HSBC Large Cap Equity Fund · HSBC Large Cap Equity Fund - Growth 8.54 14.12 12.29 20.52 Nifty 50...

HSBC Large Cap Equity FundLarge Cap Fund – An open ended equity Scheme predominantly investing in large cap stocks

Abridged Annual Report 2018 - 2019

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HSBC Large Cap Equity Fund

Dear Investor,

Firstly thank you for entrusting us with managing your investments. We do understand that you have many choices and your entrusting us with this responsibility is a matter of pride and privilege for us. It is a responsibility we take very seriously. Doing the right thing for our clients is our most important responsibility and client relationships are our greatest asset. The year gone by and as we write this report has been a very interesting time.

I have in the past used the phrase “May You Live in Interesting Times” in the past. It is an apt way to characterize the past few months. It is at times like this one has to stay the course as we strongly believe that the Indian economy is poised for sustainable long term growth and the best way of participating in this growth is through the mutual fund route. During this volatile period we launched HSBC Equity Hybrid Fund in the multi asset category. This scheme is a hybrid category product and invests in debt and equity markets to provide the right balance to your investments. You will be happy to know that this was amongst the largest mobilisers in the industry during its time. In March 2019, we launched HSBC Large and Mid Cap Equity Fund which invests in both, large and mid-cap stocks and is aptly suitable for investors who are looking for the right mix of mid-cap stocks with the relative stability of large cap stocks in their portfolio.

We all know the importance of technology and digitization. Keeping this in mind, I would like to bring to your notice that you can now invest in any HSBC MF scheme of your choice at the click of a button. Our website, which is completely revamped & redesigned, now offers online investment platform, capital gains statement facility and host of other features to make your investment journey simpler and easier. With our new e-SIP feature, you can now activate your new SIP (or multiple SIPs) within 7 days through the online platform. In case you haven’t still logged in, kindly do so at the earliest as we would be keen to know your feedback and views as we go along. Markets are and will continue to be dynamic. We continue recommending SIP as the ideal investment route to translate your savings in to long term investments to meet your individual goals.

May we continue to live in interesting times.

Warm regards,

Ravi MenonChief Executive Officer, HSBC Global Asset Management Company, India

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SPONSORHSBC Securities and Capital Markets (India) Private LimitedRegd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai - 400 001.

TRUSTEEBoard of TrusteesOffice: 16, Veer Nariman Road, Fort, Mumbai 400 001.

ASSET MANAGEMENT COMPANYHSBC Asset Management (India) Private LimitedCorp. & Regd. Office: 16, Veer Nariman Road, Fort, Mumbai 400 001.

CUSTODIANStandard Chartered Bank (SCB)Corp. & Regd. Office: Crescenzo, Securities Services, 3rd Floor, C-38/39, G-Block,

Bandra Kurla Complex, Bandra East, Mumbai – 400051.

AUDITORS TO THE SCHEMEBSR & Co. LLPChartered Accountants

5th Floor, Lodha Excelus, Apollo Mills Compound, N. M. Joshi Marg, Mahalaxmi, Mumbai 400 011.

REGISTRAR & TRANSFER AGENTSComputer Age Management Services Private Limited (CAMS)Unit: HSBC Mutual Fund ’C’ Block, 2nd Floor, Hanudev Info Park P. Ltd., SF No. 558/2, Udayampalayam Road, Nava India, Coimbatore - 641 028.

BOARD OF TRUSTEES

Ms. Jasmine Batliwalla - Chairperson

Mr. Nasser Munjee

Mr. Manu Tandon

Mr. Dilip J. Thakkar

Mr. Pedro Bastos

Mr. Nani Javeri

BOARD OF DIRECTORS

Ms. Kishori J. Udeshi - Chairperson

Mr. S. P. Mustafa

Mr. Dinesh Mittal

Mr. Ravi Menon - Chief Executive Officer

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The Trustees of HSBC Mutual Fund (“Fund”) present the Seventeenth Annual Report and the audited abridged financial statements of the schemes of the Fund for the year ended March 31, 2019.

As at March 31, 2019, the Fund offered 31 schemes across asset classes to meet the varying investment needs of the investors. Post SEBI norms on re-categorisation and classification of mutual fund schemes, the Fund has launched various new products namely HSBC Equity Hybrid Fund, HSBC Large and Mid-cap Fund and HSBC Overnight Fund to fill the gaps in our product offering. The Fund has also launched various plans under Fixed Term Series and carried out merger of the existing scheme viz. HSBC Dynamic Asset Allocation Fund into HSBC Large Cap Equity Fund, as offering sub-scale fund was not in the interest of the unitholders.

The Fund continues its focus on delivering consistent long term returns. The comments on the performance of the Scheme(s) is provided hereinafter. Dividends were declared under various schemes as per the provisions contained in the respective Scheme Information Documents after considering the distributable surplus available under the respective Schemes. Details of dividends declared can be viewed on our website at www.assetmanagement.hsbc.com/in.

1. SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEMES

a. Operations and Performance of the Schemes

HSBC Large Cap Equity Fund (HLEF)(Large Cap Fund – An open ended equity scheme predominantly investing in large cap stocks)

HLEF seeks to generate long-term capital growth from an actively managed portfolio of equity and equity related securities of predominantly large cap companies. However, there can be no assurance or guarantee that the investment objective of the scheme would be achieved.

The net assets of HLEF amounted to Rs. 687.63 crores as at March 31, 2019 as against Rs. 648.24 crores as at March 31, 2018. Around 98.81% of the net assets were invested in equities, 0.69% of the net assets were invested in reverse repos / TREPS and 0.50% in net current assets as at March 31, 2019.

HLEF is a large cap fund and we remained invested in a diversified portfolio across large capitalization stocks. The scheme has underperformed its benchmark over1 year, 3 year, 5 year period however outperformed since inception. Over last 1-year, the rally in the market was very narrow as only top 6-7 stocks contributed to bulk the gains of benchmark NIFTY index. Valuations of these stocks was expensive to start with. Their valuations have become even more expensive now. Going forward, the AMC believes that mean reversal will happen and the broader set of large caps will outperform this narrow set of large caps, as has been the trend in the past. Underperformance of the fund over 3-year and 5-year is due to roll over effect of underperformance over last 1 year.

The AMC will continue with their approach of selecting sustainably profitable companies at reasonable valuations. Sectorally, the AMC is overweight on Private sector Financials and select domestic demand businesses. The AMC does not expect that private sector capex will recover soon and the government doesn’t have room for increasing allocation for projects. Consequently, the AMC is underweight on Investment arm of economy and related sectors and is neutral to underweight on exporting sectors.

Scheme Name & Benchmarks Absolute Returns (%)

Compounded Annualized Returns (%)

Date of Inception : 10 December 2002 1 Year 3 Years 5 Years Since Inception

HSBC Large Cap Equity Fund - Growth 8.54 14.12 12.29 20.52

Nifty 50 TRI (Scheme Benchmark) 16.40 16.10 13.07 17.41

S&P BSE Sensex TRI (Standard Benchmark) 18.71 16.64 13.12 17.51

Rs. 10,000, if invested in HLEF, would have become 10,856 14,852 17,847 209,914

Rs. 10,000, if invested in Nifty 50 TRI, would have become

11,645 15,637 18,475 137,044

Rs. 10,000, if invested in S&P BSE Sensex TRI, would have become

11,877 15,855 18,516 138,961

Trustees’ ReportFor the year ended March 31, 2019

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Past performance may or may not be sustained in future. The returns for the respective periods are provided as on last business day of March 2019 for Growth Option. Different plans shall have a different expense structure. As TRI data is not available Since Inception of the scheme, benchmark performance is calculated using composite CAGR of S&P BSE Sensex PRI values from date 10-Dec- 2002 to date 31-May-2007 and TRI values since date 31-May-2007.

b. Market Overview & Outlook (as furnished by HSBC Asset Management (India) Private Limited)

EqUITY OUTLOOKFiscal year 2018 – 19 saw divergent performance at the indices level with the large cap market indices and particularly BSE Sensex and Nifty outperforming the broader market indices. Midcap and Small cap indices were the worst performers with negative returns and the performance differential with that of the benchmark indices was meaningful.

