In conversation with Kailash Kulkarni, Chief Executive Officer, HSBC Mutual Fund

“While various scenarios are being built on the possible impact of tariff policies, they are unlikely to change the long-term India growth story”, affirms Kailash Kulkarni, Chief Executive Officer, HSBC Mutual Fund

Could you elaborate on your investment philosophy and how it guides your approach to fund management?

HSBC Mutual Fund's equity investment approach is driven by four guiding principles. The Investment Mandate ensures that fund managers adhere to the investment style outlined in offer documents. Active Fund Management focuses on long-term business fundamentals, combining disciplined yet active management to generate long-term performance. The Research-Based Stock Selection approach identifies stocks with strong business fundamentals, better growth prospects, and those that are undervalued relative to their intrinsic worth. Lastly, a Robust Risk Management framework is in place to evaluate, monitor, and manage various risks, making it an integral part of the investment process.

Could you provide insights into HSBC Mutual Fund's performance in 2024? Which schemes have delivered standout results, and what key factors contributed to their success?

The performance has been in line with our expectations. Most of our equity funds have been in the top quartile. We have consistently adhered to the investment process laid down in our communications, focusing on strong bottom-up research capabilities. We have an experienced research analyst team who are experts in their respective sectors, providing in-depth and insightful research on the sector and companies covered by them.

What was the rationale behind launching the HSBC Financial Services Fund? How does the fund differentiate itself from existing financial sector-focused funds in the market?

India's financial services sector is poised for significant growth driven by the country’s rapidly expanding economy, offering immense opportunities for wealth creation. From banking and insurance to asset management and fintech, the sector currently seems to provide an avenue for investors seeking long-term value. The financial services sector is expected to grow 2x of GDP over the next two decades.

HSBC Financial Services Fund invests in the financial services sector that offers a diverse collection of sub-sectors under the two primary growing themes, i.e., lending and non-lending themes. The focus would be more on the non-lending segment as the theme may have a higher potential for long-term growth considering high ROEs with the background of continuous market expansion. Lending themes of Financial Services can provide stability considering the strengthened regulations and strong corporate balance sheets. The fund has a higher weightage to the mid-small cap segment compared to the benchmark (BSE Financial Services Index - TRI) to create a differentiated portfolio offering that may have potential for long growth as of 28 February 2025.

With rising global tariff tensions, how do you see India’s markets and mutual fund investments being impacted? Are there specific sectors that could benefit or face headwinds?

There has been a lot of uncertainty globally driven by the new US administration policies with regards to tariffs. While various scenarios are being built on the possible impact of these policies and may cause short-term uncertainty, that is unlikely to change the long-term India growth story. India is poised to remain one of the fastest-growing economies globally driven by favourable demographics, strong corporate earnings growth and continuous domestic flows driven by the financialization of savings. Further, India is primarily a domestic-led economy with less than 25 per cent exports.

Apart from global factors, the current economic slowdown is also driven by domestic factors like centre and state elections, tight liquidity conditions and corporate earnings downgrades. While many of the reasons for the slowdown have been addressed, there is less visibility of the economy and earnings growth getting back to previous high levels in a short time. Hence, domestic factors coupled with global uncertainty may result in markets consolidating in a range for some time.

How do you anticipate corporate earnings to shape up for FY25? Are there any sectors where you foresee notable upgrades or downgrades in projections?

Corporate earnings reflect the economic momentum or slowdown seen in the broader economy, and FY25 earnings growth is now expected to be in single digits. While some high-frequency indicators have improved in the first two months of this year, we expect a subdued earnings season for corporate India this financial year.

We also foresee further cuts to FY26 earnings per share estimates, particularly for some mid and small-cap companies in the fourth quarter of FY25. However, the pace of earnings downgrades should slow. We see a risk of downgrades for global cyclicals like Metals and IT services and select domestic cyclicals like Autos, while we expect some upgrades in sectors like Healthcare and Power.

Given that many investors have stepped away from the markets—and consequently from mutual fund investments—following the recent major correction, what advice would you offer to new investors navigating the current market volatility?

Let’s reflect on some of the historical evidence that may instill conviction among investors and may help navigate through such volatile markets. We have analysed Sensex data on quarterly intervals to track equity market corrections of more than 5 per cent since the year 2009 and the same is shown in the table below. During the first quarter of 2009, Sensex corrected by -18 per cent which is a follow-up correction due to the global financial crisis of 2008 - 09. But after experiencing an 18 per cent market correction, Sensex has delivered 114 per cent absolute returns (29 per cent CAGR) over the next 3 years as on 10 March 2012.

Similarly, during 1 January 2020 to 31 March 2020, Sensex fell by 29 per cent which was triggered by the Global Covid virus outbreak and lockdown. After 3 years from March 2020 to March 2023, Sensex delivered 97 per cent absolute returns (25 per cent CAGR). From the table, we can see there are numerous instances of Sensex corrections ranging from 5 per cent to 29 per cent during the respective quarters. But after 3 years investors have earned significant equity market returns post such corrections.

Source – ICRA MFI, HSBC MF, Quarterly period – Jan – March, Apr – Jun, Jul – Sep, Oct to Dec. 1st and last day of quarter.

The above examples clearly illustrate that long-term returns are achieved by investing during downturns and staying invested through challenging times, ultimately leading to better rewards. When constructing your portfolio, avoid bias toward a single category of mutual funds. Ensure proper diversification and a well-balanced portfolio mix based on your financial needs while carefully considering the risk-reward framework.

As India continues its growth trajectory, investing in a growing economy could be beneficial in the long run. Investors may choose to remain invested, start new SIPs, or buy on dips with the goal of wealth creation over time.