The year 2020 was full of surprises and low beta stocks creating big wealth for investors was also one of those developments that investors didn’t see it coming.
History suggests that high beta stocks outperform in a bulls market, but data suggests that the top wealth creators are low beta stocks if we compare the YTD or year-to-date performance.
Beta refers to a measure of stock volatility in relation to Sensex or the market. If the stock beta is less than 1 it is considered to be less volatile while a beta greater than 1 suggests that the stock is more volatile when compared with an index/market.
High beta stocks are considered to be riskier but usually have high return potential, while low beta stocks pose less risk.
There are as many as 29 stocks with a beta of less than 1 that have rallied 100-800% so far in the year 2020 that include names like Affle India, Navin Fluorine, Suzlon, IOL Chemicals, Adani Green, and Tanla Platforms etc. among others.
Many of the stocks mentioned in the list benefited from either Make in India or Countries seeking an alternative to China, suggest experts.
“It is very unusual for a low beta stock to double in a year but that was how 2020 was. In normal circumstances, high beta stocks will outperform in bull markets and underperform in bear markets,” Atish Matlawala, Sr Analyst, SSJ Finance & Securities told Moneycontrol.
“Our advice to the investor will be to invest in quality stocks with an investment horizon of 3-5 years,” he said.
What will work in 2021?
“CY20 has favoured high growth and beta stocks. Most of the high growth and quality stocks are now ‘priced to perfection’ leaving scope for potential re-rating in value stocks. As we go into CY21 with few vaccines coming in the market it is ideal to play the recovery theme for next year,” Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities told Moneycontrol.
“In this scenario, cyclical sectors and stocks could score over defensives in CY21. Many economy driven stocks fall under the value definition of trading at fair to low valuations. Returns, in CY21, could be broad-based as compared to the wide divergence seen in CY21,” he said.
Oza is of the view returns could also be a function of earnings upgrades and potential of any re-rating which could be higher in the case of value stocks in CY21.
Naveen Kulkarni, Chief Investment Officer, Axis Securities is of the view that value companies tend to have a higher beta in the Indian context. Value has outperformed other styles in 2020. There is a high chance that it will continue to outperform in 2021 also.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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