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February 2016

India

The surprising fixed income opportunity

Presentation only intended for professional investors as defined by MIFID.

Non contractual document.

2

Content

Why invest in India fixed income?

– Attractive market characteristics

– Supportive macroeconomic environment

Portfolio strategy and fund details

Non contractual document


Attractive market characteristics

4

Indian Bond Market – Large, liquid domestic market

Source: RBI and HSBC Research, LHS: data as of September 2015, RHS: data as of June 2015

43%

0%

21%

2%

3% 1%

1%

4%

7%

13%

4%

Commercial Banks Non-Bank PDs Insurance Companies Mutual Funds

Co-operative Banks Financial Institutions Corporates FIIs

Provident Funds RBI Others

0%

10%

20%

30%

40%

50%

60%

0

100

200

300

400

500

600

700

800

900

1,000

Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15

Govt Corp % GDP

The market has rapidly grown in the past few years

A market still dominated by government issuance

Corporate market is still underdeveloped, but likely to grow strongly in the coming years

% GDP USDbn

Bonds outstanding Ownership pattern of Indian government securities


5

Indian government bond yields are attractive relative to emerging market peers, but especially so against

developed markets

Yield curve is flat, which means we don’t give up yield irrespective of our duration view

0

1

2

3

4

5

6

7

8

9

1Y 2Y 3Y 5Y 7Y 8Y 9Y 10Y 11Y 12Y 13Y 15Y 30Y

Indian Bond Market – Attractive absolute and relative yields

Years to Maturity

Source: Bloomberg, data as of 28 January 2016. Past performance is not indicative of future performance. The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the

markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global Asset Management. Consequently, HSBC Global Asset Management will not be held responsible for any

investment or disinvestment decision taken on the basis of the commentary and/or analysis in this document.

Yield to Maturity (%) Yield (%)

Selected 10 year government bond yields Indian government yield curve

7.8

0

1

2

3

4

5

6

7

8

9

10

So

uth

Afr

ica

Indonesia

India

Me

xic

o

Ph

ilippin

es

Ma

laysia

Hungary

Chin

a

Th

aila

nd

US

UK

Sp

ain

Germ

any


6

Source: IMF World Economic Database number as of October 2015. Spot rate as of 28 January 2016. Investment involves risks. Past performance is not indicative of future performance

INR – Appreciation potential over the long term

-120% -100% -80% -60% -40% -20% 0% 20% 40% 60%

IDR

INR

THB

MYR

VND

PHP

TWD

CNY

SGD

KRW

HKD

EUR

JPY

GBP

CHF

40

45

50

55

60

65

70

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

INR/USD exchange rate

Performance of Indian rupee % under/over valued versus USD on PPP

Indian rupee is among the most undervalued major currency on PPP in the world


7

Indian Bond Market – Recent changes to FPI Investments Policy

In the policy meeting on 29 September 2015, RBI announced significant changes to the FPI investments

policy:

– Total FPI government securities limit has been adjusted to 5% of total outstanding bonds, implying an additional INR1.2trn in

quota

– The limit was previously set in absolute dollar terms; the quota has also now been redenominated into INR

– The quota will be reviewed every 6 months and released every quarter, adding much more transparency to the system

RBI introduced Masala bonds which are bonds issued by Indian companies offshore, denominated in INR and

settled in USD

– Not subject to FPI license

– They do not face India’s onshore capital gains tax

– Subject to 5% withholding tax



Supportive macroeconomic environment

9

5.2

5.5

6.0

5.7

4.3

3.9 4.0

3.3

2.5

6.0

6.5

4.8

5.7

4.8

4.5

4.1 3.9

3.5

3.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18

Fiscal deficit (as per new consolidation path) Old fiscal consolidation path

Fiscal deficit – Heading in the right direction

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

illustrative purpose only

Source: Budget documents, CEIC, HSBC, as of May 2015

Govt’s fiscal

consolidation path

% of GDP

Central government fiscal deficit


10

Fiscal deficit – Bond supply favourable in the medium term

FY 16 FY 15

(INRbn) Gross issuance Net issuance Gross issuance Net issuance

October 750 676 450 310

November 450 450 580 121

December 440 440 420 420

Q3 1,640 1,566 1,450 851

January 560 560 690 690

February 140 140 260 222

March – – – –

Q4 700 700 950 912

H2 2,340 2,266 2,400 1,763



Source: RBI, Bloomberg and HSBC Research, as of October 2015

FY 12 FY 13 FY 14 FY 15

FY 16

(budgeted)

