CIO Insights Special India’s destiny - Integration and

CIO Insights SpecialIndia’s destiny - Integration and digitalization

Note: In EMEA and APAC this publication is to be considered Marketing Material, however this is not the case in the U.S. Past performance is not indicative of future performance. Opinions and claims expressed herein may not come to pass. Forecasts are based on assumptions, estimates, opinions and hypothetical models or analysis which may prove to be incorrect. This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation.

CIO Office, Deutsche Bank Wealth Management, Deutsche Bank AG - Email: [email protected] 1

Deutsche BankWealth Management

CIO Insights Special

India’s destiny Integration and digitalization

September 2018




As we approach India’s April/May 2019 elections, the country faces a number of economic challenges but also great development opportunities

India’s economy has now recovered from the twin reform shocks of goods and services tax implementation and demonetization.

Fixed investment has been the key growth engine, due to the return of business confidence and rising capacity utilization due to strong domestic demand.

Rural development prioritization has created fiscal pressures, and is also having an impact on monetary policy. The Indian rupee could fall further.

We have a neutral view on Indian equities overall in the run-up to the 2019 elections, but see potential strategic upside and sectoral opportunities. We also have a neutral view on Indian credit.

The three key post-election priorities are faster industrialization, “inclusive growth” through digitalization, and redefining international economic relations.

01

03

07

05 06

02

04

Introduction

Fiscal policy and rural development

Conclusion

Indian equities and credit in a pre-election year

Three post- election priorities

Economic growth and investment

Monetary policy and the Reserve Bank of India

September 2018

India’s destiny – Integration and digitalization

Please click here or use the QR code to access our latest CIO Insights quarterly report, “Carefully does it: stay invested but hedge”

In summary




As is well-known, India is the world’s largest democracy: approaching 900mn people will be eligible to vote at the next federal general elections in April or May next year.

The world’s largest democracy is also a fragmented one: the federal Lok Sabha co-exists with noisy and often opposed state assemblies, a legacy of India’s historical development.

Recent reforms should be seen in this context of fragmentation. Reforms driven by the federal government show a desire to create a more economically-integrated state, necessary to take the Indian economy to the next level of development. These reforms will have costs (in terms of economic disruption) and may need to be offset in the short term by higher spending – which creates policy risks. The good news, however, is that economic growth is strong and business sentiment is good – in other words, the time may be right for change.

History is never tidy and the process of reform can often sit uneasily with an overtly Hindu nationalist federal government with a particular vision of India’s future. But it is important to understand the issues around reforms and the potential for change.

This report therefore starts by looking at India’s immediate economic situation and the key role of fixed investment. We then look at two specific issues of particular importance for the Indian economy in the run-up to the election: fiscal policy and rural development, and the response of the Reserve Bank of India to higher oil prices and inflation.

The winners of the 2019 election face a number of longer-term challenges. Three are particularly important.

First, there is a long-standing need to ensure sustainable future GDP growth by speeding up India’s industrial production growth – which has long lagged behind China’s.

Second, there is a need to embrace the opportunities provided by the steady march of digitalization, both for national integration of administrative processes (e.g. VAT) and, perhaps more importantly, for the greater economic inclusion of the poorer parts of India’s population.

Third, the government needs to develop India’s economic relationships with its immediate neighbours (i.e. China and Japan) and also trading partners that are further afield. Chinese regional economic initiatives are creating a sense of urgency here.

Overcoming these three challenges will be key to India’s future economic development.

Introduction01Christian Nolting

Global CIO




20

15

10

5

0

-5

2013

2014

2015

2016

2017

2018

India’s economy has recently been recovering from the two shocks of demonetization (withdrawal of large denomination banknotes) in 2016 and the goods and services tax (GST) reform in 2017. The recovery has been aided by strong growth in fixed investment, itself underpinned by positive business sentiment. India’s real GDP growth accelerated to 7.7% YoY in Q1 2018 (latest available data), the fastest in nearly two years, and up from a recent low of 5.6% in Q2 2017. And, as the table below shows, we expect incremental improvements in GDP growth and per capita GDP in both 2018 and 2019. But, as we discuss below, the external accounts and inflation remain potential weak points.

Fixed investment is the key growth engine

India’s fixed investment growth accelerated to 14.4% YoY in Q1 2018, up significantly from growth of only 0.5% at the bottom of the cycle in Q2 2017. Fixed investment contributed 4.8 percentage points to India’s total GDP growth of 7.7% in Q1 2018, accounting for 62% of India’s total growth, compared to private consumption (48%), government consumption (19%), net exports (-19%) and inventory (-9%).

India’s strong fixed investment growth has been mainly driven by three factors:

Economic growth and investment02

Figure 1: India economic forecastsSource: DWS, Deutsche Bank Wealth Management. Data as of August 6, 2018.

Figure 2: India’s fixed investment growth acceleratesSource: Central Statistics Office. Data as of August 6, 2018.

Quarterly growth Yearly growth

Real GDP growth(YOY, %)

Per capita GDP(USD)

Private consumption growth(YOY, %)

Gross fixed investment growth(YOY, %)

Consumer price inflation (%, AVG)

Current account(% of GDP)

Central gov. fiscal balance(% of GDP)

General gov. fiscal balance(% of GDP)

Government debt(% of GDP)

2016 2017 2018e 2019f

7.9

17121924 2068

2327

10.8

5.0

11.3 9.9

69.8 69.768.7

67.3

6.2

7.5 7.8

8.6

5.77.0 7.4

5.0

3.3

4.6 4.6

-0.5-1.5

-2.5 -2.7

-3.5 -3.5-3.3

-3.1

-6.5 -6.5

-6.0-5.8

Report authors: Jason Liu Head of CIO Office Asia Markus Müller Global Head CIO Office




58

56

54

52

50

48

46

Jul 2015 Jan 2016 Jul 2016 Jan 2017 Jul 2017 Jan 2018

OPTIMISTIC

PESSIMISTIC

First, the return of business confidence after the short-term pain of implementing the goods and services tax (GST) in 2017. The Nikkei India purchasing manager index (PMI) for manufacturing has been above the 50 threshold for 11 months, rising to 53.1 points in June 2018 (Figure 3), its highest level for six months.

