1st November 2011

WF : At the outset, congratulations on taking over additional responsibilities as the fund manager for HSBC India Opportunities Fund. What are your key priorities in your dual role as a fund manager and CIO of HSBC Mutual Fund?

Tushar : Thank you. HSBC Global Asset Management has deployed a comprehensive new philosophy regarding the way it constructs equity portfolios. India too has adopted this broad guideline and my first priority will be to ensure that this get incorporated in the day-to-day functioning of our teams. It is essential to understand the benefits of a well thought out and a long term philosophy to enable us to deliver high quality performance for our clients. While I shall continue to drive an overall investment strategy for all portfolios, I will be involved with directly managing a few of our flagship equity funds. We believe this will lend a degree of intent behind our change of philosophy.

The new philosophy advocates the use of Price-to-Book value (valuation metric) against the Return on Equity (profitability parameter) as a screen to uncover highly profitable companies that are currently trading a valuation lower than others for the same level of profitability. This being a relative measure there will be a cause to constantly re-assess our portfolios to ensure we are well positioned to take advantage of the emerging opportunities in a dynamic manner.

WF : What has driven HSBC India Opportunities Fund's Quartile1 performance over the last one year? What do you believe are the primary reasons for the out performance?

Tushar : HSBC India Opportunities Fund's Quartile1 performance as per Morningstar has been a case of sticking to the core concepts of investing. The fund has consistently invested in high quality companies (as defined by high sustainable ROE's with free cash generation) and taken high weightage conviction bets where required. The portfolio is an optimal mix of large caps to weather volatility and impart liquidity to the portfolio with a generous dose of quality mid-caps to generate additional performance. To that extent it is using all the levers available to a flexi-cap fund.

WF : Do you think this strategy will sustain performance in the future?

Tushar : Performance is an outcome of certain calls and the processes one follows. Sometimes the market may reward the call sooner than we think and sometimes the converse is true. From our side, our diligence on the quality of our calls and the rigor of our processes will continue to be as it has been in the past. HSBC India Opportunities Fund is also following the new investment philosophy as part of its investment approach.

WF : How has the strategy of HSBC India Opportunities Fund changed from before?

Tushar : I do not believe the core investment strategy will undergo change. As explained earlier we are adding HSBC's proprietary PB-ROE model as a stock screener to tighten our selection/rejection process.

WF : What is the split between large cap, mid cap / small cap in the schemes portfolio? Do you plan to keep the allocation similar in the near future?

Tushar : As of end September, large caps accounted for approximately 75% of the portfolio. Mid/small caps accounted for 18-19% with cash forming the balance. In the near future given global uncertainties we plan to keep the allocation to large caps between 70-75%. Cash will however be deployed as and when we think we get suitable levels in stocks of our interest. Generally speaking, in the long run, we endeavour to keep large caps between 60-75% of the portfolio with mid/small caps accounting for the balance.

WF : Overall your AMC has been negative to the interest rate sensitive sectors (banks, auto, real estate) but Bosch accounts for approximately 9% of the portfolio, do you see a disconnect?

Tushar : It is true that over the past 2-3 quarters we have been negative on interest rate sensitive sectors as inflation has been stubbornly stronger and the RBI has been adopting a hawkish attitude to counter inflation. However, I do not see Bosch as a disconnect as we are playing a different theme here. Bosch offers an interesting way to play dieselization of India given the differential fuel prices between diesel and petrol.

WF : Which sectors is the scheme positive on?

Tushar : At this stage HSBC India Opportunities Fund is overweight auto components (via Bosch), energy and information technology. We are negative on commodities, utilities and media.

WF : Is it a good time to invest in a flexi cap fund now? And what should an investor be aware of?

Tushar : During volatile market situations, an investor can benefit from a fund that has the flexibility to adapt to the market conditions. There are products like MIP which have only up to 25% exposure to equity markets and can benefit from the high interest rate scenario with the other part. It may be well-suited for the conservative investor in today's market conditions. However, an aggressive investor looking to benefit form equity can look at diversified or a flexi-cap offering in today's market conditions.

A flexi-cap has the flexibility to move towards the relative safety of large caps in a volatile market scenario or a bearish market situation. In a bullish market scenario, a flexi-cap fund can shift towards high quality mid / small caps and benefit from the growth potential that they offer in such situations.

An investor needs to be aware that a flexi-cap or a diversified equity product still has majority exposure to the equity markets and may not perform if the markets take a continuous beating. They are better suited for a situation where the market tends to exhibit ups and downs at shorter cycles instead of extended runs in either direction.

WF : What is your market view for FY 2012?

Tushar : Near term global events make us cautious. In our view, a bulk of the corporate downgrade cycle as well as the RBI's tightening cycle should be behind us by 3Q FY12. In our view, these will provide opportunities for investors to build exposure into the markets. We remain optimistic on markets in the medium term.

Disclaimer: The responses in this article have 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 schemes of HSBC Mutual Fund. All information contained herein (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 herein 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. 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.

Scheme Classification & Investment Objective: HSBC India Opportunities Fund (an open-ended flexi-cap equity scheme) seeks long term capital growth through investments across all market capitalisations, including small, mid and large cap stocks. It aims to be predominantly invested in equity & equity related securities. However it could move a significant portion of its assets towards fixed income securities if the fund manager becomes negative on equity markets.

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/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 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 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 of the Mutual Fund. HSBC India Opportunities Fund is only the name of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Please read the Statement of Additional Information (SAI) and Scheme Information Document (SID) carefully before investing.

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