COVID-19 Market ImpactINDIA17 April 2020

April 2020

This commentary provides a high level overview of the recent economic environment, and is for information purposes only. It is a marketing communication and does

not constitute investment advice or a recommendation to any reader of this content to buy or sell investments nor should it be regarded as investment research. It has

not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing

ahead of its dissemination. The performance figures displayed in the document relate to the past and past performance should not be seen as an indication of future

returns. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management accepts no liability for

any failure to meet such forecast, projection or target.

2

The coronavirus

outbreak itself Macro backdrop Policy support Valuations

Upside

factors

• Downward trajectory of

new cases across the

world and in India

• Lockdown in India and

other control measures

start working in favour to

contain the outbreak

• A relatively insulated

Indian economy (low but

positive earnings growth

and reasonable GDP

growth prior to the

outbreak

• Countries taken fiscal & monetary policy actions to mitigate the impact

• RBI has cut reverse repo rate by 75bps to 4.4% followed by 25bps cut in repo to 3.75%. Scope for further stimulus

• Hugely improved relative

valuations for many risky

asset classes (e.g.

Equities, Debt (e.g.

Corporate Bonds)

Key factors to consider in the current environment

Source: HSBC Global Asset Management, March 2020. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target

contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.

Key

risks

• Rapid spread of

coronavirus pandemic

• US is now a source of risk,

India lockdown fails to

reduce virus spread

• Containment measures

reduce productivity

• Increasing uncertainties in

global growth outlook

• India’s growth facing a

transitory but significant

impact

• Policy easing is positive

but has limitations

• Policy adjustments are

more constrained in

Eurozone, Japan and

some other nations

• Extended recession due

to a prolonged closure of

businesses

• Bonds offer low

prospective returns for

long-term investors

Source: Bloomberg, Global data as at March 2020, India data as on 17 April 2020.

3

• There are a myriad of possible outcomes, but the risk of global recession rises as pandemic takes hold

• The questions now are how long and how deep it is likely to be

• If policy stimulus ramps up significantly, perhaps we could avoid the worst-case scenario

A reasonable

middle ground

• COVID-19 remains present but under control, people adjust to the “new normal”

• Subdued global growth

• Mild global recession risk despite policy easing

• U-shaped recovery

Market-positive

scenario

• A relatively mild outbreak

• Temporary hit to global growth (a FYQ4 - 2020/FYQ1 – 2021 event)

• Policy easing could help

• V-shaped rebound

Worst-case

scenario

• A global pandemic

• Very damaging to growth

• Policy only able to provide a partial offset

• A marked global recession

TENSION B E T W E E N T W O FORCESPolicy effectiveness Spread of the virus

What are the possible scenarios for the global economic impact?

Source: HSBC Asset Management India (HSBC AMC), March 2020.

Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target contained in this presentation is for

information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.

4Source: IMF, Bloomberg, GDP data as at December 2019.

Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target contained in this presentation is for information purposes only

and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.

Share in global GDP and GDP growth (% CY2019)

“Slow and steady”

growth

Economic impact of COVID-19 hard to gauge

Indian economy had been showing signs of stabilisation prior to the outbreak

24

.7

16

.3

5.9

4.5

3.4

3.2

3.1

2.3

2.1

2.0

2.4

6.1

0.90.5

6.1

1.2 1.20.0

0.9

1.5

0

1

2

3

4

5

6

7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

USA CHINA JAPAN GERMANY INDIA UK FRANCE ITALY BRAZIL CANADA

GD

P g

row

th %

GD

P s

hare

%

Share of GDP%

GDP growth %

• Economic activity is slowing due to COVID-19

• The macro outlook is uncertain

5

• India economic fundamentals (consumption) attempting a rebound prior to the outbreak

• China economic activities contracted year-on-year in January and February

• The outlook is uncertain. Key determining factors to monitor are:

(i) COVID-19 spread and how economically disruptive the containment measures are;

(ii) Implications for labour markets and financial systems

Source: (Left chart) Nomura, March 2020. (Right chart) CEIC, Bloomberg, HSBC Global Asset Management, March 2020.

Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target contained in this presentation is for information purposes

only and is not guaranteed in any way. HSBC AMC accepts no liability for any failure to meet such forecasts, projections or targets.

Economic impact of COVID-19 hard to gauge

For now, we are in a low information environment…

India Consumption REVISIONS TO CHINA GROWTH FORECASTS (PP)*

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

35

2015

2015

2016

2016

2017

2017

2018

2018

2019

2019

2020

Industrial productionReal retail salesFixed asset investment (YTD)

China economic activities contracted

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

Ap

r-16

Jun

-16

Au

g-1

6

Oct-

16

Dec-1

6

Fe

b-1

7

Ap

r-17

Jun

-17

Au

g-1

7

Oct-

17

Dec-1

7

Fe

b-1

8

Ap

r-18

Jun

-18

Au

g-1

8

Oct-

18

Dec-1

8

Fe

b-1

9

Ap

r-19

Jun

-19

Au

g-1

9

Oct-

19

Dec-1

9

Fe

b-2

0

Consumption components - GDP (% y-o-y, 3mma)

Passenger vehicle sales Diesel consumptionConsumer credit Rural agri wages2 wheelers sales Tractor sales

6

…But reinforcing this

COVID-19 is challenging these views

• India’s Nifty index

valuations are implying

10% / 17.5% earnings

growth in FY20/21.

• FY22 is likely to see a

favourable base and with

economy normalising, the

earnings growth trajectory

is likely to see a

meaningful improvement.

• The collapse in crude

prices should work

towards easing both

fuel and core inflation

pressures, depending

on the level of the pass-

through to retail prices.

• RBI expects food prices

would soften as harvest

has been healthy.

• Low inflation allows RBI

to remain proactive.

• RBI has given rate cut

(4.4% repo), (reverse

repo 3.75%) and

continues with the

accommodative stance.

• RBI has announced

many other progressive

measures.

• Scope for a recovery

in profits - already

tentative signs of a

pickup in earnings

data

• Nevertheless,

downside risks from

rising expenses and

possible economic

shocks

Slow but

steady growth

Little

inflation risk

Policy

support

Modest profits

scenario

Core current themes

Key macro views

Source: HSBC AMC, April 2020.

Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection o r target contained in this presentation is for information

purposes only and is not guaranteed in any way. HSBC AMC accepts no liability for any failure to meet such forecasts, projections or targets.

7Source: RBI, Bloomberg, as on 16 April 2020.

Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in a ny way. HSBC AMC accepts no liability for any failure to meet

such forecasts, projections or targets.

• The RBI delivered an unscheduled 75bps rate cut to bring repo rates to multiyear lows of 4.4%, 90bps cut in

reverse repo rates on 27 March ’20 and followed up with 25bps cut in reverse repo on 17 April ‘20 to bring reverse

repo rates down to 3.75%. RBI continues maintained accommodative stance.

• RBI has also announced liquidity measures of Rs.3.74 Lakhs Cr along with debt moratorium option

• The Central government on 26 March 2020, announced a COVID-19 relief package worth Rs. 1.7 trillion (USD 23

bn or ~0.8% of FY20E GDP)

• Resolution timeline for stressed assets extended by 90 days in the wake of covid19 on 17 April ‘20

RBI and GOI - Unlocks all possible measures in a lockdown!

3.25%

3.75%

1440

7125

12194

13047

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

Ma

r-0

2

Oct-

02

Ma

y-0

3

Dec-0

3

Jul-

04

Fe

b-0

5

Se

p-0

5

Ap

r-06

Nov-0

6

Jun

-07

Jan

-08

Au

g-0

8

Ma

r-0

9

Oct-

09

Ma

y-1

0

Dec-1

0

Jul-

11

Fe

b-1

2

Se

p-1

2

Ap

r-13

Nov-1

3

Jun

-14

Jan

-15

Au

g-1

5

Ma

r-1

6

Oct-

16

Ma

y-1

7

Dec-1

7

Jul-

18

Fe

b-1

9

Se

p-1

9

Ap

r-20

RBI Repo rates vs Equity market (Nifty 50 TRI)

RBI Repo Rate (LHS) RBI Reverse Repo Rate (LHS) Nifty 50 (RHS)

4.5%4.4%

~4.9x

Repo/Reverse repo @ multiyear lows

~2.3x

Repo

Reverse Repo

Reverse Repo

Repo

8Source: RBI, Bloomberg, as on 17 April 2020.

Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in a ny way. HSBC AMC accepts no liability for any failure to meet

such forecasts, projections or targets.

RBI has followed-up with measures within three weeks of its comprehensive policy actions taken in March ’20.

These measures are expected to give additional relief to the financial system particularly for sectors such as mid

to smaller NBFCs and real estate which are currently facing challenge in terms of getting access to liquidity from

the banking system.

Key Highlights - RBI’s additional measures announced on 17 April ‘20

• 25 bps of reverse repo rate cut while repo rate and other policy rates remain unchanged

• INR 500 billion of TLTRO for NBFCs announced to begin with

• INR 500 billion of special refinance window to NABARD, SIDBI and NHB

• WMA (ways and means account) for state governments increased by 60% from earlier 30%

• 10% provision to be made on the loans under moratorium

• LCR (Liquidity Coverage Ratio) to be brought down to 80% from 100%

• Banks to not announce dividends for FY20 until further review by RBI

• Resolution timeline for stressed assets extended by 90 days in the wake of covid19

RBI - Unlocks more measures in April ‘20

9

Cut rates by 50 bps

Announced an

unprecedented stimulus plan

(2.5% of GDP)

Cut rates to 0.1% and

restarted QE

The ECB announced an

extra EUR750bn bond-

buying programme

• China - more targeted

policy measures are

possible

• HK - highly

expansionary budgets

• The PBoC has eased

monetary policy,

including cutting RRR

Australia, New Zealand, Singapore,

Indonesia, Thailand: announced

stimulus packages

Pre-emptive monetary policy easing are

seen in the Asia Pacific region

Doubled coronavirus

rescue package to

USD80bn

Cut rates by 50 bps

Major world

economies use

“all appropriate

policy tools” to

support growth.

Low inflation gives policy makers

the ability to continue supporting

growth.

Policy options available to policy

makers include:

Monetary easing

• Interest rate cuts and

commitment to asset purchases

• Zero interest loans from public

sector to corporate sector

• Liquidity measures for banks

Fiscal stimulus

• Large-scale, deficit financed

fiscal stimulus

• Tax relief for corporate sector

• Temporary tax cuts

What policy action has been taken by countries?

A concerted effort by policy makers is needed to shore up growth and confidence

Source: HSBC Global Asset Management, Bloomberg, as at March 2020, India numbers as on 17 April 2020.

Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target contained in this presentation is for information

purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.

BOJ ramps up asset

purchases

RBI cut Repo Rate by 75 bps to

4.4%. Reverse Repo rate is

reduced by 115 bps to 3.75%.

US Fed Rate cut to

set the range

between 0% - 0.25%.

10

Does the market volatility provide a good opportunity

to buy growth assets?

Source: HSBC Global Asset Management, HSBC Asset Management India, data as at March 2020.

Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target contained in this presentation is for information

purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.

• While the environment is very challenging, there is a silver lining. We believe a more cautious strategy is warranted in the short term with , but maintain a pro-risk stance as relative valuations for risky assets such as equities have hugely improved.

• Our equity investment philosophy is based on the basic premise that in the long term, money is made in segments where there is a clear sustainable competitive advantage created over time.

Asset class

• We tend to play the theme of market consolidation phase resulting in structural market share shift for firms.

• Market corrections provide great opportunities to buy ideas at mispriced valuations.

• One such theme is that of profit pool migration and concentration of profits. Within a sector, we see that the profit pool is getting concentrated with market leaders, a trend which is expected to continue going forward.

Equity themes

• This theme will play out in all sectors but would be most visible in fragmented sectors like Financials, Airlines, Real Estate, NBFC, etc. COVID-19 led disruption in the economy will affect all sectors but not uniformly.

• We believe sectors like Food and beverages, Personal products, Health care, Telecom, Utilities, Broadcasting etc., would be less impacted.