The Indian central government’s fiscal deficit is officially forecast at 3.3% of GDP for the fiscal year 2018/19, above the 3% recommended level for fiscal consolidation.

In the run-up to the 2019 election, the focus of government expenditure is rural development. The government raised the

minimum support price for all crops to 1.5 times production cost and they have set up a fund to develop and upgrade rural infrastructure. Besides that, the government intends to build more than 5 million affordable housing units and set up 150,000 health and wellness centers in rural areas around the country. Other measures also include the liberalization

Fiscal policy and rural development03

Sentiment has improved on the back of continued global economic recovery and the resolution of problems around GST implementation.

Second and third, rising capacity utilization and domestic demand. The Reserve Bank of India estimates an

aggregate capacity utilization ratio of 74.1% in Q4 2017, up from 68% at the beginning of 2017. Higher capacity utilization is the result of an improving economy, particularly domestic demand. Tighter capacity has encouraged Indian companies to increase capital expenditure.

Figure 3: Nikkei India Manufacturing PMISource: Nikkei, IHS Markit, Deutsche Bank Wealth Management. Data as of August 6, 2018.

Figure 4: Capacity utilization and industrial productionSource: Reserve Bank of India, Deutsche Bank Wealth Management. Data as of August 6, 2018.

Capacity utilization (CU)Purchasing Manager Indices (PMI) De-trended index of industrial production (IIP, manufacturing)

CU (%) De-trended IIP, Base 2011-12=100

80

76

72

68

64 -6

6

4

2

0

-2

-4

Q1 14-15 Q3 14-15 Q1 15-16 Q3 15-16 Q1 16-17 Q3 16-17 Q1 17-18 Q3 17-18




of agriculture exports, which could increase farmers’ income.

Given this aggressive government spending plan, we think that India’s fiscal deficit may exceed the 3.3% target this year. These assertive and inclusionary policies are clearly supportive of economic growth in India, at least in the short term. India’s central government expenditure already contributed 1.5 percentage points to total growth of 7.7% in Q1 2018, compared to only 0.7 percentage points in the previous quarter.

Rural development creates policy pressures

India government’s pro-growth fiscal policies in this fiscal year have led to some inflationary pressures in the economy, especially their direct subsidies to minimum support price (MSP) to raise farmers’ incomes, and this is already having an impact on monetary policy, as we discuss below.

Fiscal policy is not the only factor boosting rural consumption: good rainfall last year has helped offset the impact on rural incomes of the 2015 and 2016 droughts and demonetization and GST implementation. In fact, rural consumption growth is now outstripping urban consumption growth. According to market researcher Nielsen, the sales of fast-moving consumer goods (FMCG) firms, a proxy of rural consumption in India, increased 9.7% in real terms in the fiscal year ending March 2018, higher than the urban consumption growth at 8.6%. By value, the sales of FMCG firms increased 15.1% in rural India in the year ending March 2018, higher than the growth of only 12.6% in urban India. Revenue from rural India usually accounts for 40%-45% of FMCG firms in India.

Figure 5: Central government fiscal deficitsSource: Reserve Bank of India, Deutsche Bank Wealth Management. Data as of August 6, 2018.Note: 2018 is a Deutsche Bank Wealth Management forecast.

Figure 6: India rural vs. urban FMCG* growth Source: Nielsen, Deutsche Bank Wealth Management. Data as of August 6, 2018. *Fast-moving consumer goods: relatively low-value, quick-selling consumable goods, used as a proxy measure for rural consumption growth.

-7.0

-1.0

-2.0

-3.0

-4.0

-5.0

-6.0

-7.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

-6.0

-6.5

-4.8

-5.9

-4.9

-4.5

-4.1 -3

.9

-3.5

-3.5 -3

.3

Total Urban Rural

16

0

2

4

6

8

12

10

14

FY16 FY17 FY18 FY16 FY17 FY18

India FMCG Sales, By Value (%)

FMCG Sales, By Volume (%)




0

-6

-5

-4

-3

-2

-1

2011

2012

2013

2014

2015

2016

2017

2018

Fiscal policy has consequences for monetary policy in a number of ways. The rise in agricultural minimum support prices (MSP) to 1.5 times the cost of production, as discussed above, has on average increased support prices by around 14%, which could push up consumer price inflation by around 0.4ppt.

The impact of MSP on inflation is compounding existing pressures from increased market concerns over EM and the rise in oil prices earlier this

year. Consumer price inflation has been edging up in recent months, reaching 5% YoY in June, its highest level since January. Inflation has now been above the RBI’s medium-term target of 4% for eight consecutive months. Higher inflation rates have already contributed to two recent RBI rate hikes, in June and then at the start of August.

The Indian rupee could fall further

Also important in this context is the declining value in the Indian rupee (INR): INR vs. USD has weakened from recent lows of around 63.4 in January to around 70 now. Weakening has accompanied rising investment concerns about emerging markets more broadly, as well as a widening current account deficit, itself largely the result of higher oil prices. In Q1 2018, India’s four-quarter rolling current account deficit widened to INR 3.14 trillion, up significantly from INR 1.0 trillion in Q1 2017. We expect further slight depreciation in the INR vs. USD to 74 by end-June 2019, compared to the current level of around 70. Aside from higher current account deficits, USD strength (and higher U.S. Treasury yields) and the likely widening in the government’s fiscal deficit in this pre-election year could continue to weigh on the currency.

