India Infoline Ltd

Dear Members,

India Infoline Limited

Your Directors have pleasure in presenting the Sixteenth Annual Report along with theaudited statements of accounts of your Company for the financial year ended March 31,2011.

I FINANCIAL RESULTS

A snapshot of the financial performance of the Company and its major subsidiaries forthe financial year 2010-11 is as under:

The consolidated financial performance is as under:

Segment wise information is as under:

A snapshot of the stand-alone financial performance of India Infoline Limited is asunder:

II REVIEW OF OPERATIONS

On a consolidated basis, the Company’s income increased by 31.1% to Rs. 14.74 bnand EBITDA increased by 38.7% to Rs. 6.07 bn. The income growth was primarily driven bycredit and financing business. With significant increase in cost as well as quantum ofborrowings, interest cost was Rs. 2.36 bn in the year under review, as compared to Rs.291.36 mn in the previous year. Consequently profit before and after tax was a shade lowerin the year. Profit after tax before minority interest decreased by 8.3% to Rs. 2.14 bn.

Income from equity broking and related activities decreased marginally by 4.6% andstood at Rs. 6.70 bn. Income from Financing and Investing significantly increased by111.8% and stood at Rs. 6.18 bn. Marketing and distribution income increased by 42.5% toRs. 1,842.7 mn. Other income increased to Rs. 19.0 mn.

III KEY INITIATIVES

IIFL Mutual Fund

During the year under review, IIFL Mutual Fund, sponsored by your Company, receivedfinal regulatory approval from the Securities and Exchange Board of India (SEBI) tocommence operations. This will enable commencement of mutual fund business and launchingof mutual fund schemes in due course.

IIFL, with its distribution reach spanning over 500 cities/towns, is well placed totake the mutual fund penetration wider and deeper. Your Company sees an opportunity formutual fund mobilization in tier-II and tier-III cities. We aim to leverage upon ourin-depth understanding of technology and reach to offer retail investors a variety ofproducts with minimal expense ratio and encourage them to invest for the long term.

Asia Expansion

During the year, on the global financial services business, the Company’sSingapore subsidiary received the final approval from Singapore Stock Exchange for itsequity broking business. The subsidiary commenced its broking operations from December2010. Similarly the Company’s subsidiary in Sri Lanka received the approval fromColombo Stock Exchange and SEC, Sri Lanka for undertaking broking business in July 2010,thereby becoming the first Indian broking Company to set up broking business in Sri Lanka.We expect both these subsidiaries to scale up their business substantially during thecurrent year and going forward.

Other International Initiatives

Under the advisory, wealth management and distribution business, the Company has set upsubsidiaries in UK and Dubai and received approvals from the overseas regulators duringthe year. We expect these subsidiaries to commence business during the current year.

New Memberships

Your Company has received Trading and Clearing membership of Currency DerivativeSegment of United Stock Exchange of India Limited. Further IIFL Capital Limited, thewholly owned subsidiary received Trading and Clearing membership from National StockExchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited.

Investors Conferences

Your Company’s institutional and retail research products have been wellappreciated by the target audience. "Enterprising India-II", your Company’ssecond Global Investors Conference, held in February 2011 at Mumbai had participation fromleading corporate and eminent leaders/speakers and received an overwhelming response frominvestors. IIFL’s Global Investor Conference, ‘Discover Sri Lanka’ held inColombo in July 2010 had an encouraging participation from more than 50 leading global andlocal investors and several leading Sri Lankan corporates along with a number of heads ofgovernment undertakings, banks and government officials. IIFL conducted several investormeets and camps across India, on its own as well as with leading media house ET Now tospread financial literacy and awareness about risk- return of various financial products,aspects of financial planning and understanding of investor rights.

Employee Skill Upgradation

Your Company had taken several steps to train its employees. It has introduced varioustraining modules covering functional knowledge as well as skill set development. Thesemodules are delivered through internet e-learning platform as well as classroom sessionsfollowed by tests. The training programme will cover all sales and customer relationshipmanagers to clear the test in a time bound manner.

