2018 The year of promise

Transcription

1 2018 The year of promise January 2018 Tushar Pradhan, Chief Investment Officer

2 We have come a long way in 2017 Source: Kotak Institutional Equities Dec 2017 Key events and performance of the Indian market (Sensex and Nifty-50 Index) in 2017, Investment involves risks. Past performance is not indicative of future performance 2

3 Asset class performance 50 % Returns - Asset Classes - India year G-Sec bond yield 3 year AAA bonds 3 year AA bonds 3 year A bonds BSE Sensex S&P BSE Midcap Real Estate Prices India * ^ -0.9 Gold India Years (Annualised) -10 Source: Bloomberg Dec 2017, * Real Estate Prices - IMF Bloomberg, ^ as at June 2017, 3 years average annual returns Investment involves risks. Past performance is not indicative of future performance 3

4 Global - Equity returns decomposition (%) Global Equity Return Decomposition YTD YTD YTD (ann) Dividend Yield Multiple Expansion Earnings Growth FX USD Total Return Source: HSBC Global Asset Management, MSCI. 1. Profits delivery has explained over 90% of DM equity returns in 2017 YTD 4

5 India - Equity returns decomposition (%) 35 Sensex - Earnings, Multiple, Dividend Yield & Returns (annual) Dividend Yield Multiple Expansion Earnings Growth Total Returns Source: Bloomberg, Dec 2017 Investment involves risks. Past performance is not indicative of future performance 5

6 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 What added to multiples - DII vs FII Inflows FII & DII Inflows (USD bn) 110 FII Inflow DII Inflows Source: Bloomberg, Dec 2017 Investment involves risks. Past performance is not indicative of future performance 6

7 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 Equity vs Debt FII Inflows FII Inflows (USD bn) 35.0 FII Equity FII Debt Source: Bloomberg, Dec 2017 Investment involves risks. Past performance is not indicative of future performance 7

8 Capital raising at peak Primary issuances (IPOs) INR bn Source: Bloomberg, Dec 2017 Investment involves risks. Past performance is not indicative of future performance Value INR bn (LHS) No of deals (RHS) 173 deals of 692 INR bn 8

9 Broad rally 49% of BSE500 stocks gave >40% returns in % % 28% 30% % % % 15% 40 11% 9% 10% 20 7% 5% Negative 0-10% 10-20% 20-50% 50 to 100% > 100% 0% No. of Stocks (LHS) % of Stocks (RHS) Source: Bloomberg, Dec 2017 Investment involves risks. Past performance is not indicative of future performance 9

10 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 GDP growth Onus is on government to revive investments GDP growth (y-o-y): expenditure components Industrial production and manufacturing PMI IIP growth (LHS, %) PMI Manufacturing (RHS, X) (5) Private consumption GFCF Valuables Government consumption Change in Stocks Net exports (10) Discrepancies GDP growth (2) 44.0 Source: Bloomberg, CEIC, GDP growth - Trend of contribution of various components to GDP growth, March fiscal year-ends, (%), HSBC Global Asset Management, Data as at Oct 2017, Trend of IIP growth and manufacturing PMI, March fiscal year-ends, (%, X) 10

11 Indian bond market yields Indian government yield curve Yield to maturity (%) Dec Y 2Y 3Y 5Y 6Y 7Y 8Y 9Y 10Y 12Y 15Y 30Y Source: Bloomberg, Other data as at Dec

12 Current Account Deficit (CAD) CAD Structurally sustainable Oil and gold imports (y-o-y%) CAD (% of GDP) % 9.0% % % Expected 6.0% % 4.0% % % 1.0% % Oil Imports Gold Imports Bloomberg, World Bank Data, CAD - CEIC, HSBC Global Asset Management, data as of Nov 2017 Note: Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets. For illustrative purpose only 12

13 Jan-03 Sep-03 May-04 Jan-05 Sep-05 May-06 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17 Sep-17 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Inflation target achievable RBI s inflation target is achievable Core inflation remains sticky % y-o-y 12.0 % y-o-y CPI WPI RBI target: 4% +/- 2% CPI WPI Source: CEIC, Bloomberg, HSBC, Nov 2017 Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets. For illustrative purpose only. Investment involves risks. Past performance is not indicative of future performance 13

14 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Yields vis-à-vis policy rate and inflation 10 year G-Sec vs policy rate Real rates (Policy rate CPI inflation) y yields Policy rate Source: Bloomberg, data as of Dec 2017, Investment involves risks. Past performance is not indicative of future performance 14

