Life needs balance. So do your investments. · Optimal asset allocation for wealth generation Right asset allocation is the key to an ideal portfolio Potential additional risk to

Life needs balance. So do your investments.

HSBC Equity Hybrid Fund

April 2019

Aggressive Hybrid fund – An open ended hybrid scheme investing

predominantly in equity and equity related instruments

1

Where are we today?Reasonable equity valuations + promising bond yields + expected volatility

Current equity valuations and bond yields call for a balanced approach

Source: Bloomberg, MOSL, data as at Mar 2019,

Past performance may or may not sustain and doesn’t guarantee the future performance

PAT Growth % (Sensex)Price to Earnings & Price to Book

-5

10

1712

22

7

-7 -9

1 1 1

7

-6 -6-2 -1

1

9 11

-1-2

11

23

39

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19 e

0

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9

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BEst P/E Ratio (R2) Price to Book Ratio (L1)

7.271

5.75

4

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Ap

r-11

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Jan

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Ap

r-19

10 year G- Sec vs Repo Rate (%)

10Y G-Sec Yield % Repo rates %

2

16.7% 16.4%16.0%

15.2%14.3%

15.3%15.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

3-YearHolding period

5-Year Holding period 10-Year Holdingperiod

15-Year Holdingperiod




Annualis

ed r

etu

rns %

Average rolling returns

Equity has proven to be one of the best asset classes for long-term wealth creation.

– S&P BSE Sensex has returned 14.3% annualised returns, on an average, for a 20-year holding period on a daily rolling basis^

Equity offers long-term wealth creation opportunity

Source: BSE

^ Annualised returns of S&P BSE Sensex on a daily rolling basis since 1979, Data as at Dec 2018


Equity performance over a long term

Equity delivered an average of 14.3% returns over a 20 year holding period

3

Equity provides a wealth-creation opportunity over the long term, but can erode wealth in the short term owing to

volatility.

Volatility exists in the short run

Source: BSE

Annualised returns of S&P BSE Sensex for the above holding periods are on a daily rolling basis between Dec 2004 to Dec 2018


Long-term investing increases the likelihood of better performance because of the power of compounding and

shields the portfolio against short-term market fluctuations.

Longer investment horizon helps reduce volatility

-80%

-60%

-40%

-20%

0%

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40%

60%

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100%

120%

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s %

1-years rolling 5-years rolling 10-years rolling

4

Volatility can be reduced

Fixed Income complements equity and provides strength to the portfolio

Extreme volatility of

equities may reflect

temporary erosion of

investment

Fixed Income asset

class can provides

stability

Exposure to both asset

classes reduces the

short/medium term

volatility and provides

the right balance to the

portfolio


5

8%

0%

5% 4% 7% 9%4% 5% 7% 9%

4%14% 9% 13%

5% 6%

73%

13%

42% 47% 47%

-52%

81%

17%

-25%

26%

9%

30%

-5%

2%

28%

6%

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100%

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RE

TU

RN

S %

Debt Equity

Every season the winner changes hands in the financial markets.

• Asset classes (equity and debt) perform differently under different market situations.

• Dependency on a single asset class could be risky and instead, diversification helps minimise potential losses.

• Allocation to different asset classes is dependent on an investor’s investment objective and risk profile.

• As evident in the chart above, equity (S&P BSE Sensex) nosedived 52% while debt (Crisil Composite Bond Fund Index) rose 9% in

2008 but in 2017.

• In 2017, the S&P BSE Sensex surged 28% while the composite bond fund index rose just 5%.

Different seasons have different winners

Debt and equity are represented by the Crisil Composite Bond Fund Index and S&P BSE Sensex respectively,

Source: CRISIL Research, BSE, * data till 31 Dec 2018, Equity – Debt Correlation is calculated using 10 years daily returns data for Sensex TRI and Crisil Composite Bond Fund Index.


