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HSBC Mid-month Equity Investment Strategy. Release Date: 22 July 2011 For distributor / broker use only

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HSBC Mid-month Equity Investment Strategy Release Date: 22 July 2011 For distributor / broker use only 2 Market Performance After a decent rebound in the second half of June 2011, the equity markets remain
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HSBC Mid-month Equity Investment Strategy Release Date: 22 July 2011 For distributor / broker use only 2 Market Performance After a decent rebound in the second half of June 2011, the equity markets remain muted during the first fortnight of July The larger cap indices (Sensex and Nifty) underperformed the mid and small cap indices. 10.0% 8.0% 8.3% 6.0% 4.0% 3.5% Large caps under-perform 2.0% 0.0% 2.2% 1.9% 0.2% -0.2% -0.9% -1.2% -3.0% -3.3% BSE CONS. DUR. BSE HEALTHCARE BSE CAP GOODS BSE AUTO BSE FMCG BSE TECK BSE REALTY BSE BANKEX BSE METAL BSE OIL & GAS -2.0% -4.0% Sectoral Performance Sectorally, BSE Realty and BSE Consumer Durables were the best performing sectoral indices, while BSE Metals and BSE Teck were the worst performing ones. 10.0% 8.0% 8.3% 6.0% 4.0% 3.5% Realty a surprise performer 2.0% 0.0% 2.2% 1.9% 0.2% -0.2% -0.9% -1.2% -3.0% -3.3% BSE REALTY BSE CONS. DUR. BSE HEALTHCARE BSE CAP GOODS BSE AUTO BSE FMCG BSE TECK BSE BANKEX BSE METAL BSE OIL & GAS -2.0% -4.0% Portfolio Strategy Performance of key indices Consumer discretionary: Neutral. Domestic Passenger Vehicles were up 4.2% YoY in the month of June 2011 while 2-wheelers growth continued to be robust at 14.6% YoY. In the Commercial Vehicles segment, growth was better than expected at 17.8% YoY. The overall growth in FY12 is likely to remain lower than FY11 due to higher interest rates and high base effect. Consumer staples: Neutral. We have trimmed exposure to the sector on account of high valuations. Energy: Overweight. Rising crude has led to cutback in exposure on Oil Marketing Companies as worries of higher subsidy will de-rate the sector. However, we prefer to take exposure to the sector through upstream/e&p and refining companies. Healthcare: Underweight. We maintained our exposure due to rising valuations. Financials: Underweight. We have maintained our underweight position expecting margin pressure in the future, given the sharp increase in deposit rates across the system. Also, rising interest rates would slow credit growth. Industrials: Neutral. We have reduced our exposure to the sector given the slowdown in Index of Industrial Production (IIP) and the consequent delay in execution. Information Technology: Overweight. We maintain our overweight stance but would keep a watch on any further deterioration in the global outlook which could impact IT spend. Materials: Underweight. We maintain underweight on the sector on account of the moderating economic growth in China, post the recent tightening measures. We prefer to play the sector through companies having exposure to base/non-ferrous and precious metals. Telecommunication: Overweight. We maintain our exposure to the sector on account of its defensive nature. Utilities: Underweight. We maintain an underweight but have added gas utilities on account of steady earnings profile and reasonable valuations. 3 Market Outlook 1QFY12 earnings and global outlook to drive markets in the near term The market movement in the near term would be governed by key events on the domestic and global fronts. Domestically, the performance of corporate India in a tough environment (high interest rates and raw material prices) would be visible with the 1QFY12 earnings season kicking off. The start has been a tad disappointing with muted numbers and guidance from IT major, Infosys. On the global front, the outlook remains uncertain with the EU sovereign crisis coming to the fore once again and concerns regarding US debt levels starting to emerge. 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: 22 July 2011 For distributor / broker use only Market Assessment Sentiments remained positive through the first fortnight of July 2011 on the back of turmoil in the Euro region and lower than expected domestic data. Index of Industrial Production (IIP) and inflation data values remained lower than expected, leading to expectations of a sooner than expected end to the rate hike cycle in India. Economic Data Wholesale Price Index (WPI) for the month of June 2011 rose by 9.44% as against the market expectation of 9.60%. The worrisome trend of revisions continued with April 2011 inflation data being revised upwards from 8.66% to 9.74%, increasing the risk that the June 2011 value could also be an underestimation. 