The large cap indices and within that the benchmark market indices (viz BSE Sensex & Nifty), registered another strong financial year performance on the back of improving trajectory in corporate earnings, continued strong traction in domestic institutional flows and a stable policy / macro environment for the segment. However, even within the large cap / benchmark indices, there were divergent trends with respect to constituents and witnessed a concentrated performance during the year with only a smaller proportion of stocks driving the outperformance. On the other hand, the underperformance in mid and small caps was as a result of valuations (in late 2017 / early 2018), running ahead of actual earnings delivery / expectation coupled with headwinds from volatility in commodity prices especially global crude oil and INR depreciation. The global crude oil prices had spiked during the course of the fiscal and cooled off later but has remained very volatile. However, the situation is different now with valuations at an aggregate level and for individual stocks in the space coming off significantly and the premium of mid / small cap indices over large caps, which had reached unsustainable levels then, now moving to very reasonable levels. Also, if the global crude oil prices are to remain within a range coupled with a stable INR, then the margin performance of the mid & small cap segment could see improvement in the coming quarters. On the institutional flows side, the FPI momentum saw a meaningful improvement towards the end of the financial year even as on a full year basis, the net inflows figure was subdued at about USD 160 mn. The DII flows momentum continued to be strong net inflows at ~USD 10.26 bn entirely contributed by the MF segment which saw net inflows of ~USD 12.47 bn.

Indices Returns (April 1, 2018 to March 31, 2019) 1 Year (%)

S&P BSE Sensex TR 18.8%

NSE CNX Nifty TR 16.4%

S&P BSE 100 TR 13.9%

S&P BSE 200 TR 12.1%

S&P BSE 500 TR 9.7%

S&P BSE Midcap TR -2.1%

S&P BSE 250 Small-cap TR -10.8%

Source: Bloomberg (All values are for total return indices)

Our view on the key aspects related to equity markets are presented below -

Looking ahead, the general elections outcome has brought clarity for equity markets which was betting on a continuity phase post the elections cycle and that is exactly what has played out. A clear majority for NDA and within that, BJP itself comfortably crossing the half way mark means a stable government at the centre for the next five years. In the context of equity markets, this is a positive outcome as it will mean policy continuity and incremental reforms.

The improved sentiments after the decisive election mandate in May failed to gather momentum as defaults by certain leveraged corporate entities and economic slowdown concerns impacted market sentiments adversely. The high frequency data releases also suggest sluggishness in the overall demand scenario, especially in the auto sales numbers. The monsoon season has started on a weak note with deficient rainfall in June and this will be closely monitored in the context of the rural demand scenario. The monsoon trends are expected to pick up in July as the IMD has stuck to their earlier estimate of a normal rainfall during this southwest monsoon season.

Trustees’ ReportFor the year ended March 31, 2019 (Contd...)

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But there are challenges in front of the government which it will have to address for the economy to revive. Capital markets revival will depend upon revival of the economy. The two most pressing issues faced by the government are addressing growth slowdown in the economy (which has now spread to consumption) and NBFC liquidity crisis. Market sentiments remained weak post elections due to these issues. Global equity markets surged in June while Indian equity indices showed divergent trends owing to the subdued sentiments.

There are near term challenges for the economy in the form of growth slowdown, lingering impact of the NBFC liquidity crisis and sluggish demand / consumption trends. GDP growth, employment data and other high frequency indicators have been patchy with signs of slowdown. The private capital expenditure has been significantly weak or absent and this has further complicated the growth recovery expectation as well as the timeline. As a result, much depended upon Budget, which, however, turned out to be uninspiring. There were no quick fixes (as expected) and as just like in the past, the government was incremental in its approach. There was no large stimulus measures, owning to fiscal constraints.

Looking ahead, we largely expect the government to follow the same path of steady incremental reforms in the fresh term as well and do not assume the scenario of any big bang reforms in the base case. We believe that the focus of the government will be on efficiently implementing and executing existing policy initiatives and projects, be it the IBC, the GST, real estate reforms, focus on housing, infrastructure spends, revival of Public Sector Banks, among others. Government is expected to focus on the issue of unemployment by spurring the job creating segments such as the real estate sector. There could also be more emphasis on improving and efficiently implementing the Direct Benefit Transfer (DBT) programme and increasing the scope for the rural income support scheme.

Along with a pro-growth fiscal approach, we expect a continued accommodative stance from the RBI and the rate easing cycle is expected to continue with more emphasis on transmission at the ground level. These actions should aid in gradually improving the economic sentiments and growth.

The equity market performance has continued to exhibit a bipolar trend with the benchmark indices trading quite strong compared to a weak performance from the broader market indices especially the mid and smallcap indices. While we were expecting the broader market performance to improve, the weak economic growth and demand trends have delayed that process. Even within the largecap indices, the concentrated nature of the performance has continued with a few stocks disproportionately contributing the overall index performance. This trend may not reverse in a hurry unless we see improved sentiments around growth. On the corporate earnings side, the trends have been encouraging in the past few quarters and we expect an improvement in FY20 as well. However, the Nifty valuations at 18.7x for FY20 is on the back of 25%+ earnings growth and hence there is some risk of downward revision in those estimates through the year. However, the earnings delivery for Nifty is likely to see a mid to high teens growth in FY20, which is still on a path of recovery.

We expect the market to remain range bound in the near term as the focus now shifts to measures taken by the government to revive growth as well as the timeline for the economic recovery. After the underperformance phase of almost 18 months now, the valuations of midcap and smallcap names have now become very compelling compared to large caps. However, an upside from these levels (for mid & smallcap names) are largely dependent on the broader economic recovery but that process may be more gradual in nature. On the other hand, while the valuations of the large caps appear in the fair zone given that they are trending slightly higher than their historical averages. However, despite the growth moderation in the economy, the large caps are expected to exhibit stable earnings delivery and hence the preference for large caps and within that, those names with strong earnings visibility is likely to continue.

Key events to watch out for are the government’s steadfastness w.r.t. economic reforms and the central bank’s monetary policy (which we expect to be loose). On the global front, the US – China trade war concerns are back in focus and the dynamics here would be closely monitored. Other key global events to track would be US Fed interest rate decisions, crude oil price dynamics and Brexit news flows.

DEBT OUTLOOKFixed Income in Financial Year 2018-19 has seen volatility continuing through the year. Markets saw a full course with yields ranging between 7.16% – 8.18% an entire 100 bp U-turn during the year. Yields saw steady inching up from the start of the year with a neutral to hawkish stance from the central bank and risk from potential higher oil prices. In the second half of the year yields saw reversal in trends with oil coming sharply off its peak. In the last quarter of the year nervousness around change in government, expectation of high gross borrowings in FY 20, heightened geo political tensions and border skirmishes along with a spike


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in oil led to a corresponding rise in yields. However, the bearishness was tempered by positive RBI actions viz. rate cuts from Feb onwards and open market operations (OMO purchase). Since policy rate cut in April and the change in stance to accommodative in June, led to fixed income markets trading with a positive bias with additional support from declining oil prices, election results and positive movement in currency (INR). Further positive news emerged from the budget on 5th July. The government’s decision to keep the gross market borrowing unchanged at Rs 7.1 tn and FY 2020 fiscal deficit at 3.3% in budget is positive for rates. Further Government’s plan to issue sovereign bond overseas, thereby easing local bond supply is huge positive.

Inflation outperformed and undershot most of RBI projections and remained below the RBI’s 4% target range. RBI continued to lower its inflation trends in each subsequent policy. Food inflation continued to surprise negatively for most of the year. Worries over the impact of MSP increases did not fructify. Core inflation after remaining elevated in the first half of the year started to slow down in the last quarter.

On the monetary front, change in RBI guard in December changed the policy tone and direction from a neutral to hawkish to clearly dovish. RBI has delivered a cumulative 75 bps rate cut from Feb. 2019 to June 2019 versus a 50 bps of rate hike during Jun-Aug 2018. Furthermore during the year there was stance change from “Neutral” to “Calibrated tightening” and back to “Neutral”. In June 2019, policy stance has shifted to “Accommodative”. Throughout the year the RBI has tempered its inflation estimates since inflation outcomes have been below RBI projections. Furthermore, RBI’s policy towards liquidity has been constructive in the year having conducted INR 3000 bn of OMO purchase particularly in the second half of the year. RBI has added USD / INR FX swaps as part of its liquidity management toolkit and conducted a 3 year FX swap of USD 5 bn in March and a further USD 5 bn in April to further infuse liquidity into the system.

