Microsec Financial Services Ltd

MACRO-ECONOMIC OUTLOOK

Global Overview

The world economy has changed dramatically since September 2011. European growth hasslowed sharply, and many economies in the region are now in or close to recession. In theMiddle East and North Africa (MENA), unrest has spread, further depressing the outlook forthe region even as some economies rebuild after earlier conflicts. The U.S. has seen aspate of encouraging economic news, with GDP growth increasing and Unemployment falling.Asia has weathered the global slowdown well and looks headed for a soft landing.

Eurozone Crisis : Following the collapse of Lehman Brothers in September 2008, whenthe global economy was reverting to the normalcy, another crisis in the nature ofsovereign debt crisis surfaced. The growing debts of many European sovereigns causedsustainability concerns forcing investors to withdraw from these markets which led tosignificant escalation of their credit default swap (CDS) spreads.

The crisis which emerged in late 2009 has engulfed the entire Eurozone by end of 2011.Although, Greece, Ireland and Portugal remain at the heart of the crisis, it stronglyaffected Italy and Spain, where economic activity contracted markedly in Q4 of 2011. Inother European economies, inside and outside the euro area, activity weakened, dippinginto or stopping just short of mild recession territory. GDP growth basis in the Euro Areadeclined by 1.2% Q-o-Q in Q4 of 2011.

The possibility that the crisis will escalate again remains a major downside risk togrowth and financial sector stability until the underlying issues are resolved.

Soft landing for Asia, gradual recovery likely : Despite the source and theimmediate impact being localised in Eurozone, the knock-on effects of the crisis are feltall across the globe. Financial conditions have deteriorated, growth prospects dimmed anddownside risks have escalated. Activity across Asia slowed during the last quarter of2011, reflecting both external and domestic developments. The effect of spillovers fromEurope can be seen in the weakness of Asia's exports to that region. In some economies,domestic factors also contributed to the slowdown. In China, GDP growth declined

from an average of9.6% YoY in the first halfof2011 to 8.1% YoY in Q1 of 2012 - slowestin 11 quarters. However, monthly data have given mixed signals about the economy'sdirection - March Imports were weak, but Industrial Production was strong. Themanufacturing PMIs point in different directions. So in China, even with the drag fromexternal demand, growth is projected to be above 8% YoY in 2012 and 2013 becauseconsumption and investment are expected to remain robust.

Outlook improving but downside risk persist for U.S.: The U.S. economic activitieshave improved more than elsewhere. In the U.S., the GDP growth accelerated to 2.2%annualised rate in Q4 of 2011 against 0.4% annualised rate in the same quarter of lastyear. Consumer Spending has been improving and Unemployment rate has been trending down.The U.S. unemployment rate fell to 8.2% in March 2012, the lowest since January 2009.Moreover, lingering threats to the recovery, however, will prevent the Fed from tighteningpolicy until late 2014.

Although, the risks to the outlook are more balanced in the U.S. but still tend to thedownside given fiscal uncertainty, weakness in the housing market and potential spilloversfrom Europe. Although the U.S. banks are in a fairly strong position, the U.S. economywould not be completely immune to a euro-zone break-up. Moreover, while recent labormarket outcomes have been promising, the outlook is for only modest increases inemployment during 2012 and 2013. IMF's World Economic Outlook projected a GDP growth of 2%YoY in 2012 and 2/1% YoY in 2013. Finally, the upshot is that the U.S. economy probablywon't be weak enough to prompt the Fed into launching a third round of quantitative easingbut equally, it won't be strong enough to force the Fed into raising interest rates beforeits selfimposed guideline of late-2014.

Domestic Overview

Along with the external headwinds, policy logjam, higher Inflation, moderating GDPgrowth, falling Industrial output, weak rupee, fund outflows and higher interest led thedomestic economy towards a difficult end in FY2011-12. Though inflation has moderated inrecent months, it remains sticky and above the tolerance level. These trends are occurringin a situation in which concerns over the Fiscal Deficit, Current Account Deficit anddeteriorating asset quality loom large. In this context, the challenge is to maintain itsvigil on controlling Inflation while being sensitive to risks to growth and othervulnerabilities.

