?

You can find the beta of Indian stocks in 2 ways:

  1. Using the formula
  2. Using Tickertape’s stock screener

Finding beta of a stock using formula

  • Get the historical prices for the desired stock
  • Get the historical prices for the comparison benchmark index
  • Calculate % change for the same period for both the stock and the benchmark index. Here, the period can be daily, weekly, and so on
  • Calculate the Variance of the stock
  • Find the covariance of the stock to the benchmark

Now, Beta = Covariance/Variance

Source: Investopedia

Finding beta of shares using Tickertape’s stock screener

Since calculating beta of stock manually is prone to errors, you can easily view the beta coefficient of stock on Tickertape’s stock screener.

Follow these steps:

1. Launch https://www.tickertape.in/

2. Click on the screener and select “Start Screening”

3. Click on “Add Filter”

4. In the “Search for Filters” box, type ‘beta’ and click on done

5. The screener now returns stock names along with their beta value. Note that, if you are looking for stocks in a particular universe or sector, filter them accordingly by selecting your desired conditions on the left-hand side

Should you invest in high beta stocks?

Now that you have the high beta stocks list and know how to get the beta coefficient of these stocks, you may be wondering if you should invest in these stocks. Well, the answer solely depends on two factors:

1. Your experience in stock markets

Seasoned investors have a better understanding of stock markets. They know to analyse market swings and use their observations to predict the market. They know when to enter and exit a particular stock and also the extent of exposure to take on. Moreover, they also analyse both domestic and global market conditions as pointers when studying a stock. This makes seasoned investors better-equipped to invest in high beta stocks.

2. Your risk tolerance and return expectation

But being a seasoned investor doesn’t make you qualified to invest in high beta stocks. As mentioned, high beta stocks are risky but can potentially generate high returns. Ergo, you should also be willing to take high risk in order to enjoy high returns or create substantial wealth. If both these boxes are ticked, you can consider investing in high beta stocks.

But before investing in high beta stocks, you should also be ready to take what follows. For instance, if the market suffers due to an economic downturn, you must be ready to bear losses until the market recovers following the economic revival.

Merits of investing in high beta stocks

Investing in high beta stocks helps in the following ways:

  • Wealth creation: high beta stocks carry higher risks and can generate high returns. Thus, investing in such stocks after careful evaluation and continual monitoring can help you create wealth
  • High returns amid market upswing: since high beta stocks are sensitive to economic conditions, they tend to perform well when the market is swelling
  • Returns higher than inflation: since high beta stocks generate high returns, the figure may surpass the inflation rate in the country.

Demerits of high beta stocks

Though the beta of a stock suggests the risk associated with it and aids in making smart investment decisions, relying solely on it would not be a wise move. Here’s why.

  • High risk: stocks with beta value or more than 1 are highly risky as they are extremely sensitive to market volatility. Ergo, a downturn in the stock market can impact such stocks leading to huge losses
  • Other than market risks: the beta coefficient is the rate at which the price of a stock moves when compared to the broader market index. While this is an important indicator of the volatility with respect to the stock, there can be other associated risks as well. Ergo, if you simply rely on the beta value of a stock to invest in it, you may be ignoring other red flags such as inefficient management or operations
  • Relies on past data: the beta coefficient is calculated based on past data of stock. Thus, it is no good indicator of the future, meaning, it doesn’t guarantee the same or similar price movements in the future. Therefore, investing in high beta stocks solely based on their beta value would not be a good investment decision

Conclusion

There you go! By now you may have understood what are high beta stocks, their merits and demerits, and whether you should invest in them or not. Also, when investing in high beta stocks, ensure you look at more than just the beta value. Evaluating the company’s internal management and conducting fundamental and technical analysis of the stock is equally important to minimise the associated risks.

Aradhana Gotur

Content Writer at Tickertape
Lives in both, own and parallel universes and loves nature, music, and words (that turn into actions)
Aradhana Gotur

14 Comments

  1. Dear Aradhna your article is pretty good. But I am wondering how the mistake done by you that has been pointed out by Shri Rajeev ji. I have read your other articles too and your knowledge in this field is very good.
    Any way no problem. I m your admirer as your way to making understandable the topic is so effective that one can learn very quickly.
    Thanks and regards.
    Please keep posting such a nice articles. My E-mail Id is :- atulgoel1969@gmail.com

    • Aradhana Gotur Reply

      Hello Atul Sir,

      Thank you for such a graceful and encouraging comment 🙂 Kindly excuse the word salad, to err is human, after all. But as you rightly mentioned, I strive to deliver easy-to-read and understandable content so readers get to take some value out of it. We post on Tuesdays and Thursdays. Feel free to read our articles then or any other time as per your convenience. We would also love to have your feedback and suggestions and on topics.

      • Ajay Dagaonkar Reply

        Very nice informative article. Congratulations But need elaboration as to how HDFC or SBI are high beta stocks

  2. As per my understanding, a stock with beta less than 1 will fall less than the market. Request you to please recheck this sentence: “A beta higher than 1 means that the stock would be more volatile and rise more than the benchmark index in a bullish market. Conversely, a beta of lower than 1 signifies lower volatility and would fall more than the index in a bearish market.”

    • Aradhana Gotur Reply

      Hello Rajeev, you are right! Thanks for pointing it out. We have updated the information 🙂

  3. Pingback: Excessive beta shares: a easy information | {{site_title}}

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