Credit growth picked up during the year but has not been broad based. Currency underperformed significantly in the first half along with oil and has been range bound in the second half. Growth has been tepid and a slowdown was more pronounced in Q4 of the FY19, heading into elections. Prospectively, a strong election outcome in the form of the continuation of the current government bodes well for revival in growth expectations. However, global trade tensions and overall slowdown in global growth will continue to have a bearing on domestic growth as well.

Liquidity has been in the neutral to deficit territory. The Liquidity situation has been buffered by RBI OMOs and swaps in the second half. However election driven currency outflow, slowdown in government spending closer to elections has led to a slight increase in the deficit. Post elections, the deficit has reversed significantly. Liquidity has largely been in surplus mode with RBI OMOs, FII flows and government spending.

Going forward the following variables will be the key drivers:

• Liquidity: The RBI is looking prospectively to bring about a liquidity framework. The RBI’s actions on OMO purchases and swaps should be supportive for liquidity. Liquidity will be the key driver of short end rates and should eventually impact the lending environment. Transmission of RBI rate cuts will driving market rates.

• Inflation: Inflation trends have been constructive so far. Going forward it is expected that trends will remain within RBI’s projected range and below the targeted 4%, which will maintain the constructive environment for rates. The risk stems from sub-optimal monsoon which could drive up food inflation. Higher oil prices remains a key risk

• Growth: GDP growth numbers as well as industrial activity will determine policy decisions.

• Fiscal deficit: We expect prudence in government spending and there are expectations meeting fiscal deficit targets.

• Currency: Post the election outcome, the prospect of a stable, steady government have led to FII flows being positive. Going forward, in addition to flows, RBI FX actions, budget, oil, global factors will have an impact on currency. Level of INR will determine central bank’s FX actions impacting liquidity, central bank’s reaction to global situation and rate actions.

Overall, fixed income markets will be well supported by expectation of further rate cuts, assuming normal monsoon, benign inflation numbers, and a possible growth slowdown. On the flip side, high gross borrowings leading to adverse demand supply equation for government securities, and any slippage in fiscal numbers, would be key risks for the market.


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2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY

a. Sponsor

HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000/- (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund.

HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of the Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments). HSCI holds 100% of the paid up equity share capital of HSBC Asset Management (India) Private Limited.

b. HSBC Mutual Fund

HSBC Mutual Fund (“the Mutual Fund” or “the Fund”) has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated February 7, 2002 with HSBC Asset Management (India) Private Limited (AMC) to function as the Investment Manager for all the schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27, 2002.

The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities for the purpose of providing facilities for participation by persons as beneficiaries in such investments and in the profits / income arising therefrom.

c. Board of Trustees (the Trustees)

The Board of Trustees is the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unit holders. The Trustees have been discharging their duties and carrying out the responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seek to ensure that the Fund and the schemes floated there under are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by the SEBI, the Stock Exchanges, the Association of Mutual Funds in India and other regulatory agencies.

d. Asset Management Company (the AMC)

HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 16, V. N. Road, Fort, Mumbai 400 001. HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide its Letter No. MFD / BC/163/2002 dated May 27, 2002. The paid-up equity share capital of the AMC is Rs. 61.59 crores. The AMC is registered as a Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993 vide registration no. INP000001322. The AMC also offers non-binding Advisory services to offshore funds under the mutual fund license.

HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid up equity share capital of the AMC.

3. INvESTMENT OBJECTIvE OF THE SCHEMESThe investment objective of the respective schemes has been provided above under the heading “Scheme Performance, Future Outlook and Operation of the Scheme” (Refer Section 1).

4. SIGNIFICANT ACCOUNTING POLICIES The Significant Accounting Policies form part of the Notes to the Accounts annexed to the Balance Sheet of the Schemes in the Full Annual Report. The accounting policies are in accordance with Securities Exchange Board of India (Mutual Funds) Regulations 1996.


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5. UNCLAIMED DIvIDENDS & REDEMPTIONSSummary of number of investors & corresponding amount Scheme-wise as on March 31, 2019

SchemeUnclaimed Dividend Unclaimed Redemption

Amount (Rs.) No. of Investors

Amount (Rs.) No. of Investors

HSBC Large Cap Equity Fund 13,734,917.60 1384 7,636,963.31 167

6. INvESTOR SERvICESThe number of official points of acceptance of transactions is 204 locations. In addition to the offices of the Registrar & Transfer agents, the AMC has Investor Service Centres in 9 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Bangalore, Pune, Ahmedabad, Hyderabad, Chandigarh and Chennai. With a view to enhance customer convenience, the AMC has the facility of priority based servicing to key distributors through the enhancement of the Interactive Voice Reponses. The AMC has a single Toll Free number which can be dialed from anywhere in India. The call center service is being managed by the Registrar and Transfer Agents.

On the distribution front, the number of empanelled distributors was 672 as on March 31, 2019. During the year, the AMC initiated tie-ups for online distribution of the Mutual Fund’s schemes with several channel partners taking the total number of such tie-ups to 47.

7. DETAILS OF INvESTOR GRIEvANCE REDRESSALThe details of the redressal of investor complaints received against HSBC Mutual Fund during April 2018 - March 2019 are as follows:

2018-2019Com- plaint Code

Type of complaint (a) No. of complaints

pending at the

beginning of the year

(b) No. of Complaints

received during the

year

Action on (a) and (b)

Resolved Pending

Within 30

days

30 - 60 days

60 - 180 days

Beyond 180 days

0 - 3 months

3 - 6 months

6 - 9 months

9 - 12 months

I A Non receipt of Dividend on Units

0 3 3 0 0 0 0 0 0 0

I B Interest on delayed payment of Dividend

0 0 0 0 0 0 0 0 0 0

I C Non receipt of Redemption Proceeds

0 7 7 0 0 0 0 0 0 0

I D Interest on delayed payment of Redemption

0 0 0 0 0 0 0 0 0 0

II A Non receipt of Statement of Account / Unit Certificate

0 4 4 0 0 0 0 0 0 0

II B Discrepancy in Statement of Account

0 3 3 0 0 0 0 0 0 0

II C Data corrections in Investor details **

0 31 31 0 0 0 0 0 0 0

II D Non receipt of Annual Report / Abridged Summary

0 1 1 0 0 0 0 0 0 0

III A Wrong switch between Schemes

0 0 0 0 0 0 0 0 0 0

III B Unauthorized switch between Schemes

0 0 0 0 0 0 0 0 0 0

III C Deviation from Scheme attributes

0 0 0 0 0 0 0 0 0 0

III D Wrong or excess charges / load 0 0 0 0 0 0 0 0 0 0


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2018-2019Com- plaint Code

Type of complaint (a) No. of complaints

pending at the

beginning of the year

(b) No. of Complaints

received during the

year

Action on (a) and (b)

Resolved Pending

Within 30

days

30 - 60 days

60 - 180 days

Beyond 180 days

0 - 3 months

3 - 6 months

6 - 9 months

9 - 12 months

III E Non updation of changes viz. address, PAN, bank details, nomination, etc.

0 4 4 0 0 0 0 0 0 0

IV Others 0 33 32 0 0 0 1 0 0 0

Total 0 86 85 0 0 0 1 0 0 0

Summary of Complaints for FY 2018-19Particulars Count

Total complaints received 86

Total number of folios 1,65,406

% of complaints against the folio 0.052%

# active folios** As per AMFI Best Practice Guidelines Circular No. 25/2011-12 for Revisions in the Guidelines on Standardization of

Complaints / Grievances Reporting Procedure. If “Others” include a type of complaint which is more than 10% of overall complaints, then such a reason should be provided separately. Hence data corrections in Investor Details is included as a separate category

* Non actionable means the complaint is incomplete / outside the scope of the mutual fund

8. INvESTOR EDUCATION INITIATIvES The AMC is driving the initiative of geographical penetration through its focused intermediaries. These focus intermediaries include National Distributors, Regional Distributors and Banks who have presence in B30 locations, either through their branches or sub-broker channel. The AMC has undertaken various initiatives to engage with investors across these locations in collaboration with these focus intermediaries. The broad topics of these engagements ranged from Investing in SIPs and Benefits of Asset Allocation.

The AMC also conducts Investor Awareness Programs (IAPs) in various cities and adopted districts. This helps improve the level of financial literacy within retail investor base. During this period, we have conducted IAP events in 3 adopted districts Patna, Nagpur and Gautam Buddh Nagar (Noida) as well.