15 Reforms pave way for growth

16 The government s big initiatives Higher public investment Higher outlays for rural India New mechanisms for crowding in private investment Making Make in India possible Ease of doing business; Bankruptcy code Skilling India Decentralising decision-making and spending Untied funds to states Better targeting of subsidies The JAM trinity (Jan Dhan, Aadhar and Mobile) Direct transfer for fertilisers as well Tax reforms GST bill has been approved New institutions Inflation targeting via new Monetary Policy Committee Public debt management office 16

17 The government reforms checklist Governments reform GST - It will combine most of India's state and local taxes into a streamlined tax system Deregulate Diesel Pricing Allow more than 50% foreign investment in Railways Allow foreign investment in more construction projects Fully open the coal mining sector to private/foreign investment Extend the expiration date of industrial licenses Make it quicker and easier for companies to go through bankruptcy Remove sectoral investment limits Conduct transparent auctions of telecom spectrum Status Complete Complete Complete Complete Complete Complete Complete Complete Complete Allow more than 50% foreign investment in Defense Allow more than 50% foreign investment in Insurance Direct cash payments programs, such as pension Use Direct Benefit Transfer to deliver cash subsidies Deregulate Natural Gas Pricing Reduce restrictions on foreign investment in multi-brand retail Allow more than 50% foreign investment in direct retail e-commerce Stop forcing banks to lend to priority sectors In Progress In Progress In Progress In Progress In Progress In Progress In Progress In Progress Source: CSIS, August

18 What to expect in 2018

19 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Sensex earnings SENSEX Index Earnings Per Share Source: Bloomberg, data as of Dec 2017 Investment involves risks. Past performance is not indicative of future performance, PE Price to earnings, EM Emerging markets 19

20 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 Valuations Sensex PE vs PB Valuations : Sensex PE vs PB SENSEX - P/Bk (L1) SENSEX - P/E Ratio (R1) Source: Bloomberg, data as at Dec 2017 Investment involves risks. Past performance is not indicative of future performance, EM Emerging Markets, P/E Price to Earnings, P/B Price to Book 20

21 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 Nov-17 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 Nov-17 MSCI India PE vs MSCI EM against historical averages MSCI India PE vs EM with historical averages MSCI India PE MSCI India PE Avg. MSCI EM PE MSCI EM PE Avg. MSCI India PE vs EM premium with historical averages 120% 100% 80% 60% 40% 20% 0% -20% PE Premium to EM (%) PE Premium to EM Avg % Source: Bloomberg, data as of Dec 2017 Investment involves risks. Past performance is not indicative of future performance 21

22 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E Valuations India Market cap to GDP (%) Average of 78% for the period Source: Bloomberg, data as of Dec 2017 Investment involves risks. Past performance is not indicative of future performance 22

23 Cyclicals valuations starting to normalise 2.0 India Cyclicals to defensives P/B gap Taper tantrums -4.0 Global Financial Crisis -5.6x now Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Source: Credit Suisse, as of Sep

24 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 MSCI India PE relative to MSCI EM and MSCI Asia ex Japan MSCI India PE vs EM premium with historical averages 120% 100% 80% 60% 40% 20% 0% -20% -40% PE Premium to EM (%) PE Premium to EM Avg % PE Premium to Asia Ex Japan (%) PE Premium to Asia Ex Japan (%) Avg. 24 Source: Bloomberg, as of Dec 2017 Past performance is not indicative of future performance

25 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 ROE Trend of Indian stocks (%) MSCI India ROE Trend vs other regions MSCI India Best ROE MSCI EM Best ROE MSCI Asia Ex Japan Best ROE MSCI World Best ROE MSCI BRIC Best ROE Source: Bloomberg, as of Dec 2017 Investment involves risks. Past performance is not indicative of future performance 25

26 Disclaimer This document has been prepared by HSBC Asset Management (India) Private Limited (AMIN) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. All information contained in this document (including that sourced from third parties), is obtained from sources, which AMIN/ third party, believes to be reliable but which it has not been independently verified by AMIN/ the third party. Further, AMIN/ the third party makes no guarantee, representation or warranty and accepts no responsibility or liability as to the accuracy or completeness of such information. The information and opinions contained within the document are based upon publicly available information and rates of taxation applicable at the time of publication, which are subject to change from time to time. Expressions of opinion are those of AMIN only and are subject to change without any prior intimation or notice. It does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies that may have been discussed or recommended in this report and should understand that the views regarding future prospects may or may not be realized. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Copyright. HSBC Asset Management (India) Private Limited 2018, ALL RIGHTS RESERVED. HSBC Asset Management (India) Private Limited, 16, V.N. Road, Fort, Mumbai Mutual fund investments are subject to market risks, read all scheme related documents carefully. 26