lic nomura mutual fund asset management co ltd Directors report

Directors Report

To the Members,

Your Directors are pleased to present their Twentieth Annual Report, on the business and operations of LIC NOMURA Mutual Fund Asset Management Company Limited (herein after referred to as ‘the Company’) together with audited accounts for the financial year ended March 31, 2014.

Financial Performance:

The summary of your company’s financial performance is given below:

Particulars	Year ended 31/03/2014	Year ended 31/03/2013
	(in lakh)	(in lakh)
Income	3,666.57	4,465.77
Expenditure	4,926.25	3,983.44
Gross Profit / (Loss) [PBDIT]	(1,259.68)	482.33
Add: Exceptional item	109.19	-
Less: Prior period item	127.27	-
Less:(i) Depreciation	384.29	398.26
(ii) Finance Costs	0.98	0.62
(iii) Provision for Tax	-	-
(iv)Deferred Tax Liability/(Asset)	-	-
Net Profit / (Loss)	(1,663.03)	83.45
Add: Balance brought forward	(1,661.17)	(1,744.62)
Profit Available for Appropriation	(3,324.20)	(1,661.17)
Appropriation
Proposed Dividend	-	-
Tax on dividend	-	-
Transfer to General Reserve	-	-
Balance carried forward	(3,324.20)	(1,661.17)

Review of Performance

The total income during the financial year 2013-14 has gone down from Rs. 4,465.77 lakh to Rs 3,666.57 lakh, mainly on account of reduction in income from investments. Exceptional item of income is on account of amount received in settlement of our claim on the Central Bank of India, for it having made improper encashment of dividend warrants. Prior period item is on account of withheld brokerage relating to FY 2011-12 & 2012-13, which was not provided in earlier years. During the financial year 2013-14 total expenses have increased from Rs.3,983.44 lakh to Rs. 4,926.25 lakh, due to increase in expenses on account of commission, publicity, employee benefit & scheme related expenses. The main source of income for the Company is Management and Advisory fee for managing the schemes of LIC Nomura Mutual Fund. During the year under review, the Management and Advisory fee has gone up from Rs 2,692.45 lakh to Rs 2,787.13 lakh in view of increases in Asset under Management.

During the year 2013-14, the AMC has increased its Average Assets under Management from Rs. 7,185 Crs. to Rs. 10,584 Crs. (Mutual Fund Industry’s AAUM Rs 9,05,120 crore), showing an increase of 47%. The AMC is ranked 18th out of the 45 Mutual Funds AMC operating in the country with an increase in market share to 1.17% from 0.86% in the previous year.

The total number of investors as at the end of the year stood at 2,97,659 as against 3,21,491 at the end of the last financial year.

During the year LIC NOMURA MF AMC Ltd. merged one Area Office Mumbai II with Area Office at Mumbai bringing down the total number of Area Offices to 27.

Auditors’ observations in their statement on the matters specified under Companies (Auditor’s Report) Order, 2003 (as amended from time to time), are self explanatory.

Dividend

In view of the loss incurred by the Company for the year under review, your Directors expressed their inability to recommend any dividend for this year.

Future Outlook of the Fund

The Asset Management Company with the consent of the boards has taken steps to further improve the efficiencies in the business. The streamlining of NAV computation, strengthening of various functions in line with the Mutual fund industry has helped in the growth of business.

The regulator has also guided and supported in permitting new schemes and also the merger of four equity funds.

The fund house also has taken initiatives to improve public relations and media coverage with success.

General Economic Trend

RBI in its recent bi-monthly policies has kept the key policy rates unchanged as expected, in line with its forward guidance. The RBI was not upbeat about the domestic economy, seeing downside risks to its 5.5% central forecast for fiscal year 2014/15. While it acknowledged the sharp decline in recent months in headline CPI inflation, it pointed out that this was due to food inflation and that the core inflation remains high and sticky.

The RBI kept the policy rate (the repurchase or repo rate) on hold at 8.00%, in line with consensus and our expectations. Consequently, the reverse repo and marginal standing facility (MSF) rates were left unchanged at 7.00% and 9.00%, respectively. The cash reserve ratio (CRR) was also kept unchanged at 4.00%.

The Debt markets sentiments in the Government Bond Markets turned bearish on the Budget announcement, with 8.83 % 2023 G-Sec gaining from 8.80 to 9.07% as investor appetite ebbed amid excess issuances (4th April) and diminished chances of rate cut.

The rupees recovery and improved macroeconomic indicators are among the reasons for the greater confidence in India. Foreign fund managers expect flows into the debt market to remain robust going forward, as yields in India are significantly more attractive than those in developed markets. The appreciation in the rupee is positive for the Indian economy as it reduces crude import costs substantially amid falling international commodity prices. The appreciating rupee however will make exports uncompetitive, thereby hurting that critical sector.

Strong currency environment, narrowing current account deficit (CAD), declining inflation trend and improving balance of payments situation has boosted global investors confidence towards India. April-December CAD narrowed to 2.3% of GDP, or $31.1 billion, against 5.2% ($69.8 billion) a year ago, mainly due to steep decline in gold imports. Experts pegged CAD for FY14 at about 2% of GDP, or $35 billion down sharply from 4.8% last year.