Despite a downward revision in base, India's GDP came in at its lowest level in almostthree years. India's GDP growth moderated to 6.1% YoY during Q3 of 2011-12 from 6.9%YoY in Q2 and 8.3% YoY in the corresponding quarter of 2010-11. Considering thecontraction in Industrial Production number for March 2012, India's GDP growth could slowto 6.5% YoY in 2011-12, in the absence of data revision, which has been the norm for thepast few quarters. Earlier, in its advance estimate of the GDP, the Government haspredicted a growth of 6.9% YoY for FY2011-12.

On the demand side, Gross Fixed Capital Formation contracted in Q2 (-4.0% YoY) and Q3(-1.2% YoY) of 2011-12. The Government's Final Consumption Expenditure increased by 6.1%YoY in Q2 and 4.4% YoY in Q3. Private Final Consumption increased by 2.9% YoY in Q2 and6.2% YoY in Q3.

India's Industrial Output contracted by a shocking 3.5% YoY in March 2012. This declinewas driven by particularly poor performance of the Manufacturing sector. Among theuse-based segment, Capital Goods, Basic Goods and Intermediate Goods witnessed sharp slidein yearly growth numbers, confirming that business investment is subdued. Consumptionactivities also remained quiet. Despite of these, role of higher base of last year alsocannot be denied as March 2011 had seen a sharp uptick (9.4% YoY growth). The overallgrowth for FY2011-12 (April-March) stood at 2.8% YoY (against 3.9% YoY expected inGovernment advance estimate), much slower than 8.2% YoY in the year-ago period. Goingforward, April's IIP number may witness a turnaround but overall economic activities areexpected to remain subdued. Sentiments are likely to remain weak on account ofGovernment's sluggish reform progress, higher Inflation, depreciating rupee, worseningCurrent Account and Fiscal Account balance.

The adverse global developments are reflected in the external sector transactions inIndia, with exports fell for the first time since 2009. During the month of March2012, India's Exports fell by 5.7% YoY to USD28.68 billion while Imports surged 24.3% YoYto USD42.59 billion, leaving a monthly Trade Deficit of USD13.91 billion. Moderation inexports is in expected lines on slowdown in economic activities in India's two biggestmarkets - the U.S. and Europe, accounting for about 30% of total shipments.

Despite a YoY decline in March, India's Exports surpassed the YoY to USD303.72 billionand total Imports grew by 32.1% Y a record USD184.92 billion in 2011-12, substantiallyhigher tl billion recorded in the previous fiscal.

Inflation accelerated further to above 7% YoY level. After moderating to 6.89% YoY bythe March end from above 9% YoY level in April-November 2011, India's Inflation came in ata shocking 7.23% YoY in April 2012. Inflation accelerated mainly on costlier food prices.

Going forward, the inflation scenario remains challenging. Any hike in fuel prices willfurther contribute to the Inflationary pressure. If diesel prices are increased by INR2/litre, Inflation would be directly pushed up by 25-30 basis points followed by anindirect impact of a similar magnitude. There also remains an element of suppressedInflation in respect of coal and electricity. Rupee weakness and rising raw materialprices will continue to pose pressure on Manufacturing Inflation.

As a result of these domestic as well as global headwinds, the risk of economicstability increase. Growth weaken and fiscal outlook deteriorate on account of highermarket borrowing and lower than expected collection of revenue. Declining profit marginshave increased the stress in corporate sector. Against this backdrop, moderation in CoreInflation provided the headroom to Reserve Bank of India (RBI) to reduce the Repo rate by50 basis points at its Annual Monetary Policy Review. The RBI has reduced the Repo Rate,Reverse Repo Rate underthe Liquidity Adjustment Facility (LAF) by 50 bps to 8.0% and 7.0%respectively. However, going foroward, space for further reduction in policy rates isinherently limited, given the upside risk on Inflation. We expect RBI will go for 50-75bps Repo Rate cut for the entire

OUTLOOK

It must be emphasised that, apart from global headwinds, the main reason for theapparent decline in the trend rate of growth relative to the pre-crisis period is theemergence of significant supply bottlenecks on a variety of fronts - infrastructure,energy, minerals and labour. A strategy to increase the economy's potential by focussingon these constraints is an imperative. So the Government should take appropriate policydecisions to improve economic sentiments otherwise, GDP growth may remain subdued for next2-3 years at 6-7%.

