What sensational did you miss this week?Repo rate has been kept unchanged by RBI at 6.5%.All edible oil associations are directed by the Indian Govt. to reduce the MRP of major edible oils by Rs 8-12 per litre from immediate effect, to make them parallel with international market prices.What can you learn from this?Identify the relation between Repo rate and stock market movements (Index) by analyzing the historical trends.Looking for fundamentally sound edible oil companies, which are listed in the stock market. With this direction, government risk comes into picture in the edible oil sector.Upcoming IPOs: IKIO Lighting IPO was subscribed 67.75 times overall, with QIB subscription at 163.06 times, NII at 65.38 times and retail at 14.31 times. Listing date of IKIO Lighting is 16th June 2023. Current Grey Market Premium stands at Rs 122 apiece. Not to miss updates:NSE has shifted Nifty Bank F&O expiry to Friday. The new rule will be applicable for trades w.e.f. 7th July and first Friday expiry would be on 14th July 2023.Video in FocusSupreme Court verdict on Adani is out! Is he really innocent, Check here!Market Outlook this coming week! |
Nifty50 : This Week |
Story of the Week: Significance of Alpha and Beta in Investing |
If you want to whether the stock you’re holding is a volatile stock or not then you simply have to check the beta of the stock. |
But what is Beta and how to use Beta? In investing, “beta” refers to a measure of a stock’s volatility in relation to the overall market. In more simpler words, it assess the risk associated with a particular investment. It also provides an indication of how volatile or stable an investment is compared to the overall market. Beta compares the price movement of a specific asset and the price movement of a benchmark index, typically the broader market index such as the Nifty 50 or Sensex. |
How much should ideal value of beta be? If beta is greater than, 1 it implies the investment (stock) is more volatile than Nifty50. Conversely, if beta is less than 1 it means the stock is less volatile than Nifty 50. To summarize, higher the beta – higher the stock volatility and lower the beta ā lower the stock volatility. Let’s understand it better through a couple of examples: |
Case 1: Beta is 1.5 If market experiences a positive movement, let’s say a 10% increase, the stock with a beta of 1.5 would be expected to move 1.5 times as much. So, the stock would likely increase by 15%. Similarly, if market undergoes a negative movement, such as a 10% decline, the stock with a beta of 1.5 would be expected to move 1.5 times as much in the same direction. Therefore, the stock would likely correct by 15% (1.5 times of 10%). |
Case 2: Beta is 0.5 If market experiences a positive movement, let’s say a 10% increase, the stock with a beta of 0.5 would be expected to move half as much. So, the stock would likely increase by 5% (0.5 times 10%). Similarly, if market undergoes a negative movement, such as a 10% decline, the stock with a beta of 0.5 would be expected to move half as much in the same direction. Therefore, the stock would likely correct by 5% (0.5 times 10%) |
What is Alpha ? Alpha is a metric used to assess the performance of an investment relative to a benchmark index. It represents the excess return generated by an investment after taking market’s movement into consideration. A positive alpha indicates that the investment has outperformed the market or the benchmark, while a negative alpha suggests underperformance. An alpha of zero means the investment has performed in line with the market. |
So one can check both alpha and beta of stocks they have invested into. This will help you strike a better balance between the risk and return. |
You Ask, We Deliver: Fundamental Analysis of VA Tech Wabag Ltd. Requested by: Manan from our stock market program ISMA 2.0INDUSTRY : UTILITIES: NON ELECTRICAL About the company: Va Tech Wabag provides water recycling & reuse solutions for municipal (leading to 75% of its revenue) and corporate client both technical as well as commercial. Its principal activities include design, supply, installation, construction and operational management of drinking water, waste water treatment, industrial water treatment and desalination plants. It is head quartered in Chennai with its global presence in 4 Continents and around 25+ countries. |
Globally Recognized Water Leader WABAG ranked 3rd Globally by Global Water Intelligence (āGWIā), United Kingdom for ensuring safe and clean drinking water and healthy environment for over 88 million people. The company was also recognized amongst the Global Top 10 desalination players. |
Robust Order Wins Order book is at over Rs. 13,200 Cr for FY23 a growth of 31% YoY providing robust revenue visibility.The company recently also secured an order worth Rs 420 Cr for the design, build, and operation (DBO) of a water treatment plant order from CIDCO Maharashtra. Due to this there was massive run up in the share price recently. |
Asset light business model The companyās business model is asset light as it outsources the construction of water projects that requires high capital. Due to this the company has very low debt to equity of 0.14 times and is able to deliver higher return ratios of above 15% despite hailing from a capital intensive business. |
Reported highest operating margins The company has reported highest operating margins of 11% compared to the past. This is due to higher international projects. |
What does it’s financial sheet say? |
Pros:Has a good brand loyalty.ROCE 5Yr is 14.4% which is okay, but not exceptional.Compounded Profit Growth 5yrs is 17% which at par with Nifty50.Free Cash Flow of past 5 Yrs is ā¹ 372 Cr, which is a good sign.Public participation has decreased for past 3 qtrs. , where as FII participation has increased which is good. Except FY23, past 5 year EPS trend is positive. Debt to Equity ratio is at 0.14 which implies the company has very less debt.Interest Coverage ratio is 5.65 which is decent, overall.Cons:Has heavy RnD risk.Sales growth of past 5 Years is -3.05%, which is very concerning.Other Income is a significant contributor in past 2 of 5 years (except FY23), which is little concerning but the loss reported under exceptional items in FY 23 is more concerning.Sales of the company has almost remained the same for the past 5 years.Company hasn’t paid out dividends since FY20.Promoter holding is at 19.1% with zero promoter pledging which is concerning, as promoters have exited from this small cap stock. |
Technicals: The short term outlook of this stock is overvalued as per indicators. |
Valuation: It is very much above its 200 Daily Moving Average (DMA), thus overvalued for a short term. Since it comes into a sector of Non electrical capital goods, where there are completely different companies or industries, a sectoral PE comparison would be inefficient. |
Verdict: The company has decent fundamentals with experienced management team. But the only risk is that there are lot of government clients, and such company usually has a long working capital cycle. Its high valuation also suggests that it is not the right time no to make a position in it. |
Want your question/query/doubt to be answered next? Submit by clicking button below!Question of the Week #20Replies with correct answers (within first 10 mins of receiving this newsletter), will get a shoutout from us…PS: Don’t forget to share your Instagram handle too in the reply Q. Choose the right lot size of Nifty50 and Nifty Bank Options contracts respectively (present).25, 1550, 2550, 1525, 25Answer to Week#19 was Option 1: Offer for Sale means Existing promoters or larger shareholders of a company offer their shares for sale to the public through a stock exchange. **Make sure you note your choices somewhere as we’ll covering the answers in our next issue… |
Word of the weekKostak Rate: It is the profit one can have by selling their IPO application even before the allotment or listing of the stock/issue. It is a fixed price irrespective of the fact the applicant gets the allotment or not. |
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Date: Friday, 15th November at 7:30PM IST
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