The RBI’s next meeting is not until October, by which time the impact of higher MSP on inflation may be much clearer, as should be the effects of the two 2018 rate hikes. We do not expect any further rate increases this year, although a number of factors could force a reappraisal. This factors include a sharp further strengthening of the USD (which we don’t expect), further upside risks to inflation from oil prices and/or fiscal expansion and a further slide in the current account deficit, which lead to more currency depreciation.

Monetary policy and the Reserve Bank of India04

Figure 7: The current account deficit is widening again*Source: Reserve Bank of India, Deutsche Bank Wealth Management. Data as of August 6, 2018. *Rolling four quarter average




In the previous general election cycles, the performance of MSCI India equities index has varied significantly in pre-election years. Equities in 2003-04 showed solid returns, while performance in 2008-09 was affected by the global financial crisis. Returns in 2013-14 were muted. There were a few consistent sectoral trends, however. One outperforming sector in pre-election years has been Consumer Discretionary, which could be mainly caused by higher government pre-election spending intended to boost its popularity with voters.

Consumer discretionary outperforms in election years

In the run-up to the April/May 2019 elections, we have a neutral view on Indian equities overall, but see potential future strategic upside (given reform) and some existing sectoral opportunities. Our favorite sectors at present are Consumer Discretionary, Financials and Healthcare. We are neutral on Energy sector and are negative on the telecom sector.

Consumer Discretionary: India’s consumption indicators have been strong in recent

quarters. Two wheeler and passenger vehicles have seen YoY sales growth of 16% and 20%, respectively in Q2 2018. With government spending growth in the pre-election year, particularly in rural development, we think that strong consumption is likely to continue into early next year.

Financials: With strong consumer and corporate activity in this part

of the economic recovery cycle, Indian banks have seen higher credit growth in recent quarters, helping earnings.

However, India’s banks have been affected by the government’s higher provisioning requirements for non-performing assets (NPAs). In addition, bank earnings have also been hit by Treasury losses given the sharp rise in local bond yields since April, particularly for shorter duration government debt. Having said that, we still favor India banks in the short and medium term. We think high-quality banks with better non-performing asset (NPA) management capability should weather tighter government rules and gain market share in the positive economic environment.

Healthcare: India’s pharmaceutical companies could benefit from

an established export support base and INR depreciation. We think that domestic healthcare needs are likely to grow strongly against the backdrop of rising household income.

Energy: Helped by higher crude oil prices, India’s energy

companies enjoyed strong earnings growth at the start of 2018. However, we remain neutral over the sector in coming few quarters as we expect crude oil prices to come down by mid-2019. We forecast the WTI oil price will to ease to US$60 per barrel by end-June 2019, compared to its current level of approaching US$70/b.

Telecom: We dislike the sector because of the challenging

competitiveness dynamics in the sector. The earnings of Indian telecom companies could continue to decline in coming quarters.

Indian equities and credit in a pre-election year05




concerns’ over higher bond default rates in the RBI rate hike cycle.

On the government bond side, one issue to keep an eye on is the recent relaxation of rules around investment. Earlier this year, the RBI decided to allow foreign portfolio investors to invest in India’s government Treasury bonds and bills of all maturities. Investments in government Treasury bills (with maturity of less than one year) should not exceed 20% of a total portfolio. The RBI had shortly before removed a restriction that meant foreign

We hold neutral view on Indian credit in the pre-election year. Despite the recent positive economic momentum, we think that Indian credit market could be affected by the following factors: 1) the likely continued strength of the USD and higher U.S. Treasury yields in next few quarters; 2) domestic inflationary pressures and the RBI’s likely hawkish monetary policy (possible further rate hikes); 3) external financial market volatility and likely INR depreciation may affect investor sentiment; 4) some non-performing asset issues in India, with banks’ and investor

investors could invest only in government securities with residual maturity of three years. We think that such financial liberalization measures are a positive step, but believe that foreign capital inflows into India’s debt market under the new policy framework may initially be limited. Foreign investors may be hesitant about investing in Indian government debt due to possible RBI rate hikes, high oil prices, INR weakness and the risk of larger government budget deficits.

At the time of writing, opinion polls suggest that Prime Minister Narendra Modi is likely to win the 2019 general election. His personal popularity is being supported by strong business and consumer sentiment, employment

growth and rising incomes. Fiscal expansion this year, focused particularly on supporting rural development should yield votes and it also clear that the pain involved in the two recent reforms of demonetization and GST reform is now starting to wear off. (Although it has not disappeared – small companies, for example, are still having to borrow as they await tax refunds.)

All this suggests that the electorate may favour the status quo (i.e. Modi). Financial markets are likely to do so too, believing that political uncertainty around a new government could hit corporate confidence and also stop the reform process. Uncertainty could also hit capital inflows, including foreign direct investment.

But even if Mr. Modi is re-elected with a clear majority in the Lok Sabha, he still needs to deliver on further reform – at the same time as keeping fiscal spending within acceptable levels.

He would also need to deal with one long standing historical issue – the slow pace of Indian industrialisation and two major future challenges – first, digitalisation and the resulting opportunities for future

Three post-election priorities 06

Figure 8: China’s industrial production outstrips India’sSource: World Bank, Deutsche Bank Wealth Management. Data as of August 6, 2018. Indexed so that production in 1980=100.