The AMC conducted 15 Investor Awareness Programme events in 14 cities across India to help investors understand benefits of equity investing through mutual funds. In addition, Investor awareness advertisement were published in Mutual Fund Insight magazine on a monthly basis along with an editorial on ‘SIP Sahi Hai’.

The AMC has launched a full-service online platform for retail investors whereby a prospective or existing investor can buy mutual fund directly from our online platform without any distributor / broker and can also raise any service query regarding his folio.

9. PROxY vOTING POLICYIn terms of SEBI Circular no. SEBI/IMD/CIR No. 18/198647/2010 dated March 15, 2010, the Fund has adopted Proxy Voting Policy and Procedures for exercising voting rights in respect of securities held by the Schemes.

The summary of the votes casted in the general meetings of the Investee companies, by the AMC for and on behalf of the Schemes of the Fund, for the financial year 2018-19 is provided below:

quarter Total no. of resolutions

Break-up of vote decisionFor Against Abstained

June 2018 111 65 2 44

September 2018 892 817 14 61

December 2018 69 66 0 3

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quarter Total no. of resolutions

Break-up of vote decisionFor Against Abstained

March 2019 133 124 1 8

Total 1,205 1,072 17 116

In terms of the requirement of SEBI Circular no. CIR/IMD/DF/05/2014 dated March 24, 2014 and SEBI / HO/IMD/DF2/CIR/P/2016/68 dated August 10, 2016; the AMC has obtained certificate from M/s. M. P. Chitale & Co., Chartered Accountants, who is acting as a Scrutinizer, on the voting report for the FY 2018-19. The certificate dated May 08, 2019 issued by M/s. M. P. Chitale & Co., is available on the website of the AMC as part of the full Annual Report.

Unit holders can refer to the full Annual Report for complete details of actual exercise of votes in the general meetings of the investee companies for the financial year 2018-19 or log on to our website at www.assetmanagement.hsbc.com/in.

10. STATUTORY DETAILSa) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of

the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund.

b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments.

c) Full Annual Report shall be disclosed on the website at www.assetmanagement.hsbc.com/in and shall be available for inspection at the Head Office of the Mutual Fund. Present and prospective unit holders can obtain copy of the Trust Deed, the full Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price.

11. SIGNIFICANT EvENT AFTER THE END OF THE FINANCIAL YEAR HSBC Mutual Fund is holding Non-convertible Debentures (NCDs) of Dewan Housing Finance Corporation Ltd (DHFL) in HSBC Low Duration Fund, HSBC Short Duration Fund, HSBC Fixed Term Series 134, 135 and 136. As at 31 March 2019, these NCDs were valued at the script-level prices provided by CRISIL and ICRA in accordance with the valuation policy of HSBC Mutual Fund. Subsequent to the year end, on June 04, 2019 there was rating downgrade of DHFL by rating agencies to D (Default rating), due to default in payment of interest on certain NCDs. Hence, in line with the Regulations, the NCDs held by these schemes have been valued at the prices provided by CRISIL and ICRA, after the applicable haircut rate of 75%. Consequently, the carrying value of the NCDs is lower by about 75% as compared to the carrying value as at 31 March 2019. The details of these investments are provided in the notes to accounts to the financials in the annual report of the respective schemes.

12. ACKNOWLEDGEMENTSThe Trustees wish to thank the Unit holders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the services provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated.

The Trustees look forward to the continued support of everyone.

For and on behalf of the Board of Trustees of HSBC Mutual Fund

Sd/-

Dilip ThakkarTrustee

MumbaiJuly 17, 2019.

11


To the Board of Trustees to

HSBC Mutual Fund - HSBC Large Cap Equity Fund

Report on the Audit of the Financial Statements

OpinionWe have audited the financial statements of HSBC Large Cap Equity Fund (the ‘Scheme’) of HSBC Mutual Fund (the ‘Fund’), which comprise the balance sheet as at 31 March 2019 and the revenue account, cash flow statement for the year then ended, and notes to the financial statements, including a summary of the significant accounting policies.

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid financial statements give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, as amended (the ‘Regulations’) in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Scheme as at 31 March 2019, the Schemes net surplus and cash flows for the year ended on that date.

Basis for OpinionWe conducted our audit in accordance with the Standards on Auditing (‘SAs’) issued by the Institute of Chartered Accountants of India (the ‘ICAI’). Our responsibilities under those SAs are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Schemes in accordance with the ethical requirements that are relevant to our audit of the financial statements in India, and we have fulfilled our other ethical responsibilities in accordance with ICAI Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Management and Those Charged with Governance for the Financial Statements The Schemes management, the Board of Trustees of the Fund (the ‘Trustees’) and the Board of Directors of HSBC Asset Management (India) Private Limited (the ‘AMC’), being the investment manager to the Fund are responsible for the preparation of these financial statements in accordance with the accounting policies and standards specified in the Ninth Schedule of the Regulations and the accounting principles generally accepted in India, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing these financial statements, the Schemes management, the Board of Trustees and the Board of Directors of the AMC are responsible for assessing the Schemes ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Schemes or to cease operations, or has no realistic alternative but to do so.

The Board of Trustees and the Board of Directors of the AMC are also responsible for overseeing the Schemes’ financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial StatementsOur objectives are to obtain reasonable assurance about whether the financial statements of the Schemes as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identifyandassesstherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudor error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material

Independent Auditors’ Report

12


Independent Auditors’ Report (Contd...)

misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtainanunderstandingofinternalcontrolrelevanttotheauditinordertodesignauditproceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Schemes’ internal controls.

• Evaluatetheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesand related disclosures made by management of the Schemes.

• Concludeontheappropriatenessofmanagement’suseofthegoingconcernbasisofaccountingand,based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Schemes’ ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Schemes to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including thedisclosures and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

Report on Other Legal and Regulatory Requirements1 As required by Regulation 55 (4) to the Regulations, we report that:

(a) We have obtained all information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of the audit; and

(b) The balance sheet and revenue account have been prepared in accordance with the accounting policies and standards as specified in the Ninth Schedule of the Regulations.

2 As required by Clause 5 (ii) (2) of the Eleventh Schedule to the Regulations, we report that the balance sheet and revenue account are in agreement with the books of account of the Scheme.

3 In our opinion and on the basis of information and explanations given to us, the methods used to value non-traded securities, as at 31 March 2019, as determined by the Board of Directors of the AMC, are in accordance with the Regulations and other guidelines issued by the Securities and Exchange Board of India as applicable and approved by the Board of Directors of the Trustees, are fair and reasonable.

For B S R & Co. LLP Chartered Accountants Firm’s Registration No: 101248W/W-100022

Sd/-

Akeel Master Partner Membership No. 046768

Place : Mumbai Date : 17 July, 2019

13


Rs. in Lakhs

As at March 31, 2019

As at March 31, 2018

LIABILITIES1 Unit Capital 7,912.21 7,688.07 2 Reserves & Surplus2.1 Unit Premium Reserves (11,980.59) (10,058.80)2.2 Unrealised Appreciation Reserve 13,893.60 11,220.67 2.3 Other Reserves 58,937.07 55,973.77 3 Loans & Borrowings – – 4 Current Liabilities & Provisions4.1 Provision for Doubtful Income/Deposits – – 4.2 Other Current Liabilities & Provisions 511.42 470.57

TOTAL 69,273.71 65,294.28

ASSETS1 Investments1.1 Listed Securities:1.1.1 Equity Shares 67,933.28 63,757.42 1.1.2 Preference Shares – – 1.1.3 Equity Linked Debentures – – 1.1.4 Other Debentures & Bonds – – 1.1.5 Securitised Debt Securities – – 1.2 Securities Awaited Listing:1.2.1 Equity Shares – – 1.2.2 Preference Shares – – 1.2.3 Equity Linked Debentures – – 1.2.4 Other Debentures & Bonds – – 1.2.5 Securitised Debt Securities – – 1.3 Unlisted Securities:1.3.1 Equity Shares – – 1.3.2 Preference Shares – – 1.3.3 Equity Linked Debentures – – 1.3.4 Other Debentures & Bonds – – 1.3.5 Securitised Debt Securities – – 1.4 Government Securities – – 1.5 Treasury Bills – – 1.6 Commercial Paper – – 1.7 Certificate of Deposits – – 1.8 Bill Rediscounting – – 1.9 Units of Domestic Mutual Fund – – 1.10 Foreign Securities – –

