Investment philosophy and process

Our investment process is the result of our belief in the applicability of business cycles as well as a combination of top-down macroeconomic analysis and bottom-up securities research for equity mutual funds.

Table illustrating the correspondence between our investment philosophy and our process.

Equity Funds Investment philosophy and process (India)

HSBC Asset Management (India) Pvt. Ltd possesses substantial experience and expertise in managing equity mutual funds.

Investment approach - Equity Funds

  • Disciplined investment approach - combines global and regional considerations with a local focus
  • Team approach in investment decision-making - we leverage on the collective expertise and insight of our experienced team members
  • 'Business cycle, relative value' investment style - offers the flexibility to add substantial value throughout the different stages of economic cycles

Investment philosophy and process - Equity Funds

Our equity funds investment process uses the fact that economic and business cycles are the primary determinants of value changes in markets, sectors and stocks

  • A top-down and bottom-up approach is used to invest in equities for our equity mutual funds. We believe that we need to change our portfolio positioning based on our views on the local and global business cycle. So the top-down overlay comes from the call of the business cycle - at the global and local level. This determines our asset allocation and sector calls. The bottom-up approach comes from stock selection within sectors
  • From time to time, when we see a shift in the cycle, we may change our style from pure growth investing to a blend of growth and value investing, or a bias towards more value investing if we believe the cycle is turning for the worse. Our process in equity mutual fund investing, thus has a 'blend style' and is not purely growth- or value-oriented
Graphic illustration of how the investment style is adjusted from time to time in response to shifts in the economic cycle.
  • Business fundamentals are key to stock selection. This involves analysis of companies on parameters like management, business strategy to deliver earnings growth, and improving capital efficiency, identifiable competitive advantages and financial performance and strength. We use valuations of different sectors and stocks to determine the optimal portfolio composition and this is reviewed constantly to take in to account new information and price movements. We monitor absolute and relative valuations (Price/earnings per share, price/book value per share etc) very closely at the market, sector and stock level. In conjunction with valuations, we also look at growth prospects, capital efficiency ratios (Return on Capital, Return on Equity etc) and intangibles like corporate governance, transparency etc
  • We broadly form our investment universe based on the specific investment mandate of each equity mutual fund. We currently look at around 250 stocks across sectors
  • Our investment process has strict investment guidelines to ensure that we contain portfolio risk within specified levels and run a diversified portfolio to enable to deliver consistent risk-adjusted returns to our investors. We have risk control measures and procedures to achieve the same. We have a team for risk management and measurement independent of the equity funds investments team
  • The risk management team performs ongoing risk measurement and monitoring with respect to liquidity, investment, credit and operational risks. There are clearly defined internal limits, which are stricter than the mandatory regulatory limits and developed in conjunction with the investment team. Adherence to these limits is monitored by the risk team and there is a governance/escalation mechanism established to take care of any breaches.
  • The objective of all this is to measure and control portfolio risk and to enable consistency and 'true-to-label' portfolio management, in line with stated objectives and positioning of the equity mutual fund