China India

20172015

19831985

19891991

1987

19931995199719992001200320052007200920112013

1981

5000 4000 3000 2000 1000 00 1000 2000 3000 4000 5000




other government measures; 3) the government’s stricter tax codes are likely to reduce incentives to avoid tax by cash payments; and 4) increased smartphone usage, especially in rural areas in India.

International economic relations: isolation is not an option

India’s often domestically-focused growth model has in the past encouraged a trend (for those both inside the country and outside it) to see India in economic isolation. And, in simple statistical terms, India might appear less vulnerable to current global trade concerns than most emerging markets– with exports accounting for only around 11% of GDP. Other external vulnerability indicators have also improved compared to the emerging markets “taper tantrum” period of 2013. For example, the ratio of short-term debt to FX reserves is around 50% now, compared to 60% in 2013, and the import cover ratio has risen from 7 to 11 months.

India needs to address regional relations

Nevertheless, India is well aware that long-term changes in regional trading patterns could create threats as well

“inclusive growth” (in part through financial inclusion) and, second, defining India’s place in the global economic order.

Indian industrialization: needs to be faster

Since 1980, the average annual growth of India’s industrial sector output (including construction) has been 6.5%, much slower than the equivalent Chinese rate of 10.8%, according to World Bank data. As a result, as Figure 8 shows, India’s industrial sector output has increased 10.2 times compared to its level in 1980, while China’s industrial sector has increased by 43.4 times.

We think that India’s industrialization has been relatively slow due to the following reasons: 1) scarcity of industrial labour; 2) industrial sector infrastructure is insufficient; 3) low capital formation ratios (or investment ratios), 4) lack of consistent and dedicated industrial policies. If he is re-elected, we think Mr. Modi’s priority would be to implement forceful policies to promote the growth of India’s industrial sector.

Indian digitalization: opportunities for “inclusive growth”

India’s digital payment ratio is only 8.3%, whereas Russia has one of 15.9%, Brazil 28.8% and the U.S.42.6%. The key reasons include the following: 1) Indian consumers’ awareness of digital payments remains low; 2) cash payments allow transactions to avoid formal reporting and thus create incentives for merchants to avoid digital; 3) the cost of building the digital infrastructure is relatively high; and 4) the value of individual purchases in India is usually low.

Digitalization could advance rapidly

We think that digitalization represents a real opportunity for India to improve its administrative and commercial processes and believe that it could advance rapidly, due to the following reasons: 1) a younger, more digitally-aware population continues to enter workforce; 2) the payment infrastructure is improving rapidly with a universal biometric identification system and

as opportunities and that India needs to define its place in the international economic order. So far, India has notably failed to engage with China’s Belt and Road initiative to develop infrastructure links across the region and this has suggested stresses in this historically difficult relationship. Instead, India will concentrate on an India-Myanmar-Thailand trilateral highway and will also work with Japan on an Asia-Africa Growth Corridor. India’s participation in the International North-South Transport Corridor is already having some results, for example Indian assistance in the construction of the Chabahar port in Iran. (This is important as Pakistan does not allow India transit rights.) Meanwhile, Japan is helping India with infrastructure provision in north-eastern India and with the country’s first high speed rail link between Mumbai and Ahmedabad. Future collaboration between India and Japan is therefore important not just as a way of diluting Chinese influence over regional development, but also as a way of ensuring effective infrastructure development within India. In a sense, such developments underline the fact that internal and external economic development is not really separable.

Figure 9: India’s digital payment ratio is low compared to other countriesSource: Morgan Stanley Research, Deutsche Bank Wealth Management. Data as of November 6, 2018.1

2

3

7

10

11

13

14

25

27

33

33

41

42

44

50

54

90

India

Mexico

Germany

Italy

Russia

South Africa

Brazil

Netherlands

France

USA

Australia

Turkey

UK

Canada

Korea




India is facing up to a large number of major internal and external challenges. The good news is that (on the domestic front) economic growth is strong, and that the disruption surrounding previous reforms now seems to be behind us. Externally the situation may be less reassuring, with global oil prices already having an impact and a still difficult relationship with China.

After the 2019 election, India needs to push on with reforms. Some of these are necessitated by long-standing problems. But others – for example digitalization – offer the possibility of rapid social improvement. We also think that improving bilateral or multilateral trade relationships within the region offers the scope for relatively quick gains, and could be particularly important if the global multilateral trade system starts to falter.

For India, maintaining the political momentum for reform may be only one problem. It is possible that reforms are re-routed in the hope of finding a unique

“Indian” solution to particular economic problems: members of Mr. Modi’s party have, for example, criticized RBI policy in the past for being too internationalist in approach, and for not having enough of a specifically Indian dimension. The temptation to depart from economic orthodoxy will remain strong, and needs to be resisted.

While reforms are pursued, India also faces the challenge of keeping this massive economy on a steady upward path. In the report we have discussed the particular issues around fiscal and monetary policy and these will continue. Continued open discussion around policy, and preserving institutional independence, will be important.

But the potential gains from continued reform – in the form of a more advanced industrial base, a much more economically-integrated domestic population and an India that is better integrated into regional and global economic relationships – are enormous, and worth pursuing with vigor.

Conclusion07

different, and the potential for conflict remains.

India could play a highly important role in guiding the evolution of a new global economic order over the next few decades. If the Indian government can deliver consistently high rates of economic growth (and other indicators for economic development), then it could lead by example as the world’s largest democracy. But to do this, it has to demonstrate that it has its own house in order - and that the needs of its population are clearly put above local vested interests. There is still some way

Focus: reform in a global context

India is reforming at a time when the global economic and political landscape is changing. The current set of global economic institutions — which, incidentally, have been in existence for a similar amount of time as an independent India — are under pressure, with the U.S. no longer seen as their guarantor. At the same time, Asia’s rapid economic growth has led to increasing economic integration across the region - although individual countries’ political systems remain very

to go here, but digitalization may provide ways of fast-forwarding this process.