5 Lower than expected inflation, IIP Market Activity G-Sec yields remain resilient Corporate bonds witness renewed demand Money market rates have eased Global Economic Scenario Global event lead to further uncertainty Only one of the four weeks accounted for the higher fuel prices. The full impact of the higher fuel prices would be reflected in the inflation numbers in the coming months. The persisting large revisions in inflation numbers could remain a strong additional source of uncertainty in framing future policy outcomes. IIP for the month of May 2011 stood at 5.6% much below the market expectation of 8.5%. A slower than expected rise in Capital Goods production and weak Intermediate Goods production led to the downside surprise. Bond prices continued to be supported by the developments in the Euro region and softening US treasuries. Lower than expected domestic macro data values ensued further rally at the longer end of the curve despite of persistent sovereign supply. The benchmark 10 G-Sec traded as low as 8.25% after ending the last month at 8.35% levels. Corporate bond yields too remained resilient across the curve. End investor demand by insurance and pension funds ensured long end yields remained well bid. Money market rates eased further with 1 year CD rates easing to 9.40 levels from 9.80 at the beginning of the month. The unwinding of rate hike expectations and easy liquidity contributed to the easing. Concerns over the Euro zone debt, combined with worries over the fiscal position of the US hogged the limelight during the first fortnight of July Uncertainty spread across the global markets as rating agencies warned of the possible consequences of US failing to raise the federal debt ceiling with both Moody s and Standard & Poor s stating that they could lower US s rating. US bond yields lowered below 3% levels on the back of safe haven buying and hope of some positive resolve on raising debt ceiling before August 2, 2011 deadline. The Euro region also witnessed similar pressures as after the recent downgrade of Portugal, Italian and Spanish bond markets witnessed heightened turbulence on the back of high maturities due in the near term. These could escalate tensions as the spill over effects could have a larger impact on bigger economies within the Euro region. The Asian economies on the other hand seem to be on a different trajectory as central banks continued to fight inflation amidst slowdown concerns. China has raised interest rates for the fifth time in eight months, indicating that the country s leaders are still focused on taming the politically sensitive inflation, despite evidence that the world s second-biggest economy is witnessing a slowdown. Bank of Korea which recently put on pause its rate hike cycle, raised its inflation projection to 4% while scaling down the growth forecast to 4.3% from 4.5%. Going Forward Going ahead, we expect the markets to remain range bound ahead of the mid quarter policy review, scheduled for July 26, Although a 25bps hike in rates is widely expected, the tone of policy will pave the way for further movements in yields. While we expect growth concerns to temper the extent of the hawkishness induced by high inflation, however, we don t expect a lowering of guard on the high interest rate regime. Global developments would be keenly watched out for. On the domestic front rains haven t been encouraging enough yet. The rainfall deficit in July 2011 could lead to higher agricultural inflation, thus postponing the respite in inflationary pressures expected in second half of this fiscal year. Moreover, a combination of high interest rates, global shock and bad monsoon could prove detrimental for growth. With the possibility of all three factors culminating, we could be nearing the end of rate hike cycle by RBI, post this policy meeting. 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 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 Tel: Investors may obtain Scheme Information Document, Statement of Additional Information and Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314 D. N. Road, Fort, Mumbai Tel: 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. The names of the Schemes do not in any manner indicate the quality of the Schemes or their future prospects or returns. Read the Scheme Information Document and Statement of Additional Information carefully before investing.
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