Total Investments 67,933.28 63,757.42

2 Deposits 7.49 8.76 3 Other Current Assets3.1 Cash & Bank Balance 41.50 65.24 3.2 CBLO / TREPS / Reverse Repo Lending 477.12 1,308.02 3.3 Others 814.32 154.84 4 Deferred Revenue Expenditure (to the extent not written off) – –

TOTAL 69,273.71 65,294.28

Notes to Accounts - Annexure I

Abridged Balance Sheet as at March 31, 2019

14


Abridged Revenue Account For the Year Ended March 31, 2019

Rs. in Lakhs

Current Year ended

March 31, 2019

Previous Year ended

March 31, 2018

1 INCOME1.1 Dividend 961.16 948.02 1.2 Interest 73.20 93.66 1.3 Realised Gain / (Loss) on Foreign Exchange Transactions – – 1.4 Realised Gains / (Losses) on Interscheme Sale of Investments – – 1.5 Realised Gains / (Losses) on External Sale / Redemption of

Investments3,399.15 8,601.21

1.6 Realised Gains / (Losses) on Derivative Transactions – – 1.7 Other Income 7.71 0.23

(A) 4,441.22 9,643.12 2 ExPENSES2.1 Management Fees 899.87 983.35 2.2 GST / Service Tax on Management Fees 161.98 170.10 2.3 Transfer Agents Fees and Expenses 90.43 84.62 2.4 Custodian Fees 8.59 7.79 2.5 Trusteeship Fees 2.12 1.31 2.6 Commission to Agents 326.99 254.04 2.7 Marketing & Distribution Expenses 0.92 – 2.8 Audit Fees 3.15 3.78 2.9 Investor Education Expenses 13.66 12.94 2.10 Interest on Borrowing – – 2.11 Other Operating Expenses 24.83 18.28 2.12 Less : Expenses to be Reimbursed by the Investment Manager (0.06) –

(B) 1,532.48 1,536.21

3 NET REALISED GAINS / (LOSSES) FOR THE YEAR (C = A - B) 2,908.74 8,106.91

4 Change in Unrealised Depreciation in Value of Investments (D) – –

5 NET GAINS / (LOSSES) FOR THE YEAR (E = C + D) 2,908.74 8,106.91

6 Change in Unrealised Appreciation in Value of Investments (F) 2,672.93 (2,386.12)

7 NET SURPLUS / (DEFICIT) FOR THE YEAR (G = E + F) 5,581.67 5,720.79

7.1 Add : Balance Transfer from Unrealised Appreciation Reserve – 2,386.12 7.2 Less : Balance Transfer to Unrealised Appreciation Reserve (2,672.93) – 7.3 Add / (Less) : Equalisation 1,055.31 1,655.83 7.4 Transfer from Reserve Fund 55,973.77 48,607.04

7.5 Transfer from Unit Premium Reserve – –

8 Total 59,937.82 58,369.78 9 Dividend Appropriation9.1 Income Distributed during the Year (886.07) (2,396.01) 9.2 Tax on Income Distributed during the Year (114.68) –

10 Retained Surplus / (Deficit) Carried Forward to Balance Sheet 58,937.07 55,973.77

Notes to Accounts - Annexure I

15


Key Statistics for the year ended March 31, 2019

Current Year ended

March 31, 2019

Previous Year ended

March 31, 2018

1. NAV per unit (Rs.):

Open

Regular Plan - Growth Option 193.2264 176.9354

Regular Plan - Dividend Option 28.4644 29.1250

Direct Plan - Growth Option 200.8599 182.5970

Direct Plan - Dividend Option 29.9810 30.2968

High





Low





End5





2. Closing Assets Under Management (Rs. in Lakhs)

End 68,763 64,824

Average (AAuM)1 68,317 64,706

3. Gross income as % of AAuM2 6.50% 14.90%

4. Expense Ratio:

a. Total Expense as % of AAuM (Including GST/Service tax on Management fees) (planwise)

Regular Plan (Continue) 2.49% 2.66%

Direct Plan 1.78% 1.93%

b. Management Fee as % of AAuM (planwise)

Regular Plan (Continue) 1.32% 1.52%

Direct Plan 1.32% 1.52%

5. Net Income as a percentage of AAuM3 4.26% 12.53%

6. Portfolio turnover ratio4 0.69 0.88

7. Total Dividend per unit distributed during the year (planwise)

Retail


16


Current Year ended

March 31, 2019

Previous Year ended

March 31, 2018


Corporate



8. Returns (%):

a. Last One Year

Scheme



Benchmark

Nifty 50 TRI 16.4000 12.6800

b. Since Inception

Scheme



Benchmark

Nifty 50 TRI 17.4100 17.4700

1. AAuM=Average daily net assets2. Gross income = amount against (A) in the Revenue Account i.e. Income3. Net income = amount against (C) in the Revenue Account i.e. Net Realised Gains / (Losses) for the year4. Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year5. The net asset value disclosed represents the computed NAV on March 31, 2019 (Non-business Day),

and not the last declared NAV

Key Statistics for the year ended March 31, 2019 (Contd...)

17


Notes to Accounts – Annexure ITo the Abridged Balance Sheet and Revenue Account for the Year ended March 31, 2019

1 Investments:

1.1. It is confirmed that investments of the Schemes are registered in the name of the Trustees for the benefit of the Scheme’s unitholders.

1.2. Open Positions of derivatives as of years ended March 31, 2019 and March 31, 2018 are NIL

1.3. Investments in Associates and Group Companies:

(Rupees)

Issuer Instrument Type

Amount Aggregate Investments

by all schemes

Amount Aggregate Investments

by all schemes

2019 2018

Shriram Transport Finance Company Ltd.

Corporate Bonds / Debentures

– 740,203,250 – 651,317,500

Equities 155,453,400 194,922,114 – –

Bharti Airtel Ltd. Equities – 356,482 200,033,757 369,136,950

Balrampur Chini Mills Ltd.

Equities – 17,018,040 – 1,252,27,938

Thomas Cook (India) Ltd.

Equities – 132,485,094 – –

1.4. Open positions of Securities Borrowed and / or Lent by the scheme as of the years ended March 31, 2019 and March 31, 2018 are NIL.

1.5. NPAs as at years ended March 31, 2019 and March 31, 2018 are NIL.

1.6. Aggregate Unrealised Gain / Loss as at the end of the Financial Years March 31, 2019 and March 31, 2018 and percentage to net assets are as under :

Company Name Amount (Rs.)

Percentage to Net Assets

Amount (Rs.)

Percentage to Net Assets

2019 2018

Equity Shares

– Appreciation 1,478,479,442 21.50 1,222,730,921 18.86

– Depreciation 8,9119,080 1.30 100,663,795 1.55

1.7. The aggregate value of investment securities (excluding CBLO/TREPS and Reverse Repos) purchased and sold (including matured) during the financial year 2018-2019 (excluding accretion of discount) is Rs. 4,746,948,500 and Rs. 5,320,020,407 respectively being 69.48% and 77.87% of the average daily net assets.

The aggregate value of investment securities (excluding CBLO and Reverse Repos) purchased and sold (including matured) during the financial year 2017-2018 (excluding accretion of discount) is Rs. 5,705,314,767 and Rs. 5,863,900,411 respectively being 88.17% and 90.62% of the average daily net assets.

1.8. Non-Traded securities in the portfolio of the scheme as of the Years ended March 31, 2019 and March 31, 2018 are NIL.

18


2 Disclosure Under Regulation 25(8) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended.

During the year 2018-19, The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection/bank charges amounting to Rs. Nil and clearing member charges on derivative transactions amounting to Rs. Nil.

During the year 2017-18, The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection/bank charges amounting to Rs. Nil and clearing member charges on derivative transactions amounting to Rs. Nil.

Commission paid to Sponsor/AMC and its associates/related parties/group companies

Name of Sponsor/AMC and its associates/related parties/group companies

Nature of Association / Nature of

Relation

Period Covered

Business Given [Rs. In Crores]

% of Total Business

received by the Fund

Commission paid [Rs.]

