See FY19 earnings growth at 21%, cautious on metals: Franklin Templeton AIF

The market has been trading rangebound after the recent rally and is attempts to reclaim record high hit last week. The Sensex and Nifty touched a fresh high of 38,076.23 and 11,495.20 on August 9.

"Volatility in the next 12 months is likely in India as well as globally, given the rising interest rate, spectre of higher inflation and trade issues which could intensify," Sundaresan Naganath, President & CIO, Franklin Templeton AIF told CNBC-TV18.

According to him, if the trade war woes simmer for too long, then currencies could depreciate going forward, like in the case of the Turkish lira. "Then currency fall may spill over to debt and then equity. If there is currency volatility and even if it is temporary, then we would be cautious."

Most experts said June quarter earnings were in line or slightly better-than-expected and result growth or recovery would continue going forward.

Naganath sees around 21 percent year-on-year growth in FY19 earnings. "If we see above 15 percent growth, it shows that a lot of improvement is taking place on the ground."

As far as economic growth is concerned, he is optimistic with over 7 percent growth. "Growth will continue next year and beyond as government spending is quite robust and earnings growth strong."

He feels investors should watch out for international cues like tariff war, which may dislocate some supply-chain systems.

Investors with a five-year view, should buy today as it would compound nicely, he stated. "For the next 12-24 months, there would be some air pockets globally which would be watched out for."

According to him, absolute correction of 5-10 percent could be possible during the next 12-24 months, but the Indian equity market is relatively better than other equity classes globally. "I don't see worries for domestic earnings and economic growth."

Given the correction which has been happening for last couple of years, Naganath feels upside in telecom stocks look fairly good.

Even in state-run banks, he feels the upside could be high for the next 36 months. "Corporate lenders have done extremely well and investors are already overweight on these banks for relatively better gains. I would look at larger PSU banks."

Naganath is cautious on metals as a stronger dollar is a negative. "For the next 24 months, if trade war issues linger on, then there could be slow down in global growth. We may remain cautious on the sector for the next 6-8 months until the trade issues get resolved."