Daily Voice: No harm adding telecom stocks but stay away from defence, for now, says Germinate's Santosh Joseph

The bond yields in the US rising while the US GDP also rising is an indication of a couple of things. First, there is still quite an inflationary trend. Second, the GDP doing well shows the inherent strength of the American economy. We are anticipating that the Federal Reserve will step in and start cutting rates and hope that we have a soft-to-stable landing for the economy and not get into a recession as feared earlier.

From an equity perspective, this is the reason why even though the rates are so high and the yields are so high, the US markets have held up well. In spite of all the high rates, if the markets have held well, it shows the strength of the sectors and the GDP of the economy.

Do the rising US yields hint at stagflation?

If we are to look at the situation, we are in with high interest rates and high GDP, very technically speaking, we could say that there is stagflation. But then, sometimes in short bouts, you have these situations going on. But if you give it about two or three quarters, one of the other two things will settle out.

The general expectation is that the yields will soften and the GDP growth will remain steady. Therefore, we should see that kind of adjustment. Considering what we have been through in the last three to four years, it may be a little too early to call it stagflation. We better wait and watch out for how the next two to three years the macro and headline numbers play out.

Which is the segment you're bullish on in the auto space?

Generally, the auto ancillaries are going to be a lot more favoured than the rest. While we have very visibly seen the big tussle between EVs (electric vehicles) and the traditional ICE engines, in some cases, these auto ancillaries are going to benefit, irrespective of this outcome as some key components are going to remain the same and there is going to be a lot of advantage for auto ancillaries which cater to both the sides of the segment.

While the market is yet to settle on who the winner would be, there is a significant pickup in the EV space in the last four to five years. Having said that, auto ancillaries play a very critical part on both sides of the spectrum and are clearly favourite within the auto sector.

Do you see a further drop in bank deposits, considering the increasing flow of money towards stock markets and mutual funds?

Even though we might see some bit of a drop in the share of bank deposits... it's not very significant as yet. We have a long way to go from anything that will make a difference.

Even now, the growth in bank deposit rates is quite steady. We also have to understand that penetration of financial services is still an extremely lucrative and largely unexplored market. While there will be some small changes between deposits to markets directly or indirectly through mutual funds, it's nothing to be alarmed about at the moment. It may take many years before we see a significant difference in money flow, though it will continue to grow steadily year on year.

Is it time to buy telecom stocks? Are the valuations attractive, especially after Vodafone's fundraising?

There is no harm right now to have telecom stocks in the portfolio. Between all the players, there's enough consolidation that's happened over the last few years. We have come to a place where there are critical and limited players managing the entire segment and the sector. Wherever valuations are supportive and wherever the portfolio can accommodate the telecom space, it makes sense to add some right now.

Do you expect defence stocks to continue trading at high valuations?

Defence stocks are expensive and are continuing to ride very high despite high valuations. One will have to look at the opportunity, going forward, considering that the bulk of these orders have been front-ended. At some level, we have to watch out for actual deliveries and growth in numbers. At the moment, if one has got defence, you can continue to hold but adding defence stocks at this level may not be the best option.

Most experts say the market seems to have priced in the Lok Sabha election results but still expects double-digit returns in FY25. Do you agree?

A large part of the market has already factored in the outcome of the elections. There may still be room for the market to grow further if the results favour the leading party. While much of the anticipation has been factored in, there could be a small rally following the disclosure of the actual election outcome. If the results are in line with what the market anticipates, a double-digit return for FY25 is not ruled out.

Which are the sectors likely to surprise in FY25?

There are no surprises anymore. We know clearly that financial services, at some level, healthcare, pharma and consumption sectors are supposed to bounce back. If you see any continued activity in PSUs, or even in the defence and infra, that wouldn’t be a surprise because they're already done very well and they're also holding up high valuations. If they continue to do even better from it, it would be a surprise. From a valuation perspective, banking, IT and pharma all look good, with an expectation of a bullish tendency in the future.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.