% of Total commission paid by the

Fund

The Hongkong and Shanghai Banking Corporation Limited

Associate of Investment Manager

2018-2019 55.18 32.12 9,515,084 34.30


Nature of Association / Nature of

Relation

Period Covered

Business Given [Rs. In Crores]

% of Total Business

received by the Fund

Commission paid [Rs.]

% of Total commission paid by the

Fund

The Hongkong and Shanghai Banking Corporation Limited

Associate of Investment Manager

2017-2018 53.54 28.84 6,271,609 26.39

Brokerage paid to Sponsor/AMC and its associates/related parties/group companies


Nature of Association /Nature of

relation

Period Covered

value of Transactions

[Rs. In Crores]

% of total value of

transactions of the fund

Brokerage paid [Rs. ]

% of total brokerage

paid by the fund

HSBC Securities and Capital Market (India) Private Limited

Sponsor 2018-2019 1,006.70 2.31 10,964,486 2.54


Nature of Association /Nature of

relation

Period Covered

value of Transactions

[Rs. In Crores]

% of total value of

transactions of the fund

Brokerage paid [Rs. ]

% of total brokerage paid by the

fund

HSBC Securities and Capital Market (India) Private Limited

Sponsor 2017-2018 17.09 1.48 146,978 1.15

The brokerage paid was at rates similar to those offered to other brokers / distributors. The Commission/Brokerage paid to related party includes both upfront and trail and hence not comparable with the % of business brought and % of commission paid.

Notes to Accounts – Annexure I (Contd...)To the Abridged Balance Sheet and Revenue Account for the Year ended March 31, 2019

19


Further, The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates.

(i) Any underwriting obligations undertaken by the schemes of the mutual funds with respect to issue of securities associate companies - Nil. (Previous year also Nil)

(ii) Devolvement - Nil. (Previous year also Nil)

(iii) Subscription by the schemes in the issues lead managed by associate companies - Nil. (Previous year also Nil)

(iv) Subscription to any issue of equity or debt on private placement basis where the sponsor or its associate companies have acted as arranger or manager - Nil. (Previous year also Nil)

3 None of the Investors held more than 25% of the total net assets of the scheme at the years ended March 31, 2019 and March 31, 2018.

4 Unit Capital movement during the years ended March 31, 2019 and March 31, 2018.** :

Description

2018-2019

Opening Units Subscription Redemption Closing UnitsFace value

per unit (Rupees)

Regular Plan - Growth Option

12,622,219.318 5,985,575.734 2,076,731.264 16,531,063.788 10

Regular Plan - Dividend Option

5,0704,100.083 9,409,850.707 6,682,111.607 5,3431,839.183 10

Direct Plan - Growth Option

12,838,269.419 686,944.814 5,103,696.725 8,421,517.508 10

Direct Plan - Dividend Option

716,079.110 152,300.937 130,676.467 737,703.580 10

Description

2017-2018

Opening Units Subscription Redemption Closing UnitsFace value

per unit (Rupees)

Regular Plan - Growth Option

12,279,251.293 2,984,640.397 2,641,672.372 12,622,219.318 10

Regular Plan - Dividend Option

52,242,885.892 8,502,563.072 10,041,348.881 50,704,100.083 10

Direct Plan - Growth Option

12,461,138.545 1,995,011.404 1,617,880.530 12,838,269.419 10

Direct Plan - Dividend Option

665,127.377 16,335,588.075 16,284,636.342 716,079.110 10

**Units held by the AMC (Seed Capital) in Direct Plan Growth Option as on March 31, 2019 is 33,261.112 & as on March 31, 2018 is 33,261.112.


20



5 Previous year figures have been re-grouped/re-arranged where necessary.

6 No contingent liabilities for the years ended March 31, 2019 and March 31, 2018.

7 Expenses other than Management Fees are Inclusive of GST / Service Tax where applicable.

8 Other income of Rs.770,250/- represents Exit load (net of GST / service tax) credited to the scheme. (2018: Rs. 22,767/- represents Exit load (net of service tax) credited to the scheme).

9 Investor Education Awareness

In view of the AMFI Best Practices Guidelines Circular No. 56/2015-16, the IEF (Investor Education Fund) accrual is set aside in a separate bank account and the consolidated balance across all schemes as on March 31, 2019. The break-up of which is as under:

Particulars March 31, 2019 March 31, 2018

Amount (in Rs. Lacs) Amount (in Rs. Lacs)

Opening Balance 119.02 44.00

Add: Accrual during the year 234.07 219.83

Less: Transferred to AMFI 107.30 101.10

Less: Payable to AMFI (March accrual) 9.73 8.81

Add: Investment Income for the year 15.43 8.28

Less: Spent during the year 36.81 43.17

Closing Balance 214.68 119.02

10 Categorization and Rationalization of schemes

Pursuant to SEBI circular no. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 06, 2017 and SEBI circular no. SEBI/HO/IMD/DF3/CIR/P/2017/126 dated December 04, 2017 on ‘Categorization and Rationalization of schemes’, fundamental attribute related changes were carried out in certain schemes of HSBC Mutual Fund to align the same with the requirements specified in the aforesaid circulars effective from March 14, 2018. The said changes have been approved by the Board of Directors of the HSBC Asset Management (India) Pvt. Ltd. (the AMC) and the Board of Trustees (the Trustees). SEBI vide its letter no. IMD/DF3/OW/P/2018/89/1 dated January 02, 2018 has also conveyed it’s no objection to the said changes.

A notice-cum-addendum providing details of changes in the fundamental attributes of certain schemes was published in the newspaper on February 03, 2018 and is also available on the website of the AMC at www.assetmanagement.hsbc.com/in. The exit window period of 30 days was provided to the investors during which no exit load was charged to investors on switches/redemptions.

Apart from the fundamental attribute changes, there has been change in the ‘type of scheme’ for all the open ended schemes and ‘name of scheme’ in certain schemes for the purposes of alignment of the existing schemes with the provisions of the Circular. The details of the schemes impacted is provided below:

Existing Name Revised name Fundamental Attribute change Benchmark Change

HSBC Equity Fund HSBC Large Cap Equity Fund

Yes No

11 The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meetings held on July 15, 2019 and July 17, 2019 respectively. The audit report attached herewith refers to the said Annual Accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir8/132968/2008 dated July 24, 2008.

21



12 Merger of HSBC Dynamic Asset Allocation Fund (HDAA) into HSBC Large Cap Equity Fund (HLCEF)

The Board of Directors of HSBC Asset Management (India) Private limited and Board of Trustees of HSBC Mutual Fund have approved the merger of HDAA into HLCEF in their meetings held on July 16, 2018 & July 17, 2018 respectively. SEBI has also granted it’s no objection to the aforesaid merger vide its letter dated October 24th 2018. Accordingly, a notice was published on November 21, 2018 giving an option to the unit holders of HDAA to exit during the period from November 29, 2018 to December 28, 2018 (both days inclusive) at the applicable NAV, without payment of exit load, if any and sale of units in the HDAA was suspended effective from November 29, 2018. The HDAA was merged into HLCEF and ceased to exists from December 29, 2018. The unit holders of HDAA who have not exercised the exit option during the aforesaid exit window have been allotted units of HLCEF at the NAV declared as on the close of business hours on December 29, 2018.

22


voting Policy and Procedures

In view of SEBI guidelines related to “Role of Mutual Funds in Corporate Governance of Public Listed Companies”, HSBC AMC has formulated its “Policy for Proxy Voting in Public Listed Companies”. The said policy is available on our website and the details of actual exercise of proxy votes, the summary of votes casted and the auditor’s certificate for the Financial Year 2018 –19 is forming part of our full Annual Report for the Financial Year 2018 – 19 which is uploaded on our website at http://www.assetmanagement.hsbc.com/in

23


All the returns have been sourced from Mutual Funds India Explorer software. The performance of the schemes and the benchmark is calculated on a total return basis. 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 schemes of HSBC Mutual Fund. All information contained in this document (including that sourced from third parties), is obtained from sources HSBC and the third party which HSBC believes to be reliable however, has not independently verified the same. The information and opinions contained within the document are based upon publicly available information and rates of taxation applicable (if any) 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. 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.

Investors should not invest in the Scheme solely based on the information provided in this document and should read the Scheme Information Document and Statement of Additional Information of the Fund for details. No part of this document 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 Ltd.

