Debt Mutual Fund Strategy

Classification - Restricted Equity MF Strategy & Recommended Asset Allocation ■The US Fed has continued on its path to hiking rates and tightening liquidity to control demand led inflation, yet key data points in the US suggest that this fight could take long. ■ Europe remains in a bigger mess with higher energy costs, weakening consumer confidence and tightening monetary policy which can structurally impact the growth of the EU. ■ Multilateral agencies continue to warn of a weaker global growth outlook for CY22 and CY23, led by the Russia Ukraine conflict, high inflation and tight money supply. " Due to expectation of slowdown, the commodity prices have consolidated, which is likely to have a sobering impact on global inflation. Energy costs still remain high. " OPEC believes that demand for crude oil could continue to rise for the next 20 years, despite transition into renewables. ■ Despite the slowdown fears the global equity markets rallied in October, led by value buying and expectations of a Fed pivot as growth impulses weaken. ■ Sharp appreciation of US Dollar is also putting a lot of pressure on global currencies and economies. China too has seen marked slowdown owing to Covid-19 led shutdowns and the issues in its housing market. The overall economic indicators in India continued to show positivity and urban demand showing reasonable strength. Rural demand is starting to see green shoots, while rising inflationary pressure could hurt demand dynamics. ■ Corporate and Banking sector balance sheets in India have shown strong improvement, capacity utilisation data too have shown improvement and this is setting stage for increasing private capex demand. While consumer confidence continues to remain strong, rising inflation poses risk to this as it hurts the consumer/corporate surplus, this is a key monitorable from corporate earnings perspective. The Government is clearly focussed towards driving the capex in the economy through its own spending and incentive driven private capex. To control the rising impact of inflation on growth, the RBI raised the Policy Repo Rate and also started to take steps to move towards liquidity normalisation, to cushion the inflationary impulses. Given its strong growth differential and strong retail participation in the equity markets with other peer economies, India has been an outperformer in the EM basket. Any changes in these could have implication for the Indian market valuations. Q2FY23 results have seen stable topline growth, but margins pressure in many sectors is impacting the profit growth. Earnings expectations could see too could also see marginal downgrades. Key alpha sectors seems to be Banking, Auto, Infra, while Pharma seems to be emerging out of its slumber. The market saw steady performance in the frontline indices in the month of October, while the larger indices lagged, impacting alpha generation in the funds. ■ Declining liquidity, earnings cuts and rising rate could still weigh on the market valuations. However, in the longer term improving domestic macro conditions, higher capex investments and stable consumption growth could drive the Indian corporate earnings higher and support the equity markets. We expect the return expectations over 2-3 year period to be in line with earnings growth, with marginal valuation compression. However, with slowing global growth future earnings potential would remain a key monitorable. We continue to maintain an investment deployment strategy of 50% lumpsum and rest 50% to be staggered over the next 3-4 months with a cautiously optimistic stance. Investors could focus on Large Cap, Large & Midcap, Value, Hybrid Equity funds as portfolio core, in line with their risk profile and product suitability. 2 Confidential/Restricted HDFC BANK RESEARCH HDFC BANK We understand your world Classification - Restricted

View entire presentation