Focus to remain on volumes growth in the consumer goods market

The Indian consumer sector is a long-term growth opportunity led by growing incomes and increasing propensity to spend. Within this segment, Nomura Equity Research prefers the under-penetrated food sub-sector for stock market investors

The results of consumer goods companies for 3QFY13 are largely in line with expectations, while there is some slowdown in volumes growth, observes Nomura Equity Research analysts in their report on the consumer sector. Overall sector revenue growth excluding Titan and Asian Paints was 16%, largely in line with expectations. Within this, Hindustan Unilever, Colgate and Marico disappointed, and Dabur and Nestle performed as expected, while Emami surprised on the positive side.  


According to Nomura analysts, the India consumer sector is a long-term growth opportunity led by growing incomes and increasing propensity to spend. Within this segment, the analysts prefer the under-penetrated food sub-sector. Gross margin performance was mixed, with food companies Nestle and GSK Consumer both showing significant improvement, while Hindustan Unilever and Colgate saw gross margins decline on a year-on-year basis. Gross margins at Emami and Jubilant Foodworks were largely flat on a year-on-year basis. The analysts believe that input costs are not a significant issue at least over the next couple of quarters. Further, their demand commentary for the consumer market is cautious, with most companies talking about some signs of consumer slowdown. Consequently, EBITDA margins are presenting a mixed picture, and the poor trends in performance are likely to continue.


A&P (advertising and promotion) expenses have seen an upswing on a sequential basis, which is expected to continue over the next couple of quarters. Marico, Dabur and GCPL (Godrej Consumer Products) are examples of the trend.


Nomura favours companies where there is potential to gain market share such as Godrej Consumer, Emami Jubilant Foodworks and also ITC.


Is ‘Beta’ a reliable measure of risk?

ITC, which is a low beta stock that has given a return higher than the Sensex over a period of the last six months, highlights the fact that it should actually be a high beta stock

The word beta is a very commonly used term in the Indian stock market. Analysts are often found recommending low beta stocks for conservative investors, while high beta stocks are recommended for risk-savvy investors. What is the logic for this recommendation?

By and large, beta is a measure of a stock's volatility in relation to the market. The market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than 1.0.  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.

It is important to understand that though beta is a measure of risk, it also has return element built into it. This aspect gets validated by what is mentioned on National Stock Exchange (NSE) website (, “The Beta factor describes the movement in a stock’s or a portfolio’s returns in relation to that of the market returns. For all practical purposes, the market returns are measured by the returns on the index (Nifty, Mid-cap, etc.), since the index is a good reflector of the market.”

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Does this logic hold water in the case of all stocks? If an investor purchases a low beta stock, is he essentially going to get low return with low risk? Basically, how reliable is beta as a measure of risk? How can it be related to the movement of an underlying stock? To test this concept, I analysed the data of the ITC stock vis-à-vis BSE Sensex. It is pertinent to note that ITC is one of constituents of the Sensex and hence it can be used for the purpose of arriving at beta. The time-frame selected for this purpose was 24 August 2012 to 21 February 2013, which corresponds to the last six months of stock market movement and also this period has experienced good volatility.

The beta calculated for this period for ITC works out to be 0.58. The beta has been arrived by using the ‘slope’ function in Excel and also validated by ‘Covar’ and  ‘Varp’ functions, which are based on the derivation of beta value as “Covariance of return on stock, market/variance of market”. Regression analysis also gives the same result in case of beta to be derived for ITC. The result derived from the regression analysis is attached below:



Standard Error

t Stat





BSE returns





The beta of ITC derived on the basis of each day’s closing price of ITC and closing value of the Sensex are good enough to prove that ITC is a low beta stock and no wonder ITC is often referred as an example for low beta stock suitable for risk-averse investors. But another interesting aspect that comes out from this analysis is little startling and challenges the concept of beta. ITC, which is a low beta stock that has given a return higher than the Sensex over a period of the last six months, highlights the fact that it should actually be a high beta stock. (This is not just the case for the six-month period but also holds valid for a longer term data analysis).