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

Statutory Details & Disclaimers

24


Central KYC (CKYC) is an initiative of the Government of India where the aim is to have a framework in place which allows investors to do their KYC only once. An investor can use the CKYC issued unique number (comprising 14 digits) to transact/deal with various entities in the financial sector, without the need to complete multiple KYC formalities.

CKYC is being managed by CERSAI (Central Registry of Securitization Asset Reconstruction and Security Interest of India), authorized by Government of India to function as Central KYC Registry (CKYCR). Thus, CKYCR will act as centralized repository of KYC records of investors in the financial sector with uniform KYC norms and inter-usability of the KYC records across the sector.

In this regard, the Securities and Exchange Board of India and AMFI (Association of Mutual Funds in India, a mutual fund industry body) have issued guidelines dated November 10, 2016 and June 26, 2018 respectively, towards updation of CKYC for all investors. We request you to complete the CKYC for all the unit holders in the folios where investment is held in the schemes of HSBC Mutual Fund. You can download the CKYC form from our website https://www.assetmanagement.hsbc.co.in/ (Home>Investor resources>Information Library>Know your customer) and submit it to our nearest ISC/CAMS Point of Acceptance for CKYC updation.

If your CKYC is already updated, kindly forward the details of the same to us for updation. For any queries or clarifications in this regard, please contact our Customer Service Number - 1800 200 2434 or write to us at [email protected]

Important Update

https://www.assetmanagement.hsbc.co.in/assets/documents/mutual-funds/en/6d3eb4be-7bf9-4db8-907e-51e12f70dad5/ckyc-kra-kyc-form.pdf

Toll Free : 1800-200-2434

VISIT : www.assetmanagement.hsbc.com/in

Book-Post

If undelivered please return to:

Computer Age Management Services Private Limited (CAMS)Unit: HSBC Mutual Fund ’C’ Block, 2nd Floor, Hanudev Info Park P Ltd, SF No. 558/2, Udayampalayam Road, Nava India, Coimbatore - 641028.

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Ahmedabad Mardia Plaza, C. G. Road, Ahmedabad - 380 006.

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Chandigarh SCO 1, Sector 9 D, Chandigarh - 160 017.

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Toll Free Number : 1800 200 2434 (can be dialled from all phones within India) and Investors calling from abroad may call on +91 44 39923900 to connect to our customer care centre.

HSBC Asset Management (India) Private LimitedRegistered Office : 16, Veer Nariman Road, Fort, Mumbai 400 001. E-mail : [email protected]

HSBC Multi Cap Equity FundMulti Cap Fund – An open ended equity Scheme investing across large cap, mid cap, small cap stocks


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HSBC Multi Cap Equity Fund

Dear Investor,

Firstly thank you for entrusting us with managing your investments. We do understand that you have many choices and your entrusting us with this responsibility is a matter of pride and privilege for us. It is a responsibility we take very seriously. Doing the right thing for our clients is our most important responsibility and client relationships are our greatest asset. The year gone by and as we write this report has been a very interesting time.

I have in the past used the phrase “May You Live in Interesting Times” in the past. It is an apt way to characterize the past few months. It is at times like this one has to stay the course as we strongly believe that the Indian economy is poised for sustainable long term growth and the best way of participating in this growth is through the mutual fund route. During this volatile period we launched HSBC Equity Hybrid Fund in the multi asset category. This scheme is a hybrid category product and invests in debt and equity markets to provide the right balance to your investments. You will be happy to know that this was amongst the largest mobilisers in the industry during its time. In March 2019, we launched HSBC Large and Mid Cap Equity Fund which invests in both, large and mid-cap stocks and is aptly suitable for investors who are looking for the right mix of mid-cap stocks with the relative stability of large cap stocks in their portfolio.

We all know the importance of technology and digitization. Keeping this in mind, I would like to bring to your notice that you can now invest in any HSBC MF scheme of your choice at the click of a button. Our website, which is completely revamped & redesigned, now offers online investment platform, capital gains statement facility and host of other features to make your investment journey simpler and easier. With our new e-SIP feature, you can now activate your new SIP (or multiple SIPs) within 7 days through the online platform. In case you haven’t still logged in, kindly do so at the earliest as we would be keen to know your feedback and views as we go along. Markets are and will continue to be dynamic. We continue recommending SIP as the ideal investment route to translate your savings in to long term investments to meet your individual goals.

May we continue to live in interesting times.

Warm regards,

Ravi MenonChief Executive Officer, HSBC Global Asset Management Company, India

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SPONSORHSBC Securities and Capital Markets (India) Private LimitedRegd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai - 400 001.

TRUSTEEBoard of TrusteesOffice: 16, Veer Nariman Road, Fort, Mumbai 400 001.

ASSET MANAGEMENT COMPANYHSBC Asset Management (India) Private LimitedCorp. & Regd. Office: 16, Veer Nariman Road, Fort, Mumbai 400 001.

CUSTODIANStandard Chartered Bank (SCB)Corp. & Regd. Office: Crescenzo, Securities Services, 3rd Floor, C-38/39, G-Block,

Bandra Kurla Complex, Bandra East, Mumbai – 400051.

AUDITORS TO THE SCHEMEBSR & Co. LLPChartered Accountants

5th Floor, Lodha Excelus, Apollo Mills Compound, N. M. Joshi Marg, Mahalaxmi, Mumbai 400 011.

REGISTRAR & TRANSFER AGENTSComputer Age Management Services Private Limited (CAMS)Unit: HSBC Mutual Fund ’C’ Block, 2nd Floor, Hanudev Info Park P. Ltd., SF No. 558/2, Udayampalayam Road, Nava India, Coimbatore - 641 028.

BOARD OF TRUSTEES

Ms. Jasmine Batliwalla - Chairperson

Mr. Nasser Munjee

Mr. Manu Tandon

Mr. Dilip J. Thakkar

Mr. Pedro Bastos

Mr. Nani Javeri

BOARD OF DIRECTORS

Ms. Kishori J. Udeshi - Chairperson

Mr. S. P. Mustafa

Mr. Dinesh Mittal

Mr. Ravi Menon - Chief Executive Officer

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The Trustees of HSBC Mutual Fund (“Fund”) present the Seventeenth Annual Report and the audited abridged financial statements of the schemes of the Fund for the year ended March 31, 2019.

As at March 31, 2019, the Fund offered 31 schemes across asset classes to meet the varying investment needs of the investors. Post SEBI norms on re-categorisation and classification of mutual fund schemes, the Fund has launched various new products namely HSBC Equity Hybrid Fund, HSBC Large and Mid-cap Fund and HSBC Overnight Fund to fill the gaps in our product offering. The Fund has also launched various plans under Fixed Term Series and carried out merger of the existing scheme viz. HSBC Dynamic Asset Allocation Fund into HSBC Large Cap Equity Fund, as offering sub-scale fund was not in the interest of the unitholders.

The Fund continues its focus on delivering consistent long term returns. The comments on the performance of the Scheme(s) is provided hereinafter. Dividends were declared under various schemes as per the provisions contained in the respective Scheme Information Documents after considering the distributable surplus available under the respective Schemes. Details of dividends declared can be viewed on our website at www.assetmanagement.hsbc.com/in.

1. SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEMES

a. Operations and Performance of the Schemes

HSBC Multi Cap Equity Fund (HMEF),(Multi Cap Fund – An open ended equity scheme investing across large cap, mid cap, small cap stocks)

HMEF seeks long term capital growth through investments across all market capitalisations, including small, mid and large cap stocks. The fund aims to be predominantly invested in equity and 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. However, there can be no assurance or guarantee that the investment objective of the scheme would be achieved.

The net assets of HMEF amounted to Rs. 531.29 crores as at March 31, 2019 as compared to Rs 597.77 crores as at March 31, 2018. Around 99.77% of the net assets were invested in equities, 0.77% of the net assets were invested in reverse repos / TREPS and (-0.54%) in net current assets as at March 31, 2019.

HMEF is a multi-cap fund and we remained invested in a diversified portfolio across all capitalization stocks. HMEF has underperformed over 1 year and 3 years but it has outperformed its benchmark over 5 year period and since inception. Out performance over longer periods viz. 5 years and since inception, been possible due to superior stock selection, especially in sectors like Financials, Industrials, Healthcare, and Materials. Underperformance over 3 years is largely due to underperformance over last 1 year and its roll over effect. Over last year, mid and small caps have significantly underperformed large caps and we have higher share of mid and small caps as compared to underlying benchmark. Thus, the fund has underperformed. Additionally, amongst large caps too the rally over last year has been very narrow. Valuations of these stocks were expensive and have become even more expensive now. Going forward, the AMC believes that mean reversal will happen and the broader market will outperform narrower market. Therefore, the AMC will continue with its approach of selecting sustainably profitable companies at reasonable valuations. The AMC is overweight in Financials, Industrials, Materials, and Discretionary consumption. The AMC is underweight on investment arm of economy and related sectors and neutral to underweight on exporting sectors.