Fiscal Deficit (% to GDP) -5.7 -4.8 -4.6 -4.1 -3.9

Fiscal Deficit (INRbn) 5,160 4,902 5,245 5,311 5,556

Gross Borrowings (INRbn) 5,085 5,571 5,486 5,857 6,000

Net Borrowings (INRbn) 4,364 4,670 4,536 4,469 4,564

% financed by market borrowings 84.5 95.2 86.4 84.1 82.1

Favourable technical backdrop in Jan-Mar


11

Decline in oil prices – Potential savings of USD70bn

Source: CEIC, Morgan Stanley Research as of December 2015. 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. For illustrative purpose only

12-month trailing peak

net oil imports as of

Dec-12 USD108bn

Current reduction in oil

burden USD47bn

12-month trailing net

oil imports as of

Nov-15 USD61bn

Government budget

USD27bn

Household sector

USD8bn

Corporate sector

USD12bn

Further reduction in oil

burden ~USD23bn

If oil prices stay at

USD40/bbl ’til Dec-16,

net oil imports would

fall to ~USD38bn

Lower oil subsidy

USD14bn

Higher tax revenue

USD14bn

State Govt.

lower oil sales tax

USD1bn

How is the reduction in oil burden distributed?


12

Inflation – Down from historical highs

Source: CEIC, Bloomberg, HSBC, December 2015

% y-o-y % y-o-y

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

Jan-02 Sep-03 May-05 Jan-07 Sep-08 May-10 Jan-12 Sep-13 May-15

CPI WPI

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

Core WPI Core CPI

RBI target: 4% +/- 2%

RBI’s inflation target is achievable Core inflation trends lower


13

Interest rate view


illustrative purpose only. The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the markets, according to the information available to date. They do not constitute any kind

of commitment from HSBC Global Asset Management. Consequently, HSBC Global Asset Management will not be held responsible for any investment or disinvestment decision taken on the basis of the commentary and/or analysis in

this document.

Source: HSBC Global Asset Management; Latest available data as of 28 January 2016

RBI has front loaded rate cuts, with a larger-than-expected 50 bps cut on 29 September

– Room to cut further dependent on inflation going below 6%

Reduction in fiscal deficit implies steady to lower supply of government bonds

Statutory demand from insurers, pensioners and retirement funds to drive demand for yield

Slow credit growth leads to demand from banking system

Expect 10Y government bonds to trade between 7.25-8.0% with softening bias to yields (current yields at 7.8%)

Improvement in banking liquidity to support demand for government securities


14

Current Account Deficit (CAD) – Improving and structurally resilient

Note: 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. For


Source: IMF, CEIC, Bloomberg, HSBC Global Asset Management, data as of 31 December 2015

-6

-5

-4

-3

-2

-1

0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Expected

CAD (% of GDP)

Gold imports contracted on

YoY basis for third

consecutive month

Oil imports decline to 2.5% of GDP

Oil and Gold Imports (y-o-y%)

Lower oil and gold imports supportive of CAD CAD – structurally sustainable


15

CAD – FX reserves provide a reasonable cushion

0

1

2

3

4

5

6

7

8

9

Q1 11 Q3 11 Q1 12 Q3 12 Q1 13 Q3 13 Q1 14 Q3 14 1Q 15

Import cover (months of imports of goods and services)

FX reserves over short-term external debt (times)

250

270

290

310

330

350

370

50

52

54

56

58

60

62

64

66

68

Apr-12 Oct-12 Apr-13 Oct-13 May-14 Nov-14 May-15 Nov-15

INR/USD exchange rate (LHS) FX Reserves (RHS)

Source: IMF, CEIC, Bloomberg, HSBC Global Asset Management; LHS: data as of 15 January 2016; RHS: data as of 30 June 2015. The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset

Management on the markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global Asset Management. Consequently, HSBC Global Asset Management will not be held

responsible for any investment or disinvestment decision taken on the basis of the commentary and/or analysis in this document.