Diversification helps minimise losses and get the best of both asset classes

Equity - Debt

Correlation = 0.13

Equity Equity Equity Equity Equity Equity Equity Debt Debt DebtEquity Equity Equity EquityDebt Debt

6

E:20%-D:80%

E:30%-D:70%

D:35%-E:65%

D:50%-E:50%

E: 65%-D: 35%

E: 70%-D: 30%E: 80%-D:20%

Debt

Equity

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2.0% 7.0% 12.0% 17.0% 22.0%

Retu

rns

Risk

Mutual fund investments are subject to market risks, read all scheme-related documents carefully. Past performance may or may not sustain and doesn’t guarantee the future performance

Above list of asset allocation patterns is not exhaustive and only for illustration purpose

E –(Equity) S&P BSE 200 and D (Debt) CRISIL Composite bond fund index, Equity – S&P BSE Sensex TRI, Debt – Crisil Composite Bond Fund Index,

Risk – return chart for 15 years with annualised point to point returns and annualised Standard deviation of daily returns data as at Dec 2018 , Risk – Standard deviation

Optimal asset allocation for wealth generation

Right asset allocation is the key to an ideal portfolio

Potential additional risk

to generate returns

7

• With appropriate asset allocation between equity and debt, benefits of diversification can be seen, particularly in the

market downtrend.

• The analysis below shows that during bear phases, Portfolio B (70% equity and 30% debt) has performed better as

compared with Portfolio A (100% equity).

Portfolio Allocation A represented by S&P BSE Sensex TRI Index

Portoflio Allocation B represented by S&P BSE 200 TRI Index (70% weightage) and CRISIL Composite Bond Fund Index (30% weightage)

Annualised returns on point to point basis is considered

Source: CRISIL Research, For illustration purpose only


PeriodPortfolio A returns

(equity 100%)

Portfolio B returns (equity 70% and debt 30%)

Sub-prime crisis (Jan 2008-Mar 2009) -44% -35%

Sharp bounce back post sub-prime crisis (Apr 2009-Dec 2010) 54% 38%

European crisis (Jan 2011-June 2013) -1% 1%

Post European crisis (Jul 2013-Feb 2015) 29% 25%

Chinese slowdown (Mar 2015-Feb 2016) -21% -12%

Global liquidity and domestic reforms (Mar 2016-Dec 2017) 24% 22%

Optimal asset allocation best suited for long-term investors

Right allocation across asset classes helps achieve better risk-adjusted returns

HSBC Equity Hybrid Fund (HEHF)Aggressive Hybrid fund – An open ended hybrid scheme investing predominantly in equity and

equity related instruments

9

An open ended aggressive hybrid scheme

An asset allocation product with a mix of equity & debt

Benefit from growth potential of equities

Benefit from lower or reduced risk/volatility due to debt exposure

A solution for long term wealth creationHSBC Equity Hybrid Fund

Asset allocation of aggressive hybrid funds as per SEBI’s new category reclassification.

For representation purpose only, * The provision for equity investments is between 65% to 80% and debt between 20% to 35%. The investment list above is not exhaustive and for illustration purpose only


Get upside potential of equities with relatively lower risk

70%

30%

Investment in equity

and equity-related

instruments -

between 65% and

80% of total assets *

Investment in

debt instruments -

between 20% and

35% of total assets *

10

Fund placement in potential risk-reward matrixStriking the right balance in between

Source – HSBC MF, Note - Above list of categories in the chart is an indicative list and is not exhaustive #Typical minimum investment horizon for investors, *There were 2 instances on July 16, 2013 and July 24, 2013 when the liquid funds gave negative one-day return due to tightening of liquidity by RBI1 An open ended debt scheme investing in instruments with Macaulay duration between 4 to 7 years 2 An open ended debt scheme investing in government securities across maturity3 An open ended short term debt scheme investing in instruments with Macaulay duration between 1 year and 3 years