Scheme Name & Benchmarks Absolute Returns

(%)


Date of Inception : 24 February 2004 1 Year 3 Years 5 Years Since Inception

HSBC Multi Cap Equity Fund - Growth 5.33 13.54 14.86 15.60

S&P BSE 200 TRI (Scheme Benchmark) 12.06 16.11 14.39 14.61

Nifty 50 TRI (Standard Benchmark) 16.40 16.10 13.07 14.55

Rs. 10,000, if invested in HMEF, would have become 10,535 14,627 19,984 89,279

Trustees’ ReportFor the year ended March 31, 2019

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Scheme Name & Benchmarks Absolute Returns

(%)


Date of Inception : 24 February 2004 1 Year 3 Years 5 Years Since Inception

Rs. 10,000, if invested in S&P BSE 200 TRI, would have become

11,210 15,641 19,579 78,405

Rs. 10,000, if invested in Nifty 50 TRI, would have become 11,645 15,637 18,475 77,787

Past performance may or may not be sustained in future. The returns for the respective periods are provided as on last business day of March 2019 for Growth Option. Different plans shall have a different expense structure. As TRI data is not available since Inception of the scheme, benchmark performance is calculated using composite CAGR of S&P BSE 200 PRI values from date 24-Feb-2004 to date 29-Jun-2007 and TRI values since date 29-Jun-2007.

b. Market Overview & Outlook (as furnished by HSBC Asset Management (India) Private Limited)

EqUITY OUTLOOKFiscal year 2018 – 19 saw divergent performance at the indices level with the large cap market indices and particularly BSE Sensex and Nifty outperforming the broader market indices. Midcap and Small cap indices were the worst performers with negative returns and the performance differential with that of the benchmark indices was meaningful.

The large cap indices and within that the benchmark market indices (viz BSE Sensex & Nifty), registered another strong financial year performance on the back of improving trajectory in corporate earnings, continued strong traction in domestic institutional flows and a stable policy / macro environment for the segment. However, even within the large cap / benchmark indices, there were divergent trends with respect to constituents and witnessed a concentrated performance during the year with only a smaller proportion of stocks driving the outperformance. On the other hand, the underperformance in mid and small caps was as a result of valuations (in late 2017 / early 2018), running ahead of actual earnings delivery / expectation coupled with headwinds from volatility in commodity prices especially global crude oil and INR depreciation. The global crude oil prices had spiked during the course of the fiscal and cooled off later but has remained very volatile. However, the situation is different now with valuations at an aggregate level and for individual stocks in the space coming off significantly and the premium of mid / small cap indices over large caps, which had reached unsustainable levels then, now moving to very reasonable levels. Also, if the global crude oil prices are to remain within a range coupled with a stable INR, then the margin performance of the mid & small cap segment could see improvement in the coming quarters. On the institutional flows side, the FPI momentum saw a meaningful improvement towards the end of the financial year even as on a full year basis, the net inflows figure was subdued at about USD 160 mn. The DII flows momentum continued to be strong net inflows at ~USD 10.26 bn entirely contributed by the MF segment which saw net inflows of ~USD 12.47 bn.

Indices Returns (April 1, 2018 to March 31, 2019) 1 Year (%)S&P BSE Sensex TR 18.8%

NSE CNX Nifty TR 16.4%

S&P BSE 100 TR 13.9%

S&P BSE 200 TR 12.1%

S&P BSE 500 TR 9.7%

S&P BSE Midcap TR -2.1%

S&P BSE 250 Small-cap TR -10.8%

Source: Bloomberg (All values are for total return indices)

Our view on the key aspects related to equity markets are presented below -

Looking ahead, the general elections outcome has brought clarity for equity markets which was betting on a continuity phase post the elections cycle and that is exactly what has played out. A clear majority for NDA and within that, BJP itself comfortably crossing the half way mark means a stable government at the centre


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for the next five years. In the context of equity markets, this is a positive outcome as it will mean policy continuity and incremental reforms.

The improved sentiments after the decisive election mandate in May failed to gather momentum as defaults by certain leveraged corporate entities and economic slowdown concerns impacted market sentiments adversely. The high frequency data releases also suggest sluggishness in the overall demand scenario, especially in the auto sales numbers. The monsoon season has started on a weak note with deficient rainfall in June and this will be closely monitored in the context of the rural demand scenario. The monsoon trends are expected to pick up in July as the IMD has stuck to their earlier estimate of a normal rainfall during this southwest monsoon season.

But there are challenges in front of the government which it will have to address for the economy to revive. Capital markets revival will depend upon revival of the economy. The two most pressing issues faced by the government are addressing growth slowdown in the economy (which has now spread to consumption) and NBFC liquidity crisis. Market sentiments remained weak post elections due to these issues. Global equity markets surged in June while Indian equity indices showed divergent trends owing to the subdued sentiments.

There are near term challenges for the economy in the form of growth slowdown, lingering impact of the NBFC liquidity crisis and sluggish demand / consumption trends. GDP growth, employment data and other high frequency indicators have been patchy with signs of slowdown. The private capital expenditure has been significantly weak or absent and this has further complicated the growth recovery expectation as well as the timeline. As a result, much depended upon Budget, which, however, turned out to be uninspiring. There were no quick fixes (as expected) and as just like in the past, the government was incremental in its approach. There was no large stimulus measures, owning to fiscal constraints.

Looking ahead, we largely expect the government to follow the same path of steady incremental reforms in the fresh term as well and do not assume the scenario of any big bang reforms in the base case. We believe that the focus of the government will be on efficiently implementing and executing existing policy initiatives and projects, be it the IBC, the GST, real estate reforms, focus on housing, infrastructure spends, revival of Public Sector Banks, among others. Government is expected to focus on the issue of unemployment by spurring the job creating segments such as the real estate sector. There could also be more emphasis on improving and efficiently implementing the Direct Benefit Transfer (DBT) programme and increasing the scope for the rural income support scheme.

Along with a pro-growth fiscal approach, we expect a continued accommodative stance from the RBI and the rate easing cycle is expected to continue with more emphasis on transmission at the ground level. These actions should aid in gradually improving the economic sentiments and growth.

The equity market performance has continued to exhibit a bipolar trend with the benchmark indices trading quite strong compared to a weak performance from the broader market indices especially the mid and smallcap indices. While we were expecting the broader market performance to improve, the weak economic growth and demand trends have delayed that process. Even within the largecap indices, the concentrated nature of the performance has continued with a few stocks disproportionately contributing the overall index performance. This trend may not reverse in a hurry unless we see improved sentiments around growth. On the corporate earnings side, the trends have been encouraging in the past few quarters and we expect an improvement in FY20 as well. However, the Nifty valuations at 18.7x for FY20 is on the back of 25%+ earnings growth and hence there is some risk of downward revision in those estimates through the year. However, the earnings delivery for Nifty is likely to see a mid to high teens growth in FY20, which is still on a path of recovery.

We expect the market to remain range bound in the near term as the focus now shifts to measures taken by the government to revive growth as well as the timeline for the economic recovery. After the underperformance phase of almost 18 months now, the valuations of midcap and smallcap names have now become very compelling compared to large caps. However, an upside from these levels (for mid & smallcap names) are largely dependent on the broader economic recovery but that process may be more gradual in nature. On the other hand, while the valuations of the large caps appear in the fair zone given that they are trending slightly higher than their historical averages. However, despite the growth moderation in the economy, the large caps are expected to exhibit stable earnings delivery and hence the preference for large caps and within that, those names with strong earnings visibility is likely to continue.

Key events to watch out for are the government’s steadfastness w.r.t. economic reforms and the central bank’s monetary policy (which we expect to be loose). On the global front, the US – China trade war concerns are back in focus and the dynamics here would be closely monitored. Other key global events to track would be US Fed interest rate decisions, crude oil price dynamics and Brexit news flows.

Trustees’ R

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