Equity Market Overview

Indian Markets stumbled for most of the trading sessions in the FY2011-12 due to lackof any significant trigger which could boost the markets and maintained a sustainablerally. In a way it's been a pretty disappointing year for the investors.

The FY 2011-12 was pretty much volatile for the Indian equity markets owing to bothglobal as well as domestic issues. as detailed in MACRO Economics Outlook. The Sensex andNifty ended the FY12 at 17404.20 and 5295.55 registering a loss of around 10.50% and 9%respectively.

FIIs flows remained positive during the FY 2011-12 despite the prevailing economic andfiscal situations were not compelling enough to generate confidence. Net investment byFII's during FY 11-12 was INR 27820.77cr compared to INR 111811.90cr in FY 10-11. On theother hand, DII have net investment worth INR-41805.70 cr in FY 11-12 as againstINR-18722.30 crin FY 10-11.

Debt/Bond Market Overview

The Indian bond market is yet to mature in its full scale despite seeing someimprovements in the past few years. The infrastructure has improved withdematerialization, a similar number of primary dealers as in most major countries, anelectronic trading platform and a central clearing house.

The reason for low turnover is that the market is dominated by constrainedinstitutional investors, who are obliged to own government bonds. Banks have to keep 24%of their net demand and time liabilities in government bonds and 4.75% with the RBI, whichitself holds part of its assets in the form of government bonds. The largest insurancecompany, the wholly-government-owned Life Insurance Company of India, must hold at least50% of its investible funds in government bonds. Overall the constrained holders own 80%of the stock of central government debt. Such owners generally do not trade theirsecurities.

The corporate bond market has not developed to its full potential in India, mainlybecause of the absence of fully developed and liquid government bond market. In terms ofthe ratio of issued corporate debt to GDP, even the most developed and largest markets inthe Asia Pacific region like China (10%) and Japan (42%) are still far smaller than theU.S. (129%), but India is less than 5%. Moreover, the market is illiquid and suffers fromnot having standardized issue terms.

Recently, the government has taken steps to improve the bond market. The government hasset the cumulative debt investment limit in corporate bonds including Infra Bonds for FIIsat USD45 billion and at USD15 billion in government securities. The FIIs can now invest upto USD 15 billion in government securities (G-secs) market instead of USD10 Bn and alsopump USD20 billion in corporate bonds market. However, they can also invest in long-terminfrastructure bonds, upto USD 25 billion.

We believe higher limit would give a major boost to infrastructure funding as largeportion of fresh debt issuance would come from infrastructure companies and the moneywould directly go towards execution of projects.

INITIAL PUBLIC OFFERING (IPO)/FOLLOW ON PUBLIC OFFERINGS (FPO)

The IPO/FPO market in the FY12 remained dull with fewer companies tapping this route togarner capital. The poor market sentiment led by deteriorating macroeconomic indicatorsforced companies to either postpone their IPO's or put capital requirements on hold. Eventhe government's target to mop up INR40000 crores went short by a huge gap.

The IPO & FPO market in the FY2012 managed to garner Rs. 24,937 crores from 37issues in FY2012 against Rs. 49,159 crores from 58 issues in FY2011. Among the major IPOsof the year, L&T Finance Holdings raised Rs. 1,245 crore, gold loan company MuthootFinance garnered Rs. 900 crore, Future Ventures mopped up Rs. 750 crore and commoditybourse MCX raked in Rs. 663 crore. ONGC had raised Rs. 12,767 crore through FPO. The sharesale was subscribed 98.3 per cent. LIC had subscribed to 84 per cent of the shares onoffer. The volatility factor in the stock market has taken its toll overall with as manyas 58 Indian companies to let go of regulatory approval for their IPOs to lapse FY2011-12.