USDbn

FX reserves – RBI on the bid

FX reserves to imports and short term external debt


16

Macroeconomic factors supportive of INR:

– Accommodative monetary policy positive in medium term

– Investment reform to be positive for FDI/divestment programme/equity capital flows

– Current account deficit to improve and sustainable

– Capital flows to cover current account deficit adequately

– Higher real rates imply move from gold to financial assets

Expect INR to move in line with USD vs Asian currencies, but with greater resilience given:

– Healthy FX reserves

– INR tends to be less correlated with the RMB

– Foreign investor flows and appetite for Indian assets appear to remain healthy

Currency view – Expect a rangebound rupee in the medium term




Portfolio strategy and fund details

18

HSBC GIF India fixed income – Portfolio strategy

Notes:

1. Any forecasts, projections or targets contained in this presentation is for information purpose only and is not guaranteed in any way

2. Allocations is as at the date indicated, may not represent current or future allocation and is subject to change without prior notice.

3. HSBC accepts no liability for any failure to meet such forecasts, projections or targets

4. For illustrative purpose only

5. As at end of December 2015

Overweight duration through INR government bonds

– Marginally shifted towards the belly of the curve (5-10Y)

– Will add to 5-10Y segment on inflows

– Increased supply of State Government bonds and the potential increase in gross issuance of bonds next year due to fiscal

deficit slippage could put pressure on long end

Underweight INR corporate credit

– Apart from liquid corporate bonds in 5Y/10Y segment as a duration proxy

– Would evaluate vs State Government bonds based on spread

– Selectively add to 3Y non-banking financial names to supplement yield accrual

Underweight USD corporate bonds

– Still an attractive spread in the offshore IG BBB space

– Overlay with 6m NDF (carry 6.3%)

– Attractive on a total yield basis


19

HSBC GIF India fixed income Supplemental information as of 31 December 2015

Portfolio characteristics Fund

Average Modified Duration 5.82

Average Yield to Maturity (%) 7.86

Source: HSBC Global Asset Management and Bloomberg, data as of 31 December 2015. Returns are gross of fees in USD terms. Fund inception date: 20 August 2012

Returns will be reduced after fees deduction. Investment involves risks. Past performance is not indicative of future performance

1.2

0.2

0.9

3.7 3.7

2.7

0.0

1.0

2.0

3.0

4.0

1 Months 3 Months 6 Months YTD 1 Year 3 Year

Fund

Gross Returns %

Key features

The Fund seeks access to the Indian fixed income market by investing in investment and non-investment grade, as well as unrated

Indian domestic fixed income securities denominated in Indian Rupee (INR). The Fund will also invest in fixed income securities

denominated in other currencies

The Fund gives investors access to high yields and an undervalued currency through an innovative approach to a market which is

difficult to access

Launched in 20 August 2012

AUM as of 31 December 2015: USD333.85m


20

HSBC GIF India fixed income Supplemental information as of 31 December 2015 (cont’d)

For Professional Investors only. Not for further distribution.

Source: HSBC Global Asset Management 31 December 2015; Investment involves risks. Past performance is not indicative of future performance

2.9

2.2

9.8

10.3

21.9

52.7

0 10 20 30 40 50 60

Cash

Oil & Gas

Bank

Financial

Quasi-Sovereign

Sovereign

% of portfolio Duration Yield

INR Corp 10.34% 2.98 7.14%

INR Quasi 16.16% 5.69 8.13%

INR Sov 52.74% 7.30 7.96%

USD Corp 12.08% 4.11 3.47%

USD Quasi 5.78% 5.04 3.57%

Weight (%)

GBP 0.01%

INR 99.34%

SGD 0.02%

USD 0.63%

70.6

26.5

2.9

0

10

20

30

40

50

60

70

80

BBB NR Cash

Breakdown by currency

Credit rating breakdown Sector allocation

Portfolio breakdown


21

A high yield opportunity in a low yielding world

Strong macro tailwinds for one of the world’s fastest growing economies

Flexible strategy taking advantage of a full opportunity set of Indian bonds

Conclusion


The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the markets, according to the information available to date. They do not constitute any kind of commitment from

HSBC Global Asset Management. Consequently, HSBC Global Asset Management will not be held responsible for any investment or disinvestment decision taken on the basis of the commentary and/or analysis in this document.