Financial Literacy Campaign

Your Company has taken a pionnering intiative to spread financial literacy. It launcheda comprehensive financial education and awareness initiative, FLAME - Financial LiteracyAgenda for Mass Empowerment on February 18, 2011. FLAME was launched by Dr K CChakrabarty, Deputy Governor, RBI and Mr Deepak S Parekh, Chairman, HDFC at a functionattended by the leading luminaries from the financial services space.

Under this initiative IIFL Group has launched a series of advertisements in leadingnewspapers on financial literacy and also plans to conduct seminars and issue trainingmaterials to the public for spreading financial literacy.

IV AWARDS AND RECOGNITIONS

Your Company has been awarded the ‘Best Equity Broker of the Year’ at theBloomberg UTV Financial Leadership Awards, 2011. The award was presented by theHon’ble Finance Minister of India, Shri Pranab Mukherjee on March 26, 2011.

V BUYBACK

Pursuant to the resolution passed by the Board of Directors of the Company and inaccordance with the provisions of the Companies Act, 1956 and the Securities and ExchangeBoard of India (Buyback of securities) Regulations, 1998, the Company made a publicannouncement on December 24, 2010, to buy-back the Company’s equity shares at a pricenot exceeding Rs. 99.0 per share, aggregating to Rs. 1.04 bn. The Buyback was successfullycompleted and the Company bought back 12,999,877 equity shares and utilised maximum offersize of Rs. 1.04 bn.

VI DIVIDEND ON EQUITY SHARES

During the year 2010-11, the Company declared and paid interim dividend of 150% i.e.Rs. 3 per share (face value of Rs. 2 per share). The same is considered as final. Thetotal dividend paid in 2009-10 was Rs. 3 per share. The total outflow on account ofdividend payout (including dividend distribution tax and surcharge) was Rs. 986.8 mn(previous year Rs. 996.8 mn).

VII TRANSFER TO RESERVE

The Company proposes to transfer Rs.123 mn to the General Reserve and retain Rs. 113.79mn to the profit and loss account.

VIII ALLOTMENT OF SHARES

During the year 2010-11, your Company allotted 14,194,925 equity shares of Rs. 2 eachon exercise of stock options under the Employee Stock Option Schemes of the Company.Towards the said allotments, the Company received a total consideration of Rs. 605.4 mnincluding premium of Rs. 577 mn.

IX DEPOSITS

During the year 2010-11, your Company did not accept/ renew any deposits within themeaning of Section 58A of the Companies Act, 1956 and the rules made there under and assuch, no amount of principal or interest was outstanding as on the balance-sheet date.

X SUBSIDIARY COMPANIES

The Company had 22 subsidiaries at the beginning of the year. 7 subsidiaries namely

1) IIFL Trustee Services Limited

2) Finest Wealth Managers Private Limited

3) IIFL Securities Ceylon (Pvt) Limited

4) IIFL Private Wealth Hong Kong Limited

5) IIFL Capital Ceylon Limited

6) IIFL Private Wealth (Mauritius) Limited and

7) IIFL Private Wealth Management (Dubai) Limited

have been set up/acquired during the year 2010-11. Consequently, the total number ofsubsidiaries as on March 31, 2011 is 29.

Pursuant to the general exemption granted by the Ministry of Corporate Affairs videcircular dated February 8, 2011, the Board of Directors had at their meeting held on May7, 2011 approved attaching the consolidated financials of all the subsidiaries of theCompany along with that of the Company. The copies of the Balance Sheet, Profit and LossAccount, Report of the Board of Directors and Report of the Auditors of each of thesubsidiary Companies are not attached to the accounts of the Company for financial year2010-11. The Company will make available these documents/details upon request by anymember of the Company. These documents/details will also be available for inspection byany member of the Company at its registered office and also at the registered offices ofthe concerned subsidiaries. The Annual Report of all the subsidiaries shall be uploadedupon the website of the Company. As required by Accounting Standard - 21 (AS-21) issued bythe Institute of Chartered Accountants of India, the Company’s consolidated financialstatements included in this Annual Report incorporates the accounts of its subsidiaries. Asummary of key financials of the Company’s subsidiaries is also included in thisAnnual Report.