QUALIFIED INSTITUTIONAL PLACEMENTS (QIP)

The QIP market was no better in the FY2011-12. The total amount placed in FY2012 from11 issues was Rs. 1,713 crores against Rs. 24,550 crores collected from 47 issues in FY2011. The curtailment in the QIP happened primarily on weak to flat market conditions dueto persistent short term economic and expected corporate headwinds.

WEALTH MANAGEMENT, FINANCIAL PLANNING & INSURANCE DISTRIBUTION

The financial services industry which mainly comprises the BFSI industry, that is,banking, financial services (such as mutual funds, bonds, trading activities, etc) andinsurance has immense scope and potential to grow exponentially. Introduction of mobileapplication, social media platforms, technologies like cloud computing tend to drive thegrowth of the industry. The financial services industry has made a lateral shift in notonly the way the services were delivered to the end-consumer but also how the serviceswere offered to the end-consumer. This shift has given way for financial planning, whichhas now gained recognition and importance in the industry. All this has made manyfinancial services houses and institutions revamp their operational infrastructure andbusiness delivery models.

There are 24 Life and 25 Non-Life Insurance companies operating in India having anAsset Under Management (AUM) of INR 25.44 trillion during FY 2010-11, which registered agrowth of 18.60% over FY 2009-10. The Insurance penetration in India is very lesscomparing to that of banking industry which stands at 5.10% in the year 2010 (penetrationfor life insurance is 4.40% and non-life insurance is 0.71%). General/Non-Life Insurancepenetration and density are even lesser than that of Life Insurance.

During FY2011-12, the new business premium (first year premium) of life insuranceindustry stood at INR 1.14 trillion which saw a decline of 9.52%. Besides, the totalpremium (first year premium) collected by the 24 life insurance companies saw a decline of9.21% to INR0.12 trillion in FY 2011-12 against INR 1.26 trillion in FY 2010-11.

The Indian Non-Life Insurance Industry is poised to grow with the increasing awarenessprograms conducted both by the regulator and the companies on products such as Health,Critical Illness and other various forms of insurance products.

According to a report by BRIC data, the market size of Indian life insurance industryis anticipated to touch US$111.9 billion in 2015 from US$66.5 billion in 2011, marking acompounded annual growth rate (CAGR) of 14.1 percent. The report estimates that Indiawould be the third-largest market for life insurance in the world by 2015, only afterChina and Japan. At present, India stands 12th among the top global markets for lifeinsurance.

The Rs 6.70 trillion Indian Mutual Fund (MF) Industry has 44 Asset Management Companies(AMCs). Recent data released by the Association of Mutual Funds in India (AMFI) indicatedthat average Assets Under Management (AUM) reported by these fund houses amounted to Rs.6,68,824 crore in 2011-12.

HDFC Mutual Fund maintained its top position as the country's biggest MF with anaverage AUM of Rs. 89,879 crore, followed by Reliance MF Rs. 78,112 crore, ICICIPrudential MF Rs. 68,718 crore, Birla Sunlife MF Rs. 61,143 crore and UTI MF Rs. 58,922crore.

Opportunities:

• Healthy and sustainable economic growth rate with sound macro-economicfundamentals;

• Low penetration of financial services and products in India.

• Regulatory reforms would aid greater participation of all class of investors;

• Favourable demographics like huge middle class, larger younger population withdisposable income and investible surplus, change in attitude from wealth protection towealth creation and risk taking abilities of the youth, etc.;

• Corporate are looking at expanding in overseas/domestic markets through merger& acquisitions and Corporate advisory services;

Threats:

• Increased competition from local and global players operating in India;

• Continuous downward pressure on the fees, commissions and brokerages caused byan overbanked market and willingness of most players to deliver services at very low fees.

