HSBC Mid-month Equity Investment Strategy Release Date: 21 September 2011 For distributor / broker use only
2 Market Performance Markets were relatively stable during the first fortnight of September 2011 given the assurances given by various authorities in addressing the sovereign crisis in EU. All indices were up 1-1.5% in the given period. Performance of key indices - Aug 31- Sept 15, 2011 1.60% 1.40% 1.20% 1.49% 1.49% 1.40% 1.37% 1.20% 1.15% Markets flattish % Return 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% S&P CNX NIFTY MID-CAP 500 Indices 200 SENSEX 30 SMALL- CAP Sectorally, Consumer Durables and Oil and Gas were the best performing indices, while Healthcare and Capital Goods underperformers. Consumer Durables and Oil and Gas outperform 6.00% 5.00% 4.00% 4.89% Sectoral Performance - Aug 31- Sept 15, 2011 4.50% 4.02% % Return 3.00% 2.00% 2.29% 1.66% 1.45% 0.83% 0.81% 1.00% 0.00% -1.00% Cons. Dur. Oil & Gas AUTO REALTY IT BANKEX Sector Indices FMCG METAL HEALTHCARE CapGoods -0.20% -0.34% Portfolio Strategy Consumer discretionary: Neutral. For the month of August 2011, domestic Passenger Vehicle sales were down 6% YoY while Medium Heavy Commercial Vehicle (MHCV) sales were up 10% YoY. At the same time two-wheeler sales were up 16% YoY and Light Commercial Vehicle (LCV) sales were up 34% YoY respectively. Overall growth in FY12 is likely to remain subdued led by Passenger Vehicles and MHCV sales (expected to post lower single digit growth) whereas we expect LCV and two-wheeler sales to register a growth of about 15% each. Consumer staples: Neutral. We have slightly trimmed exposure to this sector on account of high valuations. Energy: Overweight. Reforms are inevitable. Further demand concerns in the Western world could lead to crude oil prices lowering. We prefer to take exposure to the sector through upstream/e&p and refining companies.
3 Healthcare: Underweight. Valuations and regulatory issues (increased FDA inspection) remain headwinds. Financials: Underweight. We have maintained our underweight stance expecting credit growth slowdown, margin pressure and asset quality strain in the current high rate environment. Maintain preference for high quality private sector banks over PSU banks. Industrials: Neutral. We have reduced our exposure to the sector given the slowdown in capex spending in the recent months. Information Technology: Overweight. While we maintain our overweight stance in this sector, but would keep a watch on any further deterioration in the global outlook which could impact IT spend. Materials: Underweight. We maintain our underweight stance on this sector on account of early signs of a global slowdown. We prefer to play the sector through companies having exposure to base/non-ferrous and precious metals and domestic cyclicals (coal, cement, etc.) Telecommunication: Overweight. We maintain our exposure to the sector on account of its defensive nature. Utilities: Underweight. While we maintain our underweight stance but have added gas utilities on account of steady earnings profile and reasonable valuations. Market Outlook IIP slowing Index of Industrial Production (IIP) for the month of July 2011 up 3.3% YoY was lower than market expectations. The key disappointment was Capital Goods which contracted by 15% as against a growth of 38% in June 2011. However, we remain positive on the India growth story from a long term perspective with strong intrinsic fundamental drivers favorable demographics, strong consumption growth, massive infrastructure spending requirement and a sound central banking system. We would thus advise investors to take advantage of short term volatility in the markets and increase exposure in periods of sharp correction. Market data sources: Reuters, Bloomberg, and Telerate
HSBC Mid-month Fixed Income Investment Strategy Release Date: 21 September 2011 For distributor / broker use only
Market Assessment Domestic bond markets remained range bound through the first fortnight of September 2011. Mixed macro economic data releases on the domestic front, fragile global economic scenario and Reserve Bank of India s Mid-Quarter Monetary Policy which raised benchmark rates by 25 bps, kept the market on the sidelines. Economic Data Inflation numbers remain sticky amidst volatile IIP prints The Index of Industrial Production (IIP) growth fell to 3.3% YoY in July 2011, much below than market expectations of 6.2%. The steep fall was primarily due to a sharp contraction in Capital Goods output. Capital Goods production for the month of July 2011 contracted by 15.2% YoY, as against an upwards jump of 38.2% in June 2011. If one was to exclude the volatile Capital Goods segment, then IIP reflects a 6.7% YoY growth for the