Appendix

23

India fixed income GIPS report

Investment involves risks. Past performance is not indicative of future performance


24

India fixed income Disclosures


25

India fixed income Supplemental GIPS report

Note: This report is supplemental to the full presentation produced at the last calendar quarter-end


26

India fixed income Disclosures


Key risks and disclosures

28

Key risks

Investor should be reminded that investment in some of the developing Asian countries may involve special

considerations and risks. Political changes, government regulation, social instability or diplomatic development,

etc. could affect adversely the economies of such countries or the value of the investment

Change of interest rate may affect the value of the investments. Bonds and other fixed income securities are

more susceptible to fluctuation in interest rate and may fall in value if interest rates change

The assets and liabilities of the investments may be denominated in Asian currencies which is different from

the base currency of the investments. Therefore, the investments maybe affected favorably or unfavorably by

exchange control regulation or changes in the exchange rates between the base currency and other currencies

The investments may have exposure in credit risk whereby investments in non- investment grade debt

obligations involves a high amount of risk. An issuer suffering an adverse change in its financial condition could

lower the credit quality of a security, leading to greater price volatility of the security

Investments made may have exposure in financial derivative instruments, such as futures, forwards and

swaps, etc. Investments in financial derivative instruments may involve a greater degree of risk than in case

with conventional securities and may subject to liquidity and counterparty risks

Currency movement and market condition may affect the value of investments


29

Explanatory notes and disclaimers

The document is confidential and is supplied to you solely for your information. This document should not be reproduced or further

distributed to any person or entities, whether in whole or in part, for any purpose.

Investment involves risk and past performance is not indicative of future performance. Please refer to the offering document for further

details including the risk factors.

The material contained herein is not intended to provide professional advice and should not be relied upon in that regard. Readers should

seek appropriate professional advice where necessary.

The opinions expressed herein should not be considered to be a recommendation by HSBC Global Asset Management (Hong Kong)

Limited to any reader of this material to buy or sell securities, commodities, currencies or other investments referred to herein. HSBC

Global Asset Management (Hong Kong) Limited, its ultimate and intermediate holding companies, subsidiaries, affiliates, clients,

directors and/or staff may, at any time, have a position in the markets referred to herein, and may buy or sell securities, currencies, or

any other financial instruments in such markets.

HSBC Global Asset Management (Hong Kong) Limited has based this document on information obtained from sources it believes to be

reliable but which it has not independently verified. HSBC Global Asset Management (Hong Kong) Limited and the HSBC Group make

no guarantees, representations or warranties and accept no responsibility or liability as to its accuracy or completeness. Information in

this report is subject to change without notice.

This presentation is intended for Professional Investors as defined in the Securities and Futures Ordinance in Hong Kong.


30

Important information

This presentation is distributed by HSBC Global Asset Management (France) and is only intended for professional investors as defined by MiFID.

The information contained herein is subject to change without notice. All non-authorised reproduction or use of this commentary and analysis will be the responsibility of the user and will be likely to lead to legal proceedings.

This document has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful.

The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the markets, according to the information available to date. They do not constitute any kind of

commitment from HSBC Global Asset Management (France). Consequently, HSBC Global Asset Management (France) will not be held responsible for any investment or disinvestment decision taken on the basis of the

commentary and/or analysis in this document.

All data come from HSBC Global Asset Management unless otherwise specified. Any third party information has been obtained from sources we believe to be reliable, but which we have not independently verified.

Representative overview of the investment process, which may differ by product, client mandate or market conditions.

The fund presented in this document may not be registered and/or authorised for sale in your country. The performance figures displayed in the document relate to the past and past performance should not be seen as an

indication of future returns. It is important to remember that the value of investments and any income from them can go down as well as up and is not guaranteed. Please note that the fund is authorised to invest a in

structured products and derivatives, which may be less liquid than standard bond issues. Please note that the fund is invested in investment grade, below investment grade and non rated issues. Non rated issues represent

a higher risk of default compared to Investment Grade issues. Fluctuations in the rate of exchange of currencies may have a significant impact on fund performance.

Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management (France) accepts no liability for any failure to meet such forecast, projection or target.

The above mentioned target/limits/objectives is/are to be considered on the recommended minimum investment period; there can be no assurance that the strategy of the fund will achieve this objective.

The fund is exposed to Over the Counter (OTC) markets for all or part of its total assets. The fund will therefore be subject to the risk that its direct counterparty will not perform its obligations under the OTC transactions and

that the Sub-Fund will sustain losses. As interest rates rise debt securities will fall in value.The value of debt securities is inversely proportional to interest rate movements.

Investment in Financial Derivative Instruments (FDI) may result in losses in excess of the amount invested. This is because a small movement in the price of the underlying financial instrument may result in a substantial

movement in the price of the FDI.

All subscriptions in any fund presented in this document are accepted only on the basis of the current prospectus, available on request from HSBC Global Asset Management (France), the centralisation agent, the financial

department or the usual representative. Before subscription, investors should refer to the Key Investor Information Document (KIID) and its complete prospectus. For more detailed information on the risk associated with the

sub-fund, investors should refer to the complete prospectus of the sub-fund. HSBC GIF India Fixed Income fund is a sub-fund of HSBC Global Investment Funds, a Luxemburg domiciled SICAV. Shares of the Company

may not be offered or sold for sale or sold to any U.S. Person within the meaning of the Articles of Incorporation, i.e. a citizen or resident of the United States of America (the "United States"), a partnership organised or

existing under the laws of any state, territory or possession of the United States, or a corporation organised or existing under the laws of the United States or of any state, territory or possession thereof, or any estate or

trust, other than an estate or trust the income of which from sources outside the United States is not includible in gross income for purposes of computing United States income tax payable by it.

Important information for Luxembourg investors: HSBC entities in Luxembourg are regulated and authorised by the Commission de Surveillance du Secteur Financier (CSSF).

Important information for Swiss investors: This document may be distributed in Switzerland only to qualified investors according to Art. 10 para 3, 3bis and 3ter of the Federal Collective Investment Schemes Act (CISA).

The presented fund is authorised for public distribution in Switzerland in the meaning of Art. 120 of the Federal Collective Investment Schemes Act. (Potential) investors are kindly asked to consult the latest issued Key

Investor Information Document (KIID), prospectus, articles of incorporation and the (semi-)annual report of the fund which may be obtained free of charge at the head office of the representative: HSBC Global Asset

Management (Switzerland) Ltd., Bederstrasse 49, P.O. Box, CH-8002 Zurich. Paying agent: HSBC Private Bank (Suisse) S.A., Quai des Bergues 9-17, P. O. Box 2888, CH-1211 Geneva 1. Investors and potential investors

should read and note the risk warnings in the prospectus and relevant KIID. Before subscription, investors should refer to the prospectus for general risk factors and to the KIID for specific risk factors associated with this

fund. Issue and redemption expenses are not taken into consideration in the calculation of performance data. The fund presented in this document is a sub-fund of HSBC Global Investment Funds, an investment company

constituted as a société à capital variable domiciled in Luxemburg.

Important information for Luxembourg investors: HSBC entities in Luxembourg are regulated and authorised by the Commission de Surveillance du Secteur Financier (CSSF).

HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. The above document has been approved for distribution/issue by the following entity:

HSBC Global Asset Management (France) - 421 345 489 RCS Nanterre. Portfolio management company authorised by the French regulatory authority AMF (no. GP99026) with capital of 8.050.320 euros.

Postal address: 75419 Paris cedex 08, France.

Offices: Immeuble Coeur Défense, 110, esplanade du Général Charles de Gaulle, 92400 Courbevoie - La Défense 4 . (Website: www.assetmanagement.hsbc.com/fr).

HSBC Global Asset Management (Switzerland) Limited

Bederstrasse 49, P.O. Box, CH-8027 Zurich, Switzerland (Website: www.assetmanagement.hsbc.com/ch)

Copyright © 2016. HSBC Global Asset Management (France). All rights reserved.


Updated in February 2016 / AMFR_Ext_078_2016

http://www.assetmanagement.hsbc.com/fr

http://www.assetmanagement.hsbc.com/ch

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