India also needs to develop a way of interacting with other economic or development partners: India’s foreign policy appeared to have lost direction in the last few decades, due in part to regional conflicts, and recent efforts to increase its influence in international bodies such as the UN have had only mixed results. At a bilateral level, its rather more laid-back approach contrasts with a more directed Chinese strategy, but could still yield good long-term results.




Glossary

Consumer discretionary goods are those which are non-essential to consumers; consumer discretionary stocks therefore tend to underperform the overall in a struggling economy and overperform in an upturn.

The current account balance is the balance of trade, net primary income or factor income and net cash transfers.

Depreciation (in an FX context) generally refers to a gradual loss of value of a currency; immediate, policy-driven changes are devaluations.

Fast-moving consumer goods (FMCG) are goods of relatively low value that are used frequently.

The Indian fiscal year runs from October 1 to September 30.

The Indian goods and services tax (GST) is levied at each stage of the production process, being refunded for all stages but the final one.

The Indian rupee (INR) is the currency of India.

The Lok Sabha is the lower house of the Indian federal parliament; the upper house is the largely indirectly-elected Rajya Sabha.

Minimum support prices, in an Indian context, are officially set prices at which the government will purchase agricultural products (when the market price falls below them).

Purchasing manager indices (PMI) provide an indicator of the economic health of the manufacturing sector and are based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The composite PMI includes both manufacturing and services sectors. They can be published by public sector or private agencies (e.g. Caixin, Nikkei).

The Reserve Bank of India is the central bank of India.




Contact us on [email protected]

Global Chief Investment OfficerChristian Nolting1

Regional Chief Investment OfficerLarry V. Adam4

CIO Americas

Tuan Huynh5

CIO Asia

Stéphane Junod8

CIO EMEA

International locations1. Deutsche Bank AG

Mainzer Landstrasse 11-17 60329 Frankfurt am Main Germany

2. Deutsche Bank AG, London Zig Zag Building, 70 Victoria Street London SW1E 6SP United Kingdom

3. Deutsche Bank Trust Company 345 Park Avenue 10154-0004 New York, NY United States

4. Deutsche Bank Securities 1 South Street 21202-3298 Baltimore, MD United States

5. Deutsche Bank AG, Singapore One Raffles Quay, South Tower 048583 Singapore Singapore

6. Deutsche Bank AG, Hong Kong 1 Austin Road West Hong Kong Hong Kong

7. Deutsche Bank (Switzerland) Ltd. Hardstrasse 201 8005 Zurich Switzerland

8. Deutsche Bank (Switzerland) Ltd. Place des Bergues 3 1211 Geneva 1 Switzerland

9. Deutsche Bank Trust Company Floor 1, 5022 Gate Parkway, Suite 400 32256 Jacksonville, FL United States

Strategy GroupLarry V. Adam4

Global Chief Strategist

Matt Barry4

Investment Strategy Analyst

Moshe Levin4 Investment Strategy Analyst

Gerit Heinz1

Chief Strategist Germany

Dr. Helmut Kaiser1

Chief Strategist Germany

Daniel Kunz7

Senior Strategist EMEA

Chief Investment OfficeMarkus Müller1

Global Head CIO Office

Sebastian Janker1

Head CIO Office Germany

Konrad AignerGundula Helsper Ursula MorbachAlisa SpitalThomas Teufel

Jürg Schmid7

Head CIO Office EMEA

Enrico Börger8

Joshua Lister2

Graham Richardson2

Financial Writer, CIO Office

Khoi Dang9

CIO Office Americas

Jason Liu6 Head CIO Office Asia

Contacts CIO Wealth Management




Important Note

GeneralThis document may not be distributed in Canada or Japan. This document is intended for retail or professional clients only.

This document is being circulated in good faith by Deutsche Bank AG, its branches (as permitted in any relevant jurisdiction), affiliated companies and its officers and employees (collectively, “Deutsche Bank”). This material is for your information only and is not intended as an offer, or recommendation or solicitation of an offer to buy or sell any investment, security, financial instrument or other specific product, to conclude a transaction, or to provide any investment service or investment advice, or to provide any research, investment research or investment recommendation, in any jurisdiction. All materials in this communication are meant to be reviewed in their entirety.

If a court of competent jurisdiction deems any provision of this disclaimer unenforceable, the remaining provisions will remain in full force and effect. This document has been prepared as a general market commentary without consideration of the investment needs, objectives or financial circumstances of any investor. Investments are subject to generic market risks which derive from the instrument or are specific to the instrument or attached to the particular issuer. Should such risks materialise, investors may incur losses, including (without limitation) a total loss of the invested capital. The value of investments can fall as well as rise and you may not recover the amount originally invested at any point in time. This document does not identify all the risks (direct or indirect) or other considerations which may be material to an investor when making an investment decision.

This document and all information included herein are provided “as is”, “as available” and no representation or warranty of any kind, express, implied or statutory, is made by Deutsche Bank regarding any statement or information contained herein or in conjunction with this document. All opinions, market prices, estimates, forward looking statements, hypothetical statements, forecast returns or other opinions leading to financial conclusions contained herein reflect Deutsche Bank’s subjective judgment on the date of this report. Without limitation, Deutsche Bank does not warrant the accuracy, adequacy, completeness, reliability, timeliness or availability of this communication or any information in this document and expressly disclaims liability for errors or omissions herein. Forward looking statements involve significant elements of subjective judgments and analyses and changes thereto and/or consideration of different or additional factors could have a material impact on the results indicated. Therefore, actual results may vary, perhaps materially, from the results contained herein.