• Whereas sectors like Airlines, Travel, Entertainment, Hospitality, Construction, Manufacturing etc. would be impacted much more.

Focused equity sectors

• We would utilize the opportunities provided by sharp market corrections to enter and / or add to ideas that form basis of our investment philosophy and identified themes as above.

• Overall, we believe that companies with market leadership, niche product positioning, scale and competitive advantages will tend to benefit more and are likely to outperform across cycles. These opportunities are sector as well as market cap agnostic in nature.

Current equity market portfolio strategy

11

Four ways to handle market volatility

12

0

1

2

3

4

5

6

7

• Over-the-top market pessimism often presents opportunities to buy companies with good prospects

• Examples: 2003 global SARS outbreak and 2008 – 2009 global financial crisis

Any performance information shown refers to the past and should not be seen as an indication of future returns.

Source: Bloomberg, Nifty 50 PB ratio, data as on16 April 2020.

1. Keep calm and don’t overreact… market downturns may create significant opportunities!

Average 3.5x

2.5x2003

SARS

2008

Financial

crisis

2011

European

sovereign

debt crisis

China growth

concerns

COVID-19?

US – China trade

tension

India

Demonetization

+ GST

India political

issues and shift

NSE Nifty 50 – Price to Book ratio (PB)

13

0

10000

20000

30000

40000

50000

60000

70000

Ja

n-0

0

Oct-

00

Ju

l-0

1

Ap

r-0

2

Ja

n-0

3

Oct-

03

Ju

l-0

4

Ap

r-0

5

Ja

n-0

6

Oct-

06

Ju

l-0

7

Ap

r-0

8

Ja

n-0

9

Oct-

09

Ju

l-1

0

Ap

r-1

1

Ja

n-1

2

Oct-

12

Ju

l-1

3

Ap

r-1

4

Ja

n-1

5

Oct-

15

Ju

l-1

6

Ap

r-1

7

Ja

n-1

8

Oct-

18

Ju

l-1

9

Ap

r-2

0

2. Missed opportunities can be costly… do not try and time the market!

• Sharp declines have been followed by significant rebounds

• Selling during volatile periods can result in losing the chance of recovery in the long-term

Performance information above refers to the past and should not be seen as a guide to the future. Hypothetical analysis is for illustrative purpose only and should not be relied on as

indication for future result. Source: Bloomberg, ACE MF, S&P BSE Sensex TRI, as on 16 April 2020.

Feb'00-Sept'01:

Tech bubble

Sensex TRI lost ~ (54%)

Sep'01-Jan'08: Bull phase

Sensex TRI rose ~779%

Jan'08-Mar'09:

Sub-prime crisis

Sensex TRI fell ~ (60%)

Mar'09-Dec'10:

Bounce back

post sub-prime crisis

Sensex rose ~152%

Jan'11-Dec'11:

European crisis

Sensex TRI fell ~ -(24%)

Jan'12-Feb'15:

Post European crisis

Sensex TRI rose ~100%

Nov'16 - Dec'16

Demonetisation

Sensex fell ~(7%)

Jan '17 - Dec '18

Post Demonetisation

Sensex rose ~40%

Dec'18 -

Feb'19

Geopolitica

l jitters in

the sub-

continent

Sensex fell

~(3%)

Mar'19-Jan‘20

Corporate tax cut,

trade deal

Sensex TRI rose 19%

Jan‘20 -

Mar‘20

Corona

virus

spread

Sensex

TRI fell

~(29%)

S&P BSE SENSEX – TRI performance across big events

?

14

89%

100%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

102%

0

50

100

150

200

250

300

350

400

450

3-year rolling returns 5-year rolling returns 7-year rolling returns 10-year rolling returns 15-year rolling returns

Total number of positive returns* (LHS) Total number of negative returns^ (LHS) Positive investment periods (RHS)

3. Staying invested is key to successful investing

Source: BSE, CRISIL Research, Data as on December 31, 2019, Past performance may or may not sustain, past performance does not guarantee future performance.

