Invest in equities, prospects look good: Franklin Templeton

According to him, equity exposure is definitely warranted. "Prospects of equities look pretty good," he adds.

For the long-term investors, he says, there is case to invest even after the current increase in the market prices. "If you are asking me whether valuation is fair for long-term investors, I think yes because the PE multiple is still below the long-term average," he asserts.

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Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy.

Q: Do you see more upside from here on?

A: I think there should be upside. It is very difficult to predict short-term movements. But we think if the fundamentals continue to improve then earnings growth can surprise positively over a period of time. I think the big upside has to come with the turn in earnings cycle and acceleration in economic growth. That might not come immediately, but is likely over a period of time.

Q: Do you think any of the measures announced, so far, have materially changed the earnings picture for FY13?

A: It is quite unlikely that we are going to see big surprises in the current fiscal year, but it is likely in the second half of next financial year. The companies have to get the benefit of the growth bottoming out and the additional demand coming in, and also some margin expansion because of consolidation. These factors would ultimately contribute to better margins and profitability and earnings growth. But expecting in the current fiscal would probably be too optimistic.

Q: Do you think, even at current levels, it justifies buying the index?

A: If you are asking me whether valuation is fair for long-term investors, I think yes because the PE multiple is still below the long-term average. We had very low earnings growth in the last two-three years. There is possibility that over the next three years earnings growth will be very good.

For the long-term investors, there is case to invest even after the current increase in the market prices. But whether we should expect that there is going to be a big short-term upside, I don’t think so. I think it is going to be a gradual affair. I think some of the policy initiatives have to kick-in in the form of better growth, lower interest and so on.

Q: What have you made of the reform announcements we have made so far? Do you think it will be enough to put India back on the growth trajectory?

A: I think it’s a good start. Obviously, we need to go much further to get the economy growing at 8.5-9 percent. So, some of these initiatives will atleast ensure that we don’t keep continuously slipping. Probably a bottom is visible. But for sustained acceleration in growth, I think more positive initiative will be required. We are hopeful that the government will move in that direction.