Deutsche Bank does not assume any obligation to either update the information contained in this document or inform investors about available updated information. The information contained in this document is subject to change without notice and based on a number of assumptions which may not prove valid, and may be different from conclusions expressed by other departments within Deutsche Bank. Although the information contained in this document has been diligently compiled by Deutsche Bank and derived from sources that Deutsche Bank considers trustworthy and reliable, Deutsche Bank does not guarantee or cannot make any guarantee about the completeness, fairness, or accuracy of the information and it should not be relied upon as such. This document may provide, for your convenience, references to websites and other external sources. Deutsche Bank takes no responsibility for their content and their content does not form any part of this document. Accessing such external sources is at your own risk.

Before making an investment decision, investors need to consider, with or without the assistance of an investment adviser, whether any investments and strategies described or provided by Deutsche Bank, are appropriate, in light of their particular investment needs, objectives, financial circumstances and instrument specifics. When making an investment decision, potential investors should not rely on this document but only on what is contained in the final offering documents relating to the investment.

As a global financial services provider, Deutsche Bank from time to time faces actual and potential conflicts of interest. Deutsche Bank’s policy is to take all appropriate steps to maintain and operate effective organisational and administrative arrangements to identify and manage such conflicts. Senior management within Deutsche Bank are responsible for ensuring that Deutsche Bank’s systems, controls and procedures are adequate to identify and manage conflicts of interest.

Deutsche Bank does not give tax or legal advice, including in this document and nothing in this document should be interpreted as Deutsche Bank providing any person with any investment advice. Investors should seek advice from their own tax experts, lawyers and investment advisers in considering investments and strategies described by Deutsche Bank. Unless notified to the contrary in a particular case, investment instruments are not insured by any governmental entity, not subject to deposit protection schemes and not guaranteed, including by Deutsche Bank.

This document may not be reproduced or circulated without Deutsche Bank’s express written authorisation. Deutsche Bank expressly prohibits the distribution and transfer of this material to third parties. Deutsche Bank accepts no liability whatsoever arising from the use or distribution of this material or for any action taken or decision made in respect of investments mentioned in this document the investor may have entered into or may enter in future.

The manner of circulation and distribution of this document may be restricted by law or regulation in certain countries, including, without limitation, the United States. This document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Deutsche Bank to any registration or licensing requirement within such jurisdiction not currently met. Persons into whose possession this document may come are required to inform themselves of, and to observe, such restrictions.




Important Note

Past performance is no guarantee of future results; nothing contained herein shall constitute any representation, warranty or prediction as to future performance. Further information is available upon investor’s request.

Kingdom of BahrainFor Residents of the Kingdom of Bahrain: This document does not constitute an offer for sale of, or participation in, securities, derivatives or funds marketed in Bahrain within the meaning of Bahrain Monetary Agency Regulations. All applications for investment should be received and any allotments should be made, in each case from outside of Bahrain. This document has been prepared for private information purposes of intended investors only who will be institutions. No invitation shall be made to the public in the Kingdom of Bahrain and this document will not be issued, passed to, or made available to the public generally. The Central Bank (CBB) has not reviewed, nor has it approved, this document or the marketing of such securities, derivatives or funds in the Kingdom of Bahrain. Accordingly, the securities, derivatives or funds may not be offered or sold in Bahrain or to residents thereof except as permitted by Bahrain law. The CBB is not responsible for performance of the securities, derivatives or funds.State of KuwaitThis document has been sent to you at your own request. This presentation is not for general circulation to the public in Kuwait. The Interests have not been licensed for offering in Kuwait by the Kuwait Capital Markets Authority or any other relevant Kuwaiti government agency. The offering of the Interests in Kuwait on the basis a private placement or public offering is, therefore, restricted in accordance with Decree Law No. 31 of 1990 and the implementing regulations thereto (as amended) and Law No. 7 of 2010 and the bylaws thereto (as amended). No private or public offering of the Interests is being made in Kuwait, and no agreement relating to the sale of the Interests will be concluded in Kuwait. No marketing or solicitation or inducement activities are being used to offer or market the Interests in Kuwait.

United Arab EmiratesDeutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated by the Dubai Financial Services Authority. Deutsche Bank AG -DIFC Branch may only undertake the financial services activities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai International Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as defined by the Dubai Financial Services Authority.

State of QatarDeutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre Regulatory Authority. Deutsche Bank AG -QFC Branch may only undertake the financial services activities that fall within the scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower, West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Business Customers, as defined by the Qatar Financial Centre Regulatory Authority.

Kingdom of Belgium This document has been distributed in Belgium by Deutsche Bank AG acting though its Brussels Branch. Deutsche Bank AG is a stock corporation (“Aktiengesellschaft”) incorporated under the laws of the Federal Republic of Germany and licensed to carry on banking business and to provide financial services subject to the supervision and control of the European Central Bank (“ECB”) and the German Federal Financial Supervisory Authority (“Bundesanstalt für Finanzdienstleistungsaufsicht” or “BaFin”). Deutsche Bank AG, Brussels Branch has its registered address at Marnixlaan 13-15, B-1000 Brussels, registered at the RPM Brussels, under the number VAT BE 0418.371.094. Further details are available on request or can be found at www.deutschebank.be.

Kingdom of Saudi Arabia Deutsche Securities Saudi Arabia Company (registered no. 07073-37) is regulated by the Capital Market Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall within the scope of its existing CMA license. Principal place of business in Saudi Arabia: King Fahad Road, Al Olaya District, P.O. Box 301809, Faisaliah Tower, 17th Floor, 11372 Riyadh, Saudi Arabia.