• Regulatory changes impacting the landscape of business;

• Unfavourable economic condition

DRIVERS FOR THE GROWTH OF FINANCIAL SERVICES SECTOR IN INDIA

Several factors make us believe that the growth of the Indian Financial services Sectoris in a cusp of a sweet spot which is likely to outpace growth of several other sectors.These thoughts are prompted primarily on three broad reasons: Shift in the demographicfactors which is likely to create employment, growth and consumption, increasing effortsby the government to increase literacy through education for all policy initialization andmedia penetration across the length and breadth of the country which will prompt people totake recourse to proper financial planning because of regular mediacampaigntowardsthesame.

INDIA'S ECONOMIC GROWTH PROSPECTS

India's population is more than 17.2% of global population but Its GDP constitutes lessthan 2.5% of global GDP. With several Growth measures in place with demographic advantagethis ratio is expected to change for the better.

Low Median Age : India's population is the youngest among leading developed anddeveloping economies. The median age of India is as low as 25.9 years compared to globalaverage which is 27.7 and its nearest peer China where it is 35.2 years. This age group isthe most aspirant group which will help drive consumption and workforce. This demographicdividend has never been seen in this country before and in all probability may surpass inthe long term even developed economies where Population is aging, median age is high andoverall population much lower than India.

Improving dependency ratio : Dependency ratio is a measure that shows the number ofdependents (aged 0-14 years and over the age of 65) to the total population (aged 15-64).This indicator gives insight into the number of people of non-working age compared to thenumber of those of working age. A high ratio means those of working age - and the overalleconomy - face a greater burden in supporting the aging population. The dependency ratiothat is for every 100 people in India, which was 72 in 1990 has come down to 55 in 2010and is further expected to fall to 50 in 2020. This is happening due to increase in thelevel of the standard of living, nuclear families, awareness of work culture and therising needs of individuals. This helps Increase employment, consumption and savings.

Savings as a percentage of GDP : Savings as a percentage of GDP for India is higherthan most other economies of the world. The savings as a percentage of GDP in India isalso on the rise as indicated in the template. Indians are traditionally known for theirhabits for savings. With minimal support from the government in their old age or fordependents, Indians save more than most global countries. The savings rate to GDP is amongthe highest in the world.

Household savings pattern : Though Savings as percentage of GDP is higher in Indiain comparison with other economies but the household savings pattern in India is not somatured. Around 25% of the savings finds its way towards Financial Instruments, with restbeing kept at home or either as bank deposits. The Equity investment in US, direct andindirect constitutes of more than 60% percent where as in India it is less than 3%. Also,the number of depository accounts in the country is around 1% compare to China which is10% and South Korea 11% which simply explains the visibility of growth in the segment.

Income Pyramid - Rise in consumer groups : The income Pyramid below shows that thepopulation earning low income is declining steadily whereas those earning high income areon a steady rise and projected to increase sharply. Low income group that is populationthat earns upto USD2500 a year that constituted more than 60% in 2005 has fallen to lessthan 50% in 2010 and is expected to fall further to less than 20% by 2020 which clearlyindicates the population that is coming out of poverty. Similarly, the high income groupof more than USD10000 per annum has gone up from 2% in 2005 to 4% in 2010 and is projectedto scale up to 16% till 2020, which gives us clear visibility of the kind of income growthin the country.

Performance : The financial statements have been prepared in compliance with therequirements of the Companies Act, 1956 and Generally Accepted Accounting Principles(GAAP) in India. Our management accepts responsibility for the integrity and objectivityof these financial statements, as well as for the various estimates and judgments usedtherein. The estimates and judgments relating to the financial statements have been madeon a prudent and reasonable basis, so that the financial statements reflect in a true andfair manner the form and substance of transactions, and reasonably present out state ofaffairs, profits and cash flows for the year. As a significant part of the business isbeing carried on through subsidiaries, we have used consolidated financial figures in ourmanagement discussion and analysis as we feel that the consolidated financial figuresprovide more accurate information on the performance of the company.