XI MANAGEMENT DISCUSSION AND ANALYSIS

The Management Discussion and Analysis Report for 2010-11, as required under Clause 49of the Listing Agreement, is given as a separate statement in the Annual Report.

XII DISCLOSURE OF EMPLOYEE STOCK OPTIONS

During the year 2010-11, the Company granted 250,000 stock options to the employeesunder its Employee Stock Option Scheme 2008. Details as per the Securities and ExchangeBoard of India (Employees Stock Option Scheme and Employee Stock Option Purchase Scheme)Guidelines, 1999, are attached as an annexure.

XIII DIRECTORS

The Board at its meeting held on May 7, 2011, elevated the existing Executive Director,Mr. R Venkataraman as "Managing Director", and consequently the existingChairman and Managing Director, Mr. Nirmal Jain has been re-designated as the"Executive Chairman" subject to necessary approvals.

In accordance with Sections 255 and 256 of the Companies Act of 1956 read with Article137 of the Articles of Association of the Company, Mr. A. K. Purwar, retires by rotationand being eligible, offers himself for reappointment at the ensuing Annual General Meetingof the Company. Mr. Sat Pal Khattar, Non Executive Director of the Company, resigned witheffect from October 27, 2010. The Board places on record sincere appreciation of Mr. SatPal Khattar’s contribution towards growth of your Company over the last decade.

XIV DIRECTORS’ RESPONSIBILITY STATEMENT

As required by Section 217(2AA) of the Companies Act, 1956, your Directors confirmthat:

(a) In the preparation of the annual accounts, the applicable accounting standards werefollowed;

(b) Appropriate accounting policies were selected and applied consistently and thatjudgments and estimates made were reasonable and prudent so as to give a true and fairview of the state of affairs of your Company as at March 31, 2011, and of its profit forthe year ended on that date;

(c) Proper and sufficient care was taken to maintain adequate accounting records inaccordance with the provisions of the Companies Act, 1956 for safeguarding the assets ofyour Company and for preventing and detecting fraud and other irregularities;

(d) The annual accounts were prepared on an ongoing concern basis.

XV CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

The additional information required in accordance with subsection (1)(e) of Section 217of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in theReport of the Board of Directors) Rules,1988, is appended to and forms part of thisReport.

XVI CORPORATE GOVERNANCE REPORT

The Securities and Exchange Board of India (SEBI) prescribed Corporate Governancestandards. Your Directors reaffirm their commitment to these standards and this AnnualReport carries a section on Corporate Governance.

A certificate from the Statutory Auditors, M/s Sharp & Tannan Associates, CharteredAccountants, regarding compliance with the conditions of Corporate Governance asstipulated under clause 49 of the listing agreement is annexed herewith.

XVII PARTICULARS OF EMPLOYEES

In accordance with the provisions of Section 217(2A) of the Companies Act, 1956 and therules framed thereunder, the names and other particulars of employees are set out in theannexure to the Directors’ Report. In terms of the provisions of Section219(1)(b)(iv) of the Companies Act, 1956, the Directors’ Report is being sent to allthe shareholders of the Company excluding the aforesaid information. The annexure isavailable for inspection at the registered office of the Company. Any shareholderinterested in the said information may write to the Company Secretary at the registeredoffice of the Company.

XVIII STATUTORY AUDITORS

M/s. Sharp & Tannan Associates, Chartered Accountants, Mumbai, retire at theensuing Annual General Meeting and being eligible offers themselves for re-appointment.M/s Sharp & Tannan Associates have sought re-appointment and confirmed that theirre-appointment shall be within the limits of Section 224(1B) of the Companies Act, 1956.The necessary eligibility certificate under Section 224(1B) of the Companies Act, 1956 wasreceived from them. The Audit Committee and Board of Directors recommend the appointmentof M/s Sharp & Tannan Associates, Chartered Accountants as the Statutory Auditors ofthe Company. The notes to the accounts referred to in the Auditors Report areself-explanatory and therefore do not call for any further comments.

XIX APPRECIATION

Your Directors place on record their sincere appreciation for the assistance andguidance provided by the government, regulators, stock exchanges, other statutory bodies,and Company’s bankers for the assistance, cooperation and encouragement extended tothe Company.