United Kingdom In the United Kingdom (“UK”), this publication is considered a financial promotion and is approved by DB UK Bank Limited on behalf of all entities trading as Deutsche Bank Wealth Management in the UK. Deutsche Bank Wealth Management is a trading name of DB UK Bank Limited. Registered in England & Wales (No. 00315841). Registered Office: 23 Great Winchester Street, London EC2P 2AX. DB UK Bank Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority and its Financial Services Registration Number is 140848. Deutsche Bank reserves the right to distribute this publication through any of its UK subsidiaries, and in any such case, this publication is considered a financial promotion and is approved by such subsidiary where it is authorised by the appropriate UK regulator (if such subsidiary is not so authorised, then this publication is approved by another UK member of the Deutsche Bank Wealth Management group that has the requisite authorisation to provide such approval).

Hong Kong This document and its contents are provided for information only. Nothing in this document is intended to be an offer of any investment or a solicitation or recommendation to buy or to sell an investment and should not be interpreted or construed as an offer, solicitation or recommendation.




Important Note

To the extent that this document makes reference to any specific investment opportunity, its contents have not been reviewed. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the investments contained herein. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has not been approved by the Securities and Futures Commission in Hong Kong nor has a copy of this document been registered by the Registrar of Companies in Hong Kong and, accordingly, (a) the investments (except for investments which are a “structured product”, as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the “SFO”)) may not be offered or sold in Hong Kong by means of this document or any other document other than to “professional investors” within the meaning of the SFO and any rules made thereunder, or in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) (“CO”) or which do not constitute an offer to the public within the meaning of the CO and (b) no person shall issue or possess for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the investments which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the investments which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the SFO and any rules made thereunder.

Singapore The contents of this document have not been reviewed by the Monetary Authority of Singapore (“MAS”). The investments mentioned herein are not allowed to be made to the public or any members of the public in Singapore other than (i) to an institutional investor under Section 274 or 304 of the Securities and Futures Act (Cap 289) (“SFA”), as the case may be (as any such Section of the SFA may be amended, supplemented and/or replaced from time to time), (ii) to a relevant person (which includes an Accredited Investor) pursuant to Section 275 or 305 and in accordance with other conditions specified in Section 275 or 305 respectively of the SFA, as the case may be (as any such Section of the SFA may be amended, supplemented and/or replaced from time to time), (iii) to an institutional investor, an accredited investor, expert investor or overseas investor (each as defined under the Financial Advisers Regulations) (“FAR”) (as any such definition may be amended, supplemented and/or replaced from time to time) or (iv) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA or the FAR (as the same may be amended, supplemented and/or replaced from time to time).

United States In the United States, brokerage services are offered through Deutsche Bank Securities Inc., a broker-dealer and registered investment adviser, which conducts securities activities in the United States. Deutsche Bank Securities Inc. is a member of FINRA, NYSE and SIPC. Banking and lending services are offered through Deutsche Bank Trust Company Americas, member FDIC, and other members of the Deutsche Bank Group. In respect of the United States, see earlier statements made in this document. Deutsche Bank makes no representations or warranties that the information contained herein is appropriate or available for use in countries outside of the United States, or that services discussed in this document are available or appropriate for sale or use in all jurisdictions, or by all counterparties. Unless registered, licensed as otherwise may be permissible in accordance with applicable law, none of Deutsche Bank or its affiliates is offering any services in the United States or that are designed to attract US persons (as such term is defined under Regulation S of the United States Securities Act of 1933, as amended).

This United States-specific disclaimer will be governed by and construed in accordance with the laws of the State of Delaware, without regard to any conflicts of law provisions that would mandate the application of the law of another jurisdiction. Germany This document has been created by Deutsche Bank Wealth Management, acting through Deutsche Bank AG and has neither been presented to nor approved by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht). For certain of the investments referred to in this document, prospectuses have been approved by competent authorities and published. Investors are required to base their investment decision on such approved prospectuses including possible supplements. Further, this document does not constitute financial analysis within the meaning of the German Securities Trading Act (Wertpapierhandelsgesetz) and, thus, does not have to comply with the statutory requirements for financial analysis. Deutsche Bank AG is a stock corporation (“Aktiengesellschaft”) incorporated under the laws of the Federal Republic of Germany with principal office in Frankfurt am Main. It is registered with the district court (“Amtsgericht”) in Frankfurt am Main under No HRB 30 000 and licensed to carry on banking business and to provide financial services. Supervisory authorities: The European Central Bank (“ECB”), Sonnemannstrasse 22, 60314 Frankfurt am Main, Germany and the German Federal Financial Supervisory Authority (“Bundesanstalt für Finanzdienstleistungsaufsicht” or “BaFin”), Graurheindorfer Strasse 108, 53117 Bonn and Marie-Curie-Strasse 24-28, 60439 Frankfurt am Main, Germany.

India The investments mentioned in this document are not being offered to the Indian public for sale or subscription. This document is not registered and/or approved by the Securities and Exchange Board of India, the Reserve Bank of India or any other governmental/ regulatory authority in India. This document is not and should not be deemed to be a “prospectus” as defined under the provisions of the Companies Act, 2013 (18 of 2013) and the same shall not be filed with any regulatory authority in India. Pursuant to the Foreign Exchange Management Act, 1999 and the regulations issued there under, any investor resident in India may be required to obtain prior special permission of the Reserve Bank of India before making investments outside of India including any investments mentioned in this document.




Important Note

Italy This report is distributed in Italy by Deutsche Bank S.p.A., a bank incorporated and registered under Italian law subject to the supervision and control of Banca d’Italia and CONSOB.

Luxembourg This report is distributed in Luxembourg by Deutsche Bank Luxembourg S.A., a bank incorporated and registered under Luxembourg law subject to the supervision and control of the Commission de Surveillance du Secteur Financier.