month of July 2011. Consumer Goods production improved in July 2011, possibly reflecting early signs of favourable monsoon and onset of the festive season. Wholesale Price Index (WPI) inflation for August 2011 at 9.78% was higher than market expectation of 9.64% and July 2011 value of 9.22%. The latest value reverses the declines in monthly inflation witnessed in past four consecutive months. Food inflation rose to 9.10% YoY in August 2011 up from 8.00% in July 2011. Whereas core inflation continued its upward trajectory, rising to 7.80% in August 2011 as against 7.60% in July 2011. Inflation continues to remain elevated justifying RBI s stance of remaining focused towards controlling inflation and inflation expectations. 5 Market Activity Policy action by RBI G-Sec yields trade range bound Corporate bonds remain under pressure Money market rates remained steady Global Economic Scenario Global weakness, looks here to stay Based on its inflation concerns, RBI has continued with its anti-inflationary policies. However, concerns on global economic environment and the slowing down of domestic demand, the latter of which the monetary policy is also contributing to, have been acknowledged. The current hike is expected to reinforce the impact of past policy action to contain inflation and anchor inflationary expectations. The impact of previous monetary policy actions, along with current action are expected to moderate demand and reverse inflation trajectory. Sovereign yields remained range bound through the first fortnight of September 2011. Higher than expected inflation and the anticipation of the monetary policy meet resulted in gradual hardening of yields going into the credit policy. The outcome of the policy (hike in benchmark rates by 25bps) was widely expected by the markets. Corporate bonds continued to remain under pressure as high spreads against bank base rates have induced higher demand from issuers. Moreover, expected tightness in liquidity on the back of seasonal tax outgoes would also imply pressure on the credit curve. The money market curve moved up marginally throughout the first fortnight of September 2011 on the back of limited demand and regular supply in the Certificate of Deposit (CD) segment. One year CD rates moved up by 5 bps during this period. Recent action by major central banks led to some rebound in the global markets. The European Central Bank (ECB) in coordination with the Federal Reserve and other central banks announced that they will conduct three separate USD liquidity operations to provide USD based liquidity and ease potential funding strains around year-end. The operation is part of the Federal Reserve's dollar liquidity swap arrangements, which was majorly used in the aftermath of the Lehman collapse and were recently extended
through August 1, 2012. This news led to some unwinding of flight to safety trades resulting in hardening of US Treasuries and weakening of the USD. Moreover, US inflation continued to remain firm as Consumer Price Index (CPI) rose 0.4% in August 2011 while core CPI rose by 0.2%. Markets will watch out for the Federal Open Market Committee (FOMC) meet scheduled for September 21, 2011 for any further announcements on Operation Twist or any other form of liquidity easing measures which could trigger further upward mobility to commodities and hence stoking inflation. Going Forward The recent outcome of the RBI s Mid-Quarter Monetary Policy would lead us nearer to the end of rate hiking cycle. The recent turmoil in the global markets has not deterred the crude prices and in the event of FOMC announcing any form of liquidity easing measures, commodity prices would continue to remain elevated. Moreover, domestic inflation for the month of September 2011 (to be released on October 14 2011) is expected to be above 9%; ensuring a strict vigil by RBI. The next auction is scheduled in the month of October 2011 leading to some respite from fresh supplies on the sovereign curve. In the absence of any major event / data release we expect G-Secs to remain range bound through the remaining part of September 2011. The moderating language reflects that we are closer to peak of interest rate cycle. Government securities and corporate yields in the shorter maturities should move lower progressively. Corporate yields may face some issuances pressure. Our Bond funds and MIPs have been focusing on selectively building duration. We are focused on up to 5 years maturities in these funds. HSBC Income Fund STP should benefit due to easing of yields in short maturities. 6 Market data sources: Reuters, Bloomberg, and Telerate