The revenue during the year was Rs. 55.18 Cr. The present revenue mix of your companyis highly dependent on the state of Capital Markets. Weak global economic prospects andcontinuing uncertainties in the international financial markets therefore, have had theirimpact on the emerging market economies including India. We are hopeful towards the futureprospects of all our business segments and expect recovery in the business sentiments fromnext financial year.

The networth of your Company on consolidated basis have grown up from Rs. 70.47 Cr ason 31.03.2008 to Rs. 268.17 Cr as on 31.03.2012.

The adverse global & domestic economy situation impacted the performance of theCompany during FY 2012. For the year ended FY 2012, the Company posted a Return onNetworth of 5.44%. The performance of the Company is hugely dependent upon the state ofCapital Market.

* The Return on Networth has been calculated by taking average of opening and closingnet worth and impact in Equity share capital from date of new issue or buy back.

Capital Allocation : Enhancement of shareholders' value through efficient use ofcapital in all business segments via proper business mix and its proper management alwaysremained top priority of your Company. Your Company is a debt free Company and is in aposition to leverage itself for any expansion plans.

Dividend : An amount of Rs. 369.71 Lacs (including dividend distribution tax) hasbeen recommended to be distributed as dividend for FY 2012, which is 33.88% ofconsolidated net profit of FY 2012.

Business Overview

An overview of various business segments and their future strategies are presentedbelow :

Financing : The financing segment of the Company mainly consists of Loan againstShares (LAS) activities. We offer loan against shares to our clients, secured by liquidand marketable securities at appropriate margin levels. The LAS business helps the clientsto leverage their equity market positions to take increased exposure. The LAS businessalong the line of leverage requirement of brokerage clients offers attractive businessopportunity in our segment. However, the yield in LAS business depends mostly on state ofcapital market. Due to dull capital market scenario the yield has came down due to lowtransactions by LAS clients in Cash Market Segment. The interest yield in Loans againstgood quality stocks have also come down. As your Company is focused on financing againstgood quality stocks only, there has been pressure on the interest yield on this segment.

Brokerage : Our Brokerage services include equity, commodities & currencyderivatives broking for institutional and individual clients supported by a strongresearch platform.

During the year, the BSE Sensex has gone down by 10.50% on YoY basis. The BSE and NSEcombined Cash volumes were INR 34706.21 billion in 2011-12 against INR46619.77 billionlast year, registering a fall of 25.55%. Out of the total volume registered in theexchanges, 90.24% contributed by F&O segment in FY11-12 against 86.20% registered inFY 10-11. The lackluster movement of the market during most part of FY 2012 resulted inlower participation of Non-Institutional Clients in Cash Market Segment except lastquarter of FY 2012 wherein some participation was seen. The beginning of the new FY 2013is also witnessing the same laclusture participation & volume. We foresee tremendousscope for Brokerage business in medium to long term, however global developments alongwith domestic policy responses to the concern detailed in Macro- Economic Outlook arelikely to make 2012 - 2013 also a challenging year for brokerage business. Our view onfuture growth prospects in medium to long term is very positive and hence we haveformulated desired action plan to take benefit of medium to long term growth andsimultaneously to shield ourselves in short term if the current trend continues in thenear term.

As on 31st March 2012, we had more than 32,000 registered clients for our EquityBrokerage Services and were operating through 225 outlets.

In Institutional business, we were successful in getting empanelment with 20institutions as at 31st March, 2012. The research team & sales team coordinate withthe trading department of institutional clients on regular basis. Our edge in researchwill assist in procuring sizeable business from institutional clients as well empanelmentalso from other institutions.

The Commodities exchange provides opportunity to the investors to diversify theirportfolio as well as hedging also. The natural affection of Indians towards precious metal- Gold & Silver presents cross business opportunity and your Company is geared up forthe same.

Investment Banking : Our Investment Banking Division works very closely inconjunction with Management of our SME clients and provides regular Corporate Advisoryservices to them along with equity debt raising transaction based services. The approachfacilitates in procuring transaction based services like Equity-Debt Raising.