Spain Deutsche Bank, Sociedad Anónima Española is a credit institution regulated by the Bank of Spain and the CNMV, and registered in their respective Official Registries under the Code 019. Deutsche Bank, Sociedad Anónima Española may only undertake the financial services and banking activities that fall within the scope of its existing license. The principal place of business in Spain is located in Paseo de la Castellana number 18, 28046 - Madrid. This information has been distributed by Deutsche Bank, Sociedad Anónima Española.

PortugalDeutsche Bank AG, Portugal Branch is a credit institution regulated by the Bank of Portugal and the Portuguese Securities Commission (“CMVM”), registered with numbers 43 and 349, respectively and with commercial registry number 980459079. Deutsche Bank AG, Portugal Branch may only undertake the financial services and banking activities that fall within the scope of its existing license. The registered address is Rua Castilho, 20, 1250-069 Lisbon, Portugal. This information has been distributed by Deutsche Bank AG, Portugal Branch.

AustriaThis document is distributed by Deutsche Bank Österreich AG, with its registered office in Vienna, Republic of Austria, registered with the companies’ register of the Vienna Commercial Court under FN 276838s. It is supervised by the Austrian Financial Market Authority (Finanzmarktaufsicht or FMA), Otto-Wagner Platz 5, 1090 Vienna, and (as entity in the Deutsche Bank AG group) by the European Central Bank (“ECB”), Sonnemannstrasse 22, 60314 Frankfurt am Main, Germany. This document has neither been presented to nor been approved by any of the before-mentioned supervisory authorities. For certain of the investments referred to in this document, prospectuses may have been published. In such case, investment decisions should be made exclusively on the basis of the published prospectus including possible supplements. Only these documents are binding. This document constitutes marketing material, which has been provided exclusively for informational and advertising purposes, and is not the result of any financial analysis or research.

The NetherlandsThis document is distributed by Deutsche Bank AG, Amsterdam Branch, with registered address at De entree 195 (1101 HE) in Amsterdam, the Netherlands, and registered in the Netherlands trade register under number 33304583 and in the register within the meaning of Section 1:107 of the Netherlands Financial Supervision Act (Wet op het financieel toezicht). This register can be consulted through www.dnb.nl.

U.S.An investment in hedge funds is speculative and involves a high degree of risk, and is suitable only for “Qualified Purchasers” as defined by the U.S. Investment Company Act of 1940, as amended, and “Accredited Investors” as defined by Regulation D of the 1933 Securities Ac, as amended. An investor could lose all or a substantial portion of his/her investment. Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment in a hedge fund. No assurance can be given that a hedge fund’s investment objectives will be achieved, or that investors will receive a return of all or part of their investment. Before investing, prospective investors should carefully consider these risks and others, such as lack of transparency, higher fees, illiquidity, and lack of registration. Investors should be aware that hedge funds often engage in leverage, short-selling, arbitrage, hedging, derivatives, and other speculative investment practices that may increase investment loss. Hedge funds can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, and often charge high fees that can erode performance. Additionally, they may involve complex tax structures and delays in distributing tax information.

Although the information contained in this presentation has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, completeness or fairness. Opinions and estimates that are contained in this presentation material may be changed without notice and involve a number of assumptions which may not prove valid.

BEFORE ENTERING INTO ANY TRANSACTION YOU SHOULD TAKE STEPS TO ENSURE THAT YOU UNDERSTAND AND HAVE MADE AN INDEPENDENT ASSESSMENT OF THE APPROPRIATENESS OF THE TRANSACTION IN LIGHT OF YOUR OWN OBJECTIVES AND CIRCUMSTANCES, INCLUDING THE POSSIBLE RISKS AND BENEFITS OF ENTERING INTO SUCH TRANSACTION. YOU SHOULD ALSO CONSIDER MAKING SUCH INDEPENDENT INVESTIGATIONS AS YOU CONSIDER NECESSARY OR APPROPRIATE FOR SUCH PURPOSE. It is important that you carefully read a hedge fund’s offering documents and agreements which contain important information and risks about a fund.

The past performance of the securities described in this presentation material does not guarantee or predict future performance.




Important Note

The securities described in this presentation material are not deposits, are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other U.S. governmental agency, are not obligations of or guaranteed by Deutsche Bank Trust Company Americas, Deutsche Bank Securities Inc., or any of their affiliates, and are subject to investment risks, including possible loss of the principal amount invested. Further, the securities described in this presentation have not been registered under the United States Securities Act of 1933 or the Investment Company Act of 1940.

Conflict of interest disclosure: When considering and making recommendations of alternative investment vehicles to clients, Deutsche Bank WM will consider and recommend only those vehicles that agree to pay to Deutsche Bank WM fees (or “retrocessions”) that are based on the amounts that clients invest in those vehicles. In all cases, Deutsche Bank WM will disclose to the client prior to his/her investment in an alternative investment vehicle the terms of Deutsche Bank WM’s compensation arrangements with that vehicle. We or persons associated with us may earn compensation from the fund described in this presentation material or its affiliates through arrangements that may or may not directly involve our solicitation agent activities, such as the provision of brokerage or prime brokerage services or research. Our employees, including those of our investment representatives who may offer fund interests to clients, may now or in the future own interests in the fund described in this presentation material.

Publisher: Deutsche Bank AG, Taunusanlage 12, D-60325 Frankfurt am Main, Germany Author: Deutsche Bank AG, FrankfurtGraphic Design: Deutsche Bank AG, Frankfurt© 2018 Deutsche Bank AG. All rights reserved.

027600.082018




Documents

CIO Insights Special India’s destiny - Integration and