S&P BSE Sensex – Positive / Negative returns

rolling performance (no of positive / negative return periods)

• The longer the investment time frame, the less likely a negative return

• Include growth assets in your portfolio regardless of market sentiment

Over time the chance of a

negative return declines

Notes:

Monthly rolling returns for respective holding periods since 1979. For instance, in case of 15-year monthly rolling returns, there will be 307 return periods. The first return period will be June 1979 to June

1994 and last return period will be December 2004 to December 2019.

* Positive returns – The number of investment periods during which returns have been positive. For example, where investment returns have been computed for a 15-year rolling period, 307 months

offered positive returns (profits), the number of positive returns period = 307

^ Negative returns – Number of investment periods during which returns have been negative. For example, where investment returns have been computed for a 5-year rolling period, 33 months offered

negative returns (losses), the number of negative returns = 33.

15

4. Diversify to achieve a smoother ride

Across all risk profiles there are solutions that meet your

investment needs.

Any performance information shown refers to the past and should not be seen as an indication of future returns. Source: ACE MF, data as at March 2020.

...can be one of the

best-performing the

following year

One of the worst-

performing asset

class in one year...

Single asset class

performance can vary

significantly from year

to year

Diversification means investing in various asset classes at

the same time – allowing your investment to be less

exposed to large fluctuations than if invested in a single

asset class

Asset class / indices 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019S&P BSE IPO Index - TRI -9.4 43.5

Brent Crude 96.7 21.6 13.3 3.5 -0.3 -48.3 -36.4 55.8 17.7 -20.4 25.3

Silver 52.0 70.0 9.4 14.1 -24.1 -15.9 -9.5 19.2 -3.2 -0.8 22.6

NIFTY 50 - TRI 77.6 19.2 -23.8 29.4 8.1 32.9 -3.0 4.4 30.3 4.6 13.5

S&P BSE Large Cap - TRI 85.1 18.0 -24.0 29.7 8.1 33.3 -2.7 4.8 31.6 3.7 12.2

Crisil Composite Bond Fund Index 3.5 5.0 6.9 9.4 3.8 14.3 8.6 12.9 4.7 5.9 10.7

Crisil 10 Yr Gilt Index -8.7 3.1 1.9 10.7 -0.7 14.1 7.4 15.0 0.0 6.0 10.5

S&P BSE 200 - TRI 90.9 17.8 -26.0 33.2 6.1 37.4 -0.2 5.4 35.0 0.8 10.4

S&P BSE 250 LargeMidCap Index - TRI 90.4 17.9 -25.3 32.8 6.3 37.8 0.3 5.3 36.1 0.3 10.2

NIFTY 500 - TRI 91.0 15.3 -26.4 33.5 4.8 39.3 0.2 5.1 37.7 -2.1 9.0

Crisil 1 Yr T-Bill Index 2.9 2.8 6.4 8.1 5.9 8.6 8.2 7.3 5.8 6.9 7.6

Crisil Liquid Fund Index 5.1 8.2 8.5 9.0 9.2 8.2 7.5 6.7 7.6 6.9

Gold-India 24.4 23.3 32.1 12.5 -6.3 -6.1 -7.2 11.2 5.3 7.8 3.3

S&P BSE SME IPO - TRI -13.5 -0.9

S&P BSE Mid-Cap - TRI 110.9 17.7 -33.2 40.6 -4.0 56.9 8.7 9.3 49.9 -12.5 -2.1

S&P BSE Small-Cap - TRI 130.8 17.3 -41.6 35.0 -9.7 71.1 7.7 2.7 60.8 -22.9 -5.9

S&P BSE 250 Small Cap - TRI 135.4 17.0 -40.5 39.1 -13.0 58.8 3.3 3.3 57.1 -23.7 -8.4

16

Diversify to match your risk profile

Source: HSBC Global Asset Management. For illustrative purposes only and does not relate to any investments. This is purely hypothetical.

If you want to reduce market volatility choose a

portfolio with higher fixed income products

allocation.

If you want to buy the dip,

consider a portfolio with higher

equity products allocation.

Across all risk profiles there are solutions that meet your

investment needs. 100%

Equities

100%

Fixed

Income

17

Disclaimer

This document has been prepared by HSBC Asset Management (India) Private Ltd (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. 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

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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 carefully before investing. Investors should not invest in the

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18