RE

TU

RN

Liquid Funds #

Short Duration Funds 3

Gilt Funds 2

RISK

Long Duration Funds 1

HSBC Equity Hybrid Fund

Dynamic Bond Funds

Large Cap Funds

Mid and Small Cap Funds

Thematic Funds

HSBC Equity Hybrid fund is placed at a mid level of risk-return ratio

Overnight Funds

11

HEHF’s investment approachAsset allocation strategy with right balance between equity & debt

Optimal asset allocation – exposure to two different asset classes to strike

the right balance between Growth & Stability

Flexi-Equity strategy - sector agnostic style of investments with a flexi-cap

strategy to build a diversified portfolio using PBROE valuation framework

Optimal-Duration strategy - to follow an optimal duration debt strategy and

invest in high quality fixed income instruments which offer reasonable yields

Flexible in approach, high on growth, low on risks


12

Why flexi-cap equity strategy?Capitalising on the opportunities across the market spectrum

Performance

Flexi cap strategy can invest across market spectrum depending on prevailing opportunities which can

provide performance consistency

Volatility

Ability to maintain portfolio volatility at reasonable level due to a balance between large, mid and small cap

stocks

Under researched

Mid & small caps may be subject to mis-appraisals and mis-pricing as they are under researched and thus

can create an alpha generation opportunity for the fund manager

Earnings

It offers a combination of stable as well as balanced earnings with a potential to support stock valuations in

up as well as down trend

Growth

While large cap companies are well positioned to achieve economies of scale, mid and small cap companies

may offer higher growth push


13Source - MFI ICRA, HSBC Global Asset Management , data as of 31 Dec 18

Different market-caps perform in different investment scenarios

Bringing performance consistencyFlexi-cap strategy can outperform in different time periods

– Large cap stocks were the leaders in 2006, 2008, 2010, 2011, 2013 & 2018

– Midcap stocks shone in 2012, 2015 & 2016

– Small cap stocks were the best performers in the year 2005, 2007, 2009, 2014 & 2017


-100.0

-50.0

0.0

50.0

100.0

150.0

Large Cap Mid Cap Small Cap

2005 2007 2010 2011 2013 2015 20172006 2008 2009 2012 2014 2016 2018

14

How do we construct a portfolio?Placement of stocks through proprietary PBRoE process makes it more efficient

Inflated Buy Growth Buy

Value Buy Best Buy

RoE of stocks

PB

of

sto

cks

Underweight / Overweight position of market cap segments

For illustrative purposes only

PBRoE: PB: Price to book (Valuations), RoE – Return on equity (Profitability)


15

Data as of 31 Mar 2019


Potential opportunities in equity market across funds

Large cap

In the large cap portfolio, we are overweight on consumer discretionary and private financiers. The union budget

proposals provide impetus to an uptick in consumption and that should augur well in the context of the current

portfolios’ positioning. We also have exposure to the housing theme and select real estate names; two other

segments that benefit from the budget proposals as well some recent policy decisions.

Mid & Small cap

In the backdrop of the stark underperformance in the mid and small cap indices to that of large cap indices in

2018, we see a potential case for a mean reversal going ahead. With global crude oil prices staying within a

range coupled with a stable INR, the margin performance of the mid and small caps names could see

improvement in the coming quarters. The small cap strategy continues to be more bottom up and the sharp

correction in some of the small and midcap names during the year has thrown up some good investment

opportunities, which are now available at more reasonable valuations.

Investment style

Flexi strategy offers potential quality mix of large, mid and small cap stocks in the portfolio without exposure to

excessive risk. The fund aims to invest across value, growth and market capitalisations.

16

Equity - sectorial positioning of the HEHF

O/w – Over weight, U/w – Under weight, E/w – Equal weight, as at Mar 2019, Past performance may or may not sustain and doesn’t guarantee the future performance

Sectors Position Comments

Financials O/w

In an environment of moderate liquidity we prefer Banks over NBFCs due to their stronger

liability franchise. We believe that the NPA creation as well as the recognition cycle have

peaked and the NPA resolution process is well under way. In such a scenario, we believe that

the private corporate lenders will see fall in credit costs and consequently see an improvement

in return ratios. The banking sector is the closest proxy to a resilient economy, that is showing

signs of pick-up on the credit side and private banks will be a beneficiary of the same.