Your Company’s employees are instrumental in your Company scaling new heights,year after year. Their commitment and contribution is deeply acknowledged. Yourinvolvement and support as shareholders is also greatly valued. Your Directors lookforward to your continuing trust in us.

(A) CONSERVATION OF ENERGY

The Company is engaged in providing financial services and as such its operations donot account for substantial energy consumption. However, the Company is taking allpossible measures to conserve energy. Several environment friendly measures were adoptedby the Company such as:

> Installation of capacitors to save power,

> Installed TFT monitors that saves power,

> Automatic power shutdown of idle monitors,

> Creating environmental awareness by way of distributing the information inelectronic form,

> Minimising air-conditioning usage,

> Shutting off all the lights when not in use and

> Education and awareness programs for employees

The Management frequently puts circulars on corporate intranet, IWIN for the employeeseducating them on ways and means to conserve the electricity and other natural resourcesand ensures strict compliance of the same.

(B) TECHNOLOGY ABSORPTION AND INNOVATION

The Management understands the importance of technology in the business segments itoperates and lays utmost emphasis on the system development and use of best technologyavailable in the industry. The management keeps itself abreast of technologicaladvancements in the industry and ensures continued and sustained efforts towardsabsorption of technology, adaptation as well as development of the same to meet businessneeds and objectives.

Software: The Company developed and deployed the Trader Terminal, its proprietarytrading platform, which is more user-friendly and has rich features that are superior tothe other trading platforms available in the market. During the year, the Companysuccessfully developed and rolled out its property mobile tading platform TT mobile andenabled customers to trade through their mobile. The Company also successfully developed abrowser-based trading platform using NET technology which is light and at the same timeprovides its users rich experience. Back-office software was developed in-house on nettechnology that gives far more flexibility and advantage. We could successfully migratefew back office operations to remote locations with in-house developed software. Themanagement believes in making the best use of technology and available resources.

Network: The management invested considerable resources in deploying the latesttechnologies in areas of wide area networking using MPLS, video communications, VoIP,automated dialers voice logger systems and other customer relationship management (CRM)tools and software. Storage consolidation using EMC helped us meet the ever-growing demandon performance and better manageability.

The Company successfully consolidated its core network on Cisco high-end switches withdouble redundancy resulting in better performance and zero downtime. The Company also madesignificant strides in using cloud technology for customer-facing servers providing rapidand inexpensive ramp-up or down of capacity in line with business requirements.

(C) FOREIGN EXCHANGE EARNINGS/OUTGO

a) The foreign exchange earnings of the Company were NIL.

b) The foreign exchange expenditure was Rs. 916.49 mn.

(D) RESEARCH AND DEVELOPMENT (R&D)

The Company is engaged in financial services and so there were no activities in thenature of research and development involved in the business. Being in financial services,we provide financial and equity research to the customers which is not in the nature ofresearch and development. Amount of expenditure incurred on Research and Development:

Disclosure as required under Securities Exchange Board of India (Employee Stock OptionScheme and Employee Stock Purchase Scheme) Guidelines, 1999

Weighted average values for options granted during the year

STOCK PRICE: Closing price on NSE as on the date of grant has been considered forvaluing the grants.

VOLATILITY: We have considered the historical volatility of the stock till the dateof grant to calculate the fair value.

RISK-FREE RATE OF RETURN: The risk-free interest rate being considered for thecalculation is the interest rate applicable for a maturity equal to the expected life ofthe options based on the zero-coupon yield curve for Government Securities.

EXERCISE PRICE: The Exercise Price may be decided by the compensation committee inaccordance with Securities and Exchange Board of India (Employee Stock Option Scheme andEmployee Stock Purchase Scheme) Guidelines and any amendments thereto, subject to amaximum discount of 35% to the market price.

TIME TO MATURITY: Time to Maturity / Expected Life of options is the period forwhich the Company expects the options to be live. The minimum life of a stock option isthe minimum period before which the options cannot be exercised and the maximum life isthe maximum period after which the options cannot be exercised.

EXPECTED DIVIDED YIELD: Expected dividend yield has been calculated as an averageof dividend yields for the four financial years preceding the date of the grant.