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Let us understand this with the help of a scenario analysis. The Sensex closed at 17,783 on 24 August 2012 and moved up 19,325 on 21 February 2013.This means that the Sensex has given return of 8.67% while ITC during the same period has moved from 265.15 to 296.50, which means the return given by ITC is 11.82%.  The daily average return given by the Sensex for the same period is 0.067%, while ITC for the same period gave a daily return of 0.09%. If ITC has given higher return than the Sensex during a period, its beta should be more than one and not less than one, which is the case practically.

What does the ITC experience suggest? An investor needs to look at not only beta but also standard deviation to understand stock price behavior. It is important to note that ITC for the same period has a standard deviation of 1.25%, while the Sensex has a standard deviation of 0.67%. This shows that ITC, which is a low beta stock, is actually having a high risk in terms of standard deviation and that is what explains the higher return provided by it over a period of six months. A higher standard deviation indicates that a stock will move more from the mean and hence, will have high risk and potential higher return compared to the benchmark. The ITC experience shows that a low beta stock need not be a less risky one and may defy the logic of beta itself.

Other stories by Vivek Sharma




4 years ago

1)Investing in stocks is all about trying to figure out what we can get from a stock (earnings & dividends) during its lifetime & during our life time as an investor.

2) If fundamentals are intact, a stock becomes less risky not more after a fall in price.

3) It would be a mistake, not to buy more of a stock just because it has fallen more than the benchmark.

. . .Beta doesn't consider the above.

- Risk doesn't come from Beta, but, as the legendary investor Warren Buffet said " Risk comes from not knowing what you are doing".



In Reply to Nilesh KAMERKAR 4 years ago

oops ... sorry for the spelling mistake. Please read it as Warren Buffett.

vivek gujrati

4 years ago

There is misconception about beta. Beta defined risk of the business and Rsquare define dependency of stock performance vis a vis Index which is ignored by most analyst. Prof. Aswath Damodaran (Stern Business School, NYU) has given very detailed analysis for the same.

Beta depends on three factors:

1-In what business company operating; ( discretionary business has high beta )
2- How much debt Co. have ( higher the debt higher the beta)
3- How much fixed cost company have ( Good time profit improve but in bad time it reduce profit)

Regression beta does not surve any purpose it is backward looking or like a post morterm.

ITC can have low beta but the way it is diversfying its business low beta can not prevail for long term.

Hotel business demand huge capex and high fixed cost component, Paper is another capital intensive business with low margin segment, they entered into stationery business as well where ROE is relatively low. Tobacoo business globally low beta business because of addiction while other business ITC entering into high risky segment with low ROE business. Hence above approach is wrong to judge it is defensive.


vivek sharma

In Reply to vivek gujrati 4 years ago

The above analysis does not suggest that ITC is a defensive stock. In fact, it suggests that ITC should not be considered a low beta stock.

The article is trying to highlight that concept of beta gets contradicted in case of ITC. As per calculation , ITC is a low beta stock however practically it should be a high beta stock.

Also please read Aswath Damodaran again. In his book ,' Damodaran on Valuation' ( Second edition, page number 48-49)he writes that beta estimation done on the basis of regression method is used for publicly traded company and is also much reliable than APT approach.

vivek gujrati

In Reply to vivek sharma 4 years ago


Link of Aswath Damodaran Blog and Beta.... PLz go through once again. He focused on Bottom up beta approach to calculate business beta...

vivek sharma

In Reply to vivek gujrati 4 years ago

Thanx for attaching relevant document documents.

Read slide number 66 ( which says ,'Estimate the beta using the standard deviation in stock prices instead of a regression against an index'. This is what I have also written.

However there is a limitation also. ITC being a almost debt free company , this approach cannot be completely replicated.