Disclaimer 7 This document has been prepared by HSBC Asset Management (India) Private Limited (HSBC) 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 HSBC, the third party believes to be reliable but which it has not independently verified and HSBC, 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 HSBC only and are subject to change without 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. Mutual fund investments are subject to market risks. Please read the Scheme Information Document and Statement of Additional Information carefully before investing. Copyright HSBC Asset Management (India) Private Limited 2011. ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Asset Management (India) Private Limited. HSBC Asset Management (India) Private Limited; 314, D. N. Road, Fort, Mumbai 400 001. Tel: 6614 5000. Email: hsbcmf@hsbc.co.in. Investors may obtain Scheme Information Document, Scheme Additional Information and Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314 D. N. Road, Fort, Mumbai 400 001. Tel: 022-6666 8819. Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs 1 lakh). The Sponsor/associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC Income Fund (HIF), HSBC Gilt Fund (HGF), HSBC Cash Fund (HCF), HSBC Ultra Short Term Bond Fund (HUSBF), HSBC MIP (HMIP), HSBC Floating Rate Fund (HFRF), HSBC Flexi Debt Fund (HFDF) are only the names of the Schemes and do not in any manner indicate the quality of the Schemes or their future prospects or returns. Scheme Classification & Investment Objective: HIF (an open-ended income scheme) aims to provide reasonable income through a diversified portfolio of fixed income securities. The AMC s view of interest rate trends and the nature of the Plans will be reflected in the type and maturities of securities in which the Short Term and Investment Plans are invested. HGF (an open-ended gilt scheme) aims to generate reasonable returns through investments in Government Securities of various maturities. HCF (an open-ended liquid scheme) aims to provide reasonable returns, commensurate with low risk while providing a high level of liquidity, through a portfolio of money market and debt securities. HUSBF (an open-ended debt Scheme) seeks to provide liquidity and reasonable returns by investing primarily in a mix of short term debt and money market instruments. HMIP (an open-ended Fund with Regular & Savings Plans; monthly income is not assured and is subject to availability of distributable surplus) seeks to generate reasonable returns through investments in debt and money market instruments with a secondary objective to seek capital appreciation through investments in equity and equity related instruments. HFRF (an open ended income scheme) seeks to generate a reasonable return with commensurate risk through investments in floating rate debt instruments and fixed rate debt instruments swapped for floating rate returns. The Scheme may also invest in fixed rate money market and debt instruments. HFDF (an open ended Debt Scheme) seeks to deliver returns in the form of interest income and capital gains, along with high liquidity, commensurate with the current view on the markets and the interest rate cycle, through active investment in debt and money market instruments. HFTS (a close-ended Income Scheme) seeks to generate returns by investing in a portfolio of fixed income instruments normally maturing in line with the time profile of the respective Plan(s). Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes. Units can be redeemed/switched out on every Business Day at NAV based prices, subject to prevailing exit loads. Load Structure (includes SIP/STP where applicable): HMIP-R & HIMP-S: Exit: 1% - if redeemed/ switched out within 1 year from date of investment; Otherwise Nil. HIF Investment Plan: Exit Regular & Institutional Option 0.5% - if redeemed/ switched out* within 6 months from the date of investment. HIF Short Term Plan - Regular, Institutional & Institutional Plus Option Exit: 0.5% if redeemed/switched out within 6 months from the date of investment. HFRF Long Term Plan - Regular & Institutional Option Exit Nil. HFDF- Regular & Institutional Option- Exit: Exit: 0.5% if redeemed/switched out within 6 months from the date of investment. HUSBF Exit Nil. HCF: Exit Nil. HGF: Exit - 0.5% if redeemed / switched out* with 6 months from date of investment. The applicable exit loads (if any) at the time of allotment of the Schemes of HSBC Mutual Fund shall also be charged on investments made by all investors. Bonus units and units issued on reinvestment of dividends shall not be subject to exit load. The exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. Mutual Fund investments are subject to market risks. Read the Scheme Information Document and Scheme Additional Information carefully before investing.