High beta stocks, which were the main contributors to the market rally seen from January-May period, seem to have lost momentum post Lok Sabha election result that was on May 23.
So, what are high beta stocks? Crudely speaking, they are basically those stocks that see comparatively greater price movement than any benchmark. The movement could be in either direction.
High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns. A beta coefficient of more than 1 is considered high-beta, and less than 1 is considered low-beta.
Since May 23, 79 BSE500 stocks, having a beta coefficient of more than 1, have given negative returns. As many as 19 stocks among them have fallen 10-60 percent since then.
They include Suzlon Energy, Indiabulls Housing Finance, CG Power, Jaiprakash Associates, Reliance Power, Dilip Buildcon, Reliance Capital and Manpasand Beverages. Many of these stocks are witnessing structural problems while others may have suffered due to profit taking.
The Nifty High Beta index is down marginally since May 23. In comparison, Nifty has risen over 2 percent in the same period.
“After a significant rally in high beta stocks since February 2019, they lost momentum by mid-May. We observed a repeat but milder outperformance of such stocks as the NDA win became evident,” ICICI Securities said in a note.
“The risk premium (earnings yield spread) of midcaps over largecaps is around an all-time low level although it has widened to average levels for the smallcaps,” it said.
The report further added that in such a scenario, a low-risk premium is unwarranted when aggregate demand is slowing down, which usually results in relatively weaker earnings growth for mid and smallcaps.
As many as 123 stocks in the BSE500 gave positive returns since May 23. Thirteen of them rose 10-30 percent that include Sterlite Technologies, Graphite India, Ashoka Buildcon, Kaveri Seed Company, Astral Poly, Caplin Point and Time Technoplast, among others.