Acceleration in credit growth will further improve profitability. Within the NBFC space we have

been selective and have companies that have a retail focus, healthy capital position and better

ALM.

Industrials O/w

"Our preference is for Construction and EPC (early cyclicals), Consumer Industrials and

Consumer Electrical goods as opposed to Capital goods and Asset owners. Stock price

correction over the last 14 months has made sector valuations attractive. Though, near term

ordering of projects has slowed down (an usual phenomenon before elections), book-to-bill ratio

of investee companies are at multi-year highs. We are positive as ordering slowdown is

temporary and should pick up post elections. Government's focus on infrastructure

development is expected to continue, which will be positive for the construction companies in

this space. Building materials segment may also benefit from the unorganised to organised

shift."

CommunicationServices

O/w

The telecom industry has consolidated and now turned into a three player market. However,

pricing discounts and related competitive intensity has continued to hamper the ARPU recovery

and the market repair process. Moreover, the balance sheets of players remain very stressed

while the capex intensity is expected to remain high. We may be closer to the bottom of the

pricing disruption cycle but believe that capital could be productively deployed in other sectors.

However, we are positive on Media and Entertainment. Within media, we have exposure to the

broadcasting space where valuations have become attractive while growth expectations remain

strong.

17

Why optimal duration strategy?Freedom to position the portfolio favorably

Performance

Potential to capture the superior risk adjusted performance due to flexibility to move allocation towards

favorable duration instruments

Volatility

Potential to avoid extreme risks as the fund manager would aim to reduce duration in a volatile

environment

Risk

Ability to avoid extreme risk as FM has a flexibility to position a portfolio in the favorable short-mid-long

durations

Quality

Investments in better rated credit quality instruments that generally have low capital risk


18

Potential opportunities in debtOptimal duration strategy

Corporate bonds

Corporate bonds between 6 months to 3 years are trading between 100 to 200 bps over the repo rate and

offer attractive carry at current levels.

Data as at Mar 2019


Investment style

Investors are saved from the predicament on whether they should invest in long bond or short bond oriented

funds as the fund manager manages the portfolio composition based on the interest rate cycle.

6

6.5

7

7.5

8

8.5

9

3M 6M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 15Y

Yields% – G-Sec and AAA rated PSU Corporate bonds

AAA PSU Corp Yield G-Sec Yields

19

Who should invest in HEHF?Suited for all types of investors

Cautious - New to equity

HEHF is well suited for investors with no equity exposure due to volatility associated with

equity asset class. HEHF can provide higher return potential with lesser volatility.

Moderate – Measured equity exposure

HEHF is well suited for an informed investor who is looking for adequate exposure to equities

at lesser risk

Disciplined – Balanced approach

HEHF is best suited for investors looking for a cost effective and optimal asset allocation

product


20

Aggressive hybrid portfolio - as represented by the S&P BSE 200 TRI Index (70% weightage) and CRISIL Composite

Bond Fund Index (30% weightage) – has been nearly at par with equity (S&P BSE Sensex TRI ) and has

outperformed debt (CRISIL Composite Bond Fund Index) across all timeframes.

