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Market at bottom of economic cycle and valuations are at peak, says Samit Vartak

Updated : December 16, 2020 18:13:36 IST

Samit Vartak, Founder and CIO of SageOne Investment Advisors is of the view that the market is at the bottom of the economic cycle and valuations are at their peak.

In conversation with CNBC-TV18, Vartak explained, "Generally, the [market] peak coincide with peaks in the economic cycle as well as the peaks in valuations. I think this time it is different because you are [market is] almost at the bottom of the economic cycle and valuations-wise you are [market is] at the peak."

Speaking about the market, he said, "The big cycle was in 2008 where there was a huge boom in the [corporate] capex cycle. Today it is exactly the opposite. You are seeing almost deleveraging of balance sheets."

According to Vartak, today the net-debt equity ratio is the lowest and cash flows from operations are at 50 percent more than net profit.

"The net debt to equity ratio for the broader market today is at 0.4 times which is the lowest we have seen in the last 20 years. Interest cost as a percentage of sales which used to be 3 percent at the start of this century, today is at 1.3 percent; the lowest we have seen. The more important thing is the cash flow from operations today is at 50 percent higher than the net profits. In 2008 peak, they were well below net profits. So one has to identify that the balancesheet has improved a lot and at the same time our biggest problem was availability of credit. That is the reason it has dragged the growth of economy because without credit there is no growth possible," he said.

Watch the video for the complete interview.
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