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HSBC Global Asset Management, India

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©ur investment process has strict investment guidelines that ensure we contain portfolio risk within
specified levels and run a diversified portfolio to deliver consistent risk adjusted returns to our
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investors. ©n a bottom-up approach, we believe that company fundamentals are the primary
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We seek to invest in companies that in our view have sustainability of business
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growth and are trading at a substantial discount to their true business (intrinsic)
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We believe that, over time, the price of a stock could rise to reflect the value of the cc
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underlying company. As such, we are patient investors and not market timers.
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We believe that this approach to investing is capable of generating consistent
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investment returns over the long term through power of compounding.


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We adopt a blend of value and growth strategies for stock picking.
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Asset allocation is driven primarily by the portfolio mandate. In the case of
structured products (for e.g. CPPI products), the model drives the asset allocation.
In long only portfolio mandates, we believe that stock picking abilities and patient
investing are capable of generating better and consistent returns as compared to
market timing.
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Across equity portfolio themes, it¶s a pre-dominantly ³buy and hold´ strategy. We
may hedge portfolios to protect potential downside through the use of F&© and
effective use of cash.
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The investment decision-making is process driven involving the Fund Manager and
the sector specialist. Decision-making starts with the company management
meeting to assess the business, size of opportunity and the future potential.
Financial inputs, projections over the next two years and valuation are key inputs
into the decision.
In evaluating potential equity investments, we focus on the following fundamental characteristics:

Ê    c  c (  growth and its ability to generate free cash flows and
higher Return on Equity (RoE).

) c c* in terms of its vision, cost & innovation competence along
with business ethics and integrity.

c  c   and whether the market price is at a significant discount to our


estimate of underlying business value. Also, the number of price-value mismatches
is taken into account to ascertain if itwould be able to offer reasonable margin of
safety, with an endeavour to reduce the level of risk.

In arriving at the value of business or company, we look at a variety of factors. Key focus is on cash
flow, economic value added and also analyse trends in returns on equity and capital, EV/EBITDA
multiple, P/E multiple, Price to book and PEG ratio. We examine these on an absolute as well as
relative basis. While looking at these parameters we closely monitor market expectations to identify
potential positive / negative surprises.

We evaluate companies on the basis of its cash flows discounted at an appropriate rate (DCF-
discounted cash flow methodology). We believe that the valuation of a company is nothing but the
cash flow it can generate over the life of its business. In addition we also use other tools like P/E,
R©E, R©CE and qualitative criteria like management quality.

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We believe that

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The Fixed Income Market offers a number of attractive investment opportunities,
which we endeavour to capture with a rigorous but flexible investment process.
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A given level of conviction in our views should result in the same amount of risk in a
portfolio over time.
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Product focus is the key to creating excellence across our entire product range.
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Credit and Duration are the key determinants of performance in a fixed income
portfolio.
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Curve Positioning and Individual security selection are also drivers of the fixed
income market.
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Active management of the above drivers has the ability to enhance returns and may
outperform passive investing.
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Effective control of risk is an essential element in the management of fixed income
portfolios.

The investment process that we follow is an adaptation of the HSBC Global Investment Process for
Asset Management. The four components that we monitor in terms of criticality to risk/return
performance on a fixed income portfolio are Duration, Credit, Curve Positioning & Individual Security
cc cc Selection. The process is a ³Top Down ± Bottom Up´ approach with a Top Down perspective beingcc
applied to Duration and Credit and a Bottom Up perspective being applied on Curve Positioning and
Individual Security Selection.

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