HEHF provides wealth-building opportunityPrudent asset mix offers comparative risk adjusted performance across all timeframes

Source: BSE, CRISIL Research

Aggressive hybrid portfolio represented by the S&P BSE 200 TRI Index (70% weightage) and CRISIL Composite Bond Fund Index (30% weightage), equity by the S&P BSE Sensex TRI and debt by the

Crisil Composite Bond Fund Index

Point to point returns for the period ended 31 Mar 2019, Past performance may or may not sustain and doesn’t guarantee the future performance

Performance of aggressive hybrid portfolio

Higher equity allocation could help achieve growth and

increase the potential of beating inflation in longer timeframes

13.7%

13.0% 12.6%

14.7%

16.6%

13.1%13.7%

16.5%

7.6%

9.1%8.4%

7.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

3 years 5 years 7 years 10 years

An

nu

alis

ed

re

turn

s %

Aggressive Hybrid Equity Debt

21

Why should you invest in HEHF?To be a disciplined investor

Optimal asset allocation

Get exposure to two asset classes in one fund which are not just different, but

complementary

Asset rebalancing

Maintain the desired asset allocation level in your portfolio with asset rebalancing

Dual advantage

Grow your investments with equity and stabilise the volatility with debt

Tax effect

Switching between both asset classes for the desired asset allocation portfolio has no tax

incidence #

Past performance may or may not sustain and doesn’t guarantee the future performance # HEHF invest and rebalances portfolio within equity and debt asset class. HEHF has equity fund status and subject to equity taxation.

22

Fund Name HSBC Equity Hybrid Fund

BenchmarkA customized index with 70% weight to S&P BSE

200 TRI and 30% weight to CRISIL Composite

Bond Fund Index.

Minimum

Application

Amount

Rs 5,000/- per application and in multiples of Re. 1/-

thereafter

Minimum

Application

Amount

(SIP)

Minimum Investment Amount - Rs. 1000 (monthly)

or Rs. 3000 (quarterly);

Minimum no. of instalments - 12 (monthly) or 4

(quarterly);

Minimum aggregate investment - Rs. 12,000.

TypeAn open ended hybrid scheme investing

predominantly in equity and equity related

instruments

Plans /

Options /

Sub options

Regular, Direct plans / Growth, Dividend / Payout,

Dividend Reinvestment

Loads

(including

SIP / STP

wherever

applicable)

Entry Load* : Nil

Exit Load:– Any redemption / switch-out within 1

year from the date of allotment:

For 10% of the units: NIL, For remaining units: 1%

If redeemed / switched out after 12 months from the

date of allotment: NIL”

SIP/STP/SWP AvailableFund

Managers

Neelotpal Sahai for Equity

Kapil Punjabi for Debt

The exit loads set forth above is subject to change at the discretion of the AMC and such

changes shall be implemented prospectively

*In terms of SEBI circular no. SEBI/IMD/CIR No.4/ 168230/09 dated June 30, 2009, no entry

load will be charged by the Scheme to the investor effective August 1, 2009. No exit load (if any)

will be charged for units allotted under bonus / dividend reinvestment option.

HSBC Equity Hybrid Fund (HEHF)Fund snapshot

To seek long term capital growth and income through investments in equity and equity related securities

and fixed income instruments. However, there is no assurance that the investment objective of the

scheme will be achieved.

23Data as on 31 Mar 2019

HSBC Equity Hybrid Fund (HEHF)Fund Portfolio

24

Market Overview

25

Encouraging signs for Large cap investment

India’s GDP growth prospects are bright

– Global financial agencies are optimistic about India’s growth prospects.

– According to World Bank data, India has now become the world’s sixth-biggest economy

– The International Monetary Fund (IMF) has projected 7.5% growth in 2019 for India, making it the fastest growing

country among major economies

Source: CRISIL, BSE, IMF, Bloomberg, as at Dec 2018

Past performance may or may not sustain and does not guarantee future performance.

