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How Do Investors Interpret a Stock’s Beta?

Beta is a measure that reflects how strongly a stock’s price tends to move in relation to the broader market’s movements. It helps investors estimate how much a stock might amplify or dampen the market’s ups and downs when added to a portfolio.

A Beta of 1.0 for a stock means it has been as volatile as the broader market. If the index moves up or down 1%, so too would the stock, on average. Betas larger than 1.0 indicate greater volatility. So if the beta were 1.5 and the index moved up or down 1%, the stock would have moved 1.5%, on average. Betas less than 1.0 indicate less volatility; if the stock had a beta of 0.5, it would have risen or fallen just half a percent as the index moved 1%.

• • Stock
    Invested in
  • Sector
  • Stock
    Invested in
  • % of
    Holdings
  • 1M
    Change
  • 1y highest holding
• • Persistent
    Systems Ltd
  • Software &
    Consulting
  • 27937.9
  • 10.06%
  • 0.52%
  • 10.06% Apr’25
• • Colgate Ltd
  • Gems, Jewellery
    and watches
  • 26298
  • 9.47%
  • -0.66%
  • 9.47% Mar’25
• • Kalyan Jewelers
    Indian Ltd
  • Cables-Electricals
  • 22464
  • 8.09%
  • 0.91%
  • 8.09% Mar’25
• • Polycab India Ltd
  • Consumer Electronics
  • 13800
  • 4.97%
  • 0.57%
  • 10.06% Apr’25
• • Dixon Technologies
    (India) Ltd
  • Speciality Retail
  • 22464
  • 10.06%
  • 0.52%
  • 8.09% Mar’25
• • Trent Limited
  • Telecom- equipment & accessories
  • 26700
  • 4.97%
  • 0.57%
  • 10.06% Apr’25
• • Bharti Hexcom Ltd
  • Financial
  • 22464
  • 10.06%
  • 0.52%
  • 8.09% Mar’25
• • Max Healthcare
    Institute Ltd
  • Technology
  • 26700
  • 4.97%
  • 0.57%
  • 10.06% Apr’25
• • One 97
    Communications Ltd
  • Cables
  • 22464
  • 10.06%
  • 0.52%
  • 8.09% Mar’25
• • KEI Industries Ltd
  • Cables
  • 26700
  • 4.97%
  • 0.57%
  • 10.06% Apr’25

When compared to index performance, a lower beta stock/ portfolio is expected to rise or fall slower than the index. If one is a long-term investor and is tuned to the fact that most global indices have risen over a period of time then having a high beta portfolio may improve the return outlook and vice-versa. The key to achieve good long-term outcomes is to not bring down the portfolio beta when the chips are down because then when the markets reverse, there could be a portfolio drag. Over time consistency in maintaining high beta should result in much better outcomes for the investors when absolute performance is measured at a time when the index is point to point higher and has been rising for some time. Higher earnings growth spaces should be expected to have higher beta. If one believes that markets follow earnings growth, then higher growth in earnings may imply that the stock/portfolio performs better than the market, might result in higher beta. A Nasdaq, with a higher representation of innovative tech companies with higher growth quotient, is more volatile than S&P500, but has historically delivered better return outcomes Calculating from the peak of Tech bubble i.e., Jan 2000 S&P 500 has delivered 4x (from 1454 in Jan 2000 to 5912 on May 29th 2025), while the Nasdaq which was more impacted by the tech bubble burst, has delivered 4.7X returns (from 4070 in Jan 2000 to 19176 on May 29th 2025). In this light it does seem that for a return focussed investor, higher Beta may result in better return outcomes.

The outcomes may improve further, if causes of higher volatility and beta are analysed – retaining the favourable one analysed and eliminating others. For example, higher Beta on higher earnings growth is often viewed positively, as our belief is that markets follow earning growth. However, higher beta on account of higher news flow association with a stock may not be viewed positively. Inconsistency of earnings can lead of higher beta and may not be again viewed positively. Leverage can accentuate earnings volatility and hence beta, and this may work in one period and not in another. We believe that investors should look at reasons for higher beta and choose the names where the reasons of higher beta are good, such as higher sustained longer period earnings growth, for favourable outcomes.

It continues to be time for alpha

Q4 result season is over. While the index earnings growth was better than expected, companies in our house themes has shown significant growth. Our belief is that market follows earnings growth. Month of May reflected relatively better performance of our investee companies compared to the index. We would continue to focus on spaces where earnings growth quotient would be maintained at a higher level. In this period of disruption and innovation when several new spaces such as new tech, electronics manufacturing, renewables, electric vehicles, AI (Artificial Intelligence), etc are emerging, we think chances of delivering alpha by growth focussed investors is favourable.

As we go into the new fiscal, quarterly results would have the support of low base of FY25 and this should enable companies and overall, the market to deliver a low double digit earnings growth vs a single digit growth seen in FY25. We expect our investee companies to deliver significantly better than index earnings growth.

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