Life of Pi at Oscar: Namaste! Ang Lee gets the Academy for best director

While Ang Lee was adjudged the best director, the movie 'Life of Pi' won three other Oscars, for best original score, cinematography and special effects

Taiwanese-American Ang Lee beat master directors like Steven Spielberg (Lincoln) and Michael Haneke (Amour) to take home the best director Oscar for “Life of Pi”, his visually stunning 3D tale of an Indian boy adrift in the ocean for 227 days with 'Richard Parker', a Bengal tiger.


Lee, for his second Academy award, beat Spielberg, Haneke, David O Russell (Silver Linings Playbook) and indie filmmaker Benh Zeitlin (Beasts of the Southern Wild) in the directing category.


Before ending his speech with a 'Namaste', Lee said, “I really need to share this with everybody who worked in ’Life of Pi’. I need to thank Yann Martel for writing this marvellous book".


Ang Lee, an Oscar nominee for five times, earlier won the Academy for his 2005 gay cowboys’ drama ‘Brokeback Mountain’. His 'Crouching Tiger, Hidden Dragon' was nominated for best picture and directing honours, similar to 'Life of Pi'.


Claudio Miranda won the best cinematography trophy for his stunning camera work in the 3D movie. 'Life of Pi' also won in the visual effects (VFX) category with Joe Letteri, Eric Saindon, David Clayton and R Christopher White taking home the golden statuette. The team paid tribute to the Rhythm & Hues, the company behind the VFX, which has filed for bankruptcy.


Music director Mychael Danna won the Oscar in the Best Original Score category for 'Life of Pi'. Dana had previously worked with Indian origin filmmakers Deepa Mehta for ‘Water’ and Mira Nair for ‘Monsoon Wedding’. Recently, he won a Golden Globe for his score for 'Life Of Pi'.


Lee made several trips, including one to promote the film, to India to research and cast the movie. He chose the then 17-year-old newcomer Suraj Sharma to play the lead from 3,000 hopefuls.


During his trip to Mumbai, Lee had said that he felt a sense of belonging to Pi’s journey, which somehow mirrored his own struggles to direct the technically superb spectacle.


The filmmaker, who is behind genre-defying movies like 'Sense and Sensibility', 'Crouching Tiger, Hidden Dragon', 'Hulk' and 'Brokeback Mountain', also credited destiny for bringing the movie to him after it changed hands with many directors.


Here is the complete list of winners from Oscar 2013


BEST PICTURE: Argo, Grant Heslov, Ben Affleck and George Clooney, Producers

BEST ACTOR: Daniel Day-Lewis, Lincoln

BEST ACTRESS: Jennifer Lawrence, Silver Linings Playbook

BEST SUPPORTING ACTOR: Christoph Waltz, Django Unchained

BEST SUPPORTING ACTRESS: Anne Hathaway, Les Miserables

BEST ORIGINAL SONG: “Skyfall', Skyfall



BEST DIRECTOR: Ang Lee, Life of Pi

BEST ORIGINAL SCREENPLAY: Quentin Tarantino, Django Unchained


BEST CINEMATOGRAPHY: Claudio Miranda, Life of Pi

BEST COSTUME DESIGN: Jacqueline Durran, Anna Karenina



FILM EDITING: William Goldenberg, Argo

MAKEUP AND HAIRSTYLING: Lisa Westcott and Julie Dartnell, Les Miserables

BEST ORIGINAL SCORE: Mychael Danna, Life of Pi

BEST PRODUCTION DESIGN: Rick Carter and Jim Erickson, Lincoln

BEST ANIMATED SHORT: Paperman, John Kahrs

BEST LIVE ACTION SHORT: Curfew, Shawn Christensen

BEST SOUND EDITING: [tie] Per Hallberg and Karen Baker Landers, Skyfall; Paul NJ Ottosson, Zero Dark Thirty

BEST SOUND MIXING: Andy Nelson, Mark Paterson and Simon Hayes, Les Misérables

BEST VISUAL EFFECTS: Bill Westenhofer, Guillaume Rocheron, Erik-Jan De Boer and Donald R. Elliott, Life of Pi


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