Note - Above forward looking statements are based on external current views and assumptions and involve known and unknown risks and uncertainties that could affect actual results

0

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ia G

DP

(c

urr

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t $

bn

)

GDP (current $) S&P BSE Sensex

India GDP estimates - 2023

26

Source: MOSL, Bloomberg, data as at Dec 2018

Investments are subject to market risk. Past performance may or may not sustain in the future and does not guarantee or assure future returns

Earnings acceleration

216 236272

361446

540

720

833 820 834

1,024

1,1091,179

1,334 1,3481,330 1,347 1,378

1,589

2,100

FY

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19E

FY

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15%

FY01-FY18:

11.5% CAGR

32%

Expected earnings acceleration provides bigger opportunity

Sensex earnings per share (EPS)

• Sensex EPS is expected to rebound by FY20 with a CAGR of ~23.5% vs ~5.2% in FY 08-18

27

Moderate Valuations in large caps

Moderate valuations in large caps

– Sensex trades at about P/E of ~19x^, at a premium to long-period average

– At ~3.1x P/B of Sensex is also marginally above its historical average

Source – Bloomberg, data as at Mar 2019, ^ Best PE Forward FY20 – price to earnings,

Investments are subject to market risk. Past performance may or may not sustain in the future and does not guarantee or assure future returns

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BEst P/E Ratio (R2) Price to Book Ratio (L1)

Large cap companies are well positioned in current market scenario

Price to earnings and Price to book of Sensex

28

India quarterly earnings improvement

Source: Bloomberg, MOSL, data as of Dec 2018

Past performance may or may not sustain in the future and does not guarantee or assure future returns

Sensex PAT Growth (YoY)

-5

10

17

12

22

7

-7-9

1 1 1

7

-6 -6

-2 -1

1

911

-1-2

11

23

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FY

16

4Q

FY

16

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19 e

Sensex PAT growth at ~23% in the third quarter of FY19

29

Reasonable liquidity to support markets

Source: Bloomberg, Dec 2018, Past performance may or may not sustain in the future and does not guarantee or assure future returns

Domestic equity inflow shows visible expansion in CY2017- 2018

-4.9

10.2

5.3

14.0

15.9

-10

-5

0

5

10

15

20

CY

14

CY

15

CY

16

CY

17

CY

18

(USD bn)

30

Equity Market View

Source: Bloomberg, HSBC Global Asset Management, India As on 31 Mar 2019


The risk – reward situation clearly appears to be in favour of investors

Equity markets saw a broad based rally in March and recorded the best monthly returns in three years. Mid and Small

cap indices outperformed the market indices

Investor sentiments improved on the back of recent opinion polls indicating the likelihood of a stable government post

general elections, considerable ease in geo-political concerns and continuation of RBI’s rate easing cycle

Currently, the NSE Nifty 50 index is trading at ~18x / ~15.5x FY20/21 forward consensus earnings expectation and are

trending slightly above historical averages.

In the large cap and multi cap portfolios, we are overweight on consumer discretionary and private financiers.

The union budget proposals provide impetus to an uptick in consumption and that should augur well in the context of the

current portfolios’ positioning. We also have exposure to the housing theme and select real estate names; two other

segments that benefit from the budget proposals as well some recent policy decisions.

The valuation picture is now much more benign as compared to the start of the previous year and the risk – reward

situation clearly appears to be in favour of investors

31

Debt market view

Upside and downside risks to inflation trajectory are broadly balanced

RBI reduced policy rate (Repo Rate) by 25bps to 6.00% as expected; along with maintaining stance at

“Neutral”. Inflation targets further lowered with the main underlying consideration being slowdown in domestic

growth and subdued inflation so far. A back to back rate cut along with stance being maintained perhaps

suggests a more balanced policy approach.

Oil continued to see gradual uptick over the month from USD65/barrel to ~USD69/barrel. While there is

commentary around increasing supply, OPEC does not seem to increase supply for the time being.

GST collection for the month of February (collected in March) was reported at INR 1.06 tn versus INR 972 bn

for the month of January which is the highest collection so far driving the prospects of improved collections

going forward.

We expect liquidity to remain in the neutral-deficit zone over the next couple of months with the support from

OMOs and currency swaps in the near term.

Source: Bloomberg, HSBC Global Asset Management, India As on 31 Mar 2019


32

Disclaimer

This document provides a high level overview of the recent economic environment. It is for marketing purposes and does not constitute investment research, investment

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the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

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

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observe, any such restrictions.

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Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

33

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