The markets are in a flux and investors are confused. The portfolios for many are deep in red and panic is setting in. What’s even more worrying is the expectations for Q4 earnings are building up and the risk of further downgrades is weighing on sentiment. What should be the right strategy now? Samit Vartak, Founder & Chief Investment Officer at SageOne Investment says aim for longer term, identify value picks and focus on median earnings of the portfolio instead of broad Nifty earnings.
In an interview with FinancialExpress.com, Vartak explains why only tracking Nifty earnings could be misleading and how the median value of quarterly earnings provide a more comprehensive picture.
Why do you think the median earnings are a better way to showcase earnings performance?
There are different types of companies which are in the Nifty 50. There is a PSU basket, which is extremely cheap. Banks also are generally, in terms of PE multiple, always cheap. As a fund manager or as an investor, when you are picking stocks, the chance of picking a stock is not higher just because of larger earnings. What happens is that the contribution of PSU basket into earnings is much higher. When you consolidate the entire PSU list, sort of 50 earnings together, and then you take the market cap of new tools divided by the total earnings, you get a much lower PE multiple. But as a portfolio manager, you may have some banks, but you have a lot of other stocks which are generally considered to be long-term, sustainable. As a result, this PE multiples would not make sense, because one may not give 25% allocation to the PSU basket.
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I feel that median is the right multiple. When you analyse the median for Nifty 50, half the companies trade above that multiple, and half below that multiple, and the median right now (mid-February 2025), it’s still at 31 – 32x. So whether you look at the top 100 companies or the Nifty 50 companies, the median is still at 31-32 x. This is the right multiple for any investor you know. It’s always good to look at the median multiple, because it gives you the right picture to pick a portfolio from those stocks.
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