The segment is highly correlated with the Capital Market and the subdued sentiments inlast year specifically towards primary issues had an impact on the earnings of yourcompany. The year 2011-2012 was eventful in terms of building relationships with dozens ofSME corporates with whom we expect to do good business in the year 2012 - 2013.

Wealth Management, Insurance Broking, Financial Planning & Distribution : Weforsee huge scope in this segment which will be mainly driven by the advisory fuctions.The young demography of India, Improving dependency ratio, internet penetration, risingmiddle class brightens the prospects of this division. Your Company has taken a number ofinitiatives to strengthen this division.

Club Kautliya, the knowledge based distribution model, launched by the Company duringFY 2012 is being appreciated by the clients. The unique approach towards FinancialPlanning, in our model, applies Wisdom of Chanakya with modern tools & technologies.The division has added more than 100 business partners during FY 2012. Club Kautilya is anunique concept and may revamp the financial product distribution business by shifting thefocus from selling to advisory.

Your Company has also filed an application to SEBI for registration as Mutual Fund.

Research : Your Company lays profound emphasis on Research and Knowledge across thegamut of financial services. Investment Research and Advisory play an important role tobuild a lasting relationship with clients and associates and help augment the performanceof the company. Besides using the traditional tools to value companies, the forte ofresearch lies in its abilities to think out of the box and give investment leads which areahead of the times.

The research team members are sought after by leading print and electronic/web mediafor their views/inputs on various sectors/companies/market strategies. Our Research isalso sought after by leading Institutional/HNI/Retail investors on a regular basis. OurResearch is available on Bloomberg and Reuters and leading financial web pages.

Your Company ensures that the research is done with accountability and hence webenchmark our research performance against the performance of Benchmark indices. Microsecresearch has given an aggregate return of 38.50% across 145 companies since mid 2008 on anequal weighted basis, against Nifty performance of 9.80% and CNXMIDCAP performance of13.5% (closing date 31/03/12- Details uploaded on website www.microsec.in). Theperformance is regularly updated on ourWebsite www.microsec.in

RISK MANAGEMENT

The objective of risk management is to balance the tradeoff between risk and return andensure optimum risk adjusted return on capital. The Risk Management Policies related toFinancing, Debtors and Investments are in place and properly documented and reviewedcontinuously. The processes have been laid down to oversee the implementation of thepolicies and continuous monitoring of the same.

Our Board level Committees viz. Audit Committee and Risk Management Committee overseerisk management policies and procedures. It reviews the credit and operational risks,reviews policies in relation to investment strategy and other risks like interest raterisk, compliance risk and liquidity risk.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Our internal control systems are adequate and provide, among other things, reasonableassurance of recording transactions of operations in all material respects and ofproviding protection against significant misuse or loss of company assets.

Internal audit is conducted to assess the adequacy of our internal controls proceduresand processes, and their reports are reviewed by the Audit Committee of the Board. Policyand process corrections are undertaken based on inputs from the internal auditors.

HUMAN RESOURCES

Your Company's multi-business context posses unique challenges to the Human Resourcefunction. The Company's businesses are managed by a team of competent and passionateleaders, capable of enhancing your Company's standing in the competitive market. TheCompany's employees have a defining role in significantly accelerating its growth andtransformation, thereby enhancing its position as one of the largest corporate houses. TheCompany has a structured recruitment process, the focus is on recruiting people who havethe right mindset for working at Microsec, supported by structured training programmes andinternal growth opportunities.

The total employee strength was 560 as on March 31, 2012.

CAUTIONARY STATEMENT

Statements in the Management discussion and analysis, describing the Company'sobjectives, outlook, opportunities and expectations may constitute "Forward LookingStatements" within the meaning of applicable laws and regulations. The Actual resultmay vary materially from those expressed or implied in the statement. Several factors makea significant difference to the company's operations including the government regulations,taxation and economic scenario affecting demand and supply condition and othersuchfactorsover which the Company does not have any direct control.