Low beta stocks (beta less than one) indicate that the stock price will be less volatile than the market. Can these stocks be good picks during volatility?
New Delhi (OpeningBell.in): When stock markets are likely to see an upward momentum, analysts often advise investors to enter buying a high-beta stock. NSE has an index totally dedicated to 50 stocks with high beta – Nifty High Beta 50 Index. However, one cannot ignore the low beta stocks. The low beta stocks can also give you good returns at times of volatility.
Beta is referred to as a measure of sensitivity of stock returns to market returns. In simpler terms, beta shows the relationship between the stock and the overall market. So, a low-beta stock has less influence of the market trend. A beta of less than one indicates that the stock price will be less volatile than the market. However, a beta of greater than one indicates that the stock price will be more volatile.
Moreover, few low beta stocks grabbed the limelight. Here are those stocks –
Wipro (NS:WIPR) is one of the few stocks that have low beta in the Indian stock market. The stock had hit 52-week high of Rs. 607.0 on April 22, 2016. Since then the stock has been facing resistances. If you look at the chart, it will be noticed that the stock marked a strong downward momentum during the months of August and September. Such has been the down rally, that the stock hit 52-week low at Rs. 408.1 on November 09, 2016. Hence, it shows that despite being a low beta stock, Wipro lost heavily during the market volatility. However, the volatility was less compared to the benchmark index. Wipro lost 3.5% while Nifty lost 7.59% during the last three months.
HCL Tech is also one among the few low beta stocks to have grabbed the attention of analysts. This low beta stock has actually climbed over 4% during last three months. The above chart of HCL Tech shows that the stock prices have remained volatile. But then the stock managed to garner some gains in the three month time period when market heavy weights like TCS and Infosys (NS:INFY) have also posted loss of over 5% each. HCL Tech had hit fresh 52-week high of Rs. 889.9 on February 01, 2016.
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