Business Prospects

Equity:

The benchmark indices gave positive returns during FY2013-2014 with Nifty up 17.9% and Sensex gaining 18.8%. The markets gave most of the returns in the second half of the year with a sharp rally towards the year end on the back of the euphoria of general elections. The macro economy also had better news towards the end of FY2013 with regard to food inflation, which showed signs of easing. The rupee also appreciated more than 14% from its level in last August on the back of improved BOP position. India’s

GDP growth for the first three quarters of FY13 was below 5%; it was 4.4% in Q1, 4.8% in Q2 and 4.7% in Q3. According to Central Statistics Office (CSO) the growth in GDP during 2013-14 is estimated at 4.9% as compared to the growth rate of 4.5% in 2012-13.

Index	Closed 28/03/13	Closed 31/03/14	Percentage change
Sensex	18835.8	22386.2	18.8%
Nifty	5682.6	6704.2	17.9%

Sector-wise capital goods, auto, IT and healthcare were among the top performers; while realty, consumer durables and power stocks disappointed in 2013-2014.

FIIs bought equity worth Rs 79,709 crore in 2013-2014 compared to Rs 140,033 crore in 2012-2013. (Source: SEBI)

Debt:

The financial year 2013 2014 was a volatile year for Indian debt Markets. RBI’s policy tenor underwent significant changes with a change in Governors. The new Governor seems to have shifted focus from WPI to CPI and retained a tight focus on inflation while keeping Demand under check via rate controls.

The repo rate was 8% compared to 7.5% in 2013. While the CRR and SLR rates remained largely unchanged, the year saw numerous adjustments in overnight liquidity management by RBI. However, market liquidity remained negative for most part of the year and both gilt and bond yield trends were broadly negative through the year.

The benchmark 10 year G-Sec was at about 7.95% in March 2013 and stood at about 8.80% in March 2014.

The INR saw significant volatility and was at about Rs. 59.89 on 28th March, 2014 after seeing a low of Rs.68.85 during the year.

A summary of March 2014 market indicators is as under:

RBI infused Rs. 36,000 crores in the repo auction and absorbed Rs. 15,340 crores in the reverse repo auction on 28thMarch, 2014.

PSU Banks issued 3 months and 1 year CD in the range of Rs. 9.20 9.25 under both tenure.

The INR /$ closed at Rs. 59.89 as on 28th March, 2014

The 10 year Bond (8.83 GS 2013) ended at 8.80 as on 28th March, 2014.

Foreign institutional investors (FIIs) were record buyers of Indian debt in the quarter ended March, reflecting increased confidence in Indias long-term economic prospects although growth is yet to show any definitive signs of emerging from a slump. More than $5.75 billion, or Rs 35,000 crore, surged into the Indian debt market in the three month period, the biggest such quarterly inflow ever (SEBI data). Global investors are bullish on Indian debt markets as the economy has bottomed out and its on the path to recovery. FIIs have found profound confidence in RBI for managing Indias external situation efficiently. FIIs are attracted towards India as the yield of 8.80-8.90% on bonds is highest in the region.

Outlook

With the hopes of a change in the economic and political scenario which would help revive investment and push growth to above 5% for the first time in the past two years. Some of the key areas for the new government are improving infrastructure, consolidating fiscal deficits, containing inflation, and reinvigorating the manufacturing sector. Any indications of the policies in these areas will be keenly watched by the market participants.

In terms of investment opportunity, infrastructure would be an obvious area for post-election policy drive, internet penetration is still low but growing rapidly, opening up opportunity for e-commerce companies, agricultural productivity must rise in order to feed the increasing population with different taste (more protein, etc.). Investing in export oriented IT and pharma provide good hedge against potential currency weakness. Despite the recent rally, mid-cap valuation relative to large cap remains attractive.

G-sec range that earlier stood at 8.70-8.95% will see an upward shift as frontloaded H1 FY14 borrowing Rs 3.68 lakh crore in the April-September period, (which is about 62% of the government debt borrowing plan of Rs 5.97 lakh crore for FY14) coupled with a likely uptick in inflation in next release on a turnaround in food prices and a rebound in core CPI impacts the appetite for government debt will put upward, steepening pressure on the yield curve, which may attract more global investors to the Indian Markets .

Fixed Deposit

Your Company has not accepted any fixed deposits, and as such, no amount of principal or interest was outstanding as on the balance sheet date. Further since incorporation your Company has not issued any debentures and hence, the question of non-redemption of debentures beyond due date or non-payment of interest on such debentures does not arise.

Directors

As on March 31, 2014 your Company has ten Directors. In accordance with the statutory provisions of the Companies Act, 2013 and the Articles of Association of the Company, Shri Hajime Kurozu, Director of the Company retire by rotation at this Annual General Meeting and being eligible, offers himself for re-appointment.

During the Financial Year 2013-2014, the following appointment /cessation to/from the Board have taken place:-

i) Shri S K Roy appointed as LIC Nominee Director and Chairman of the Company w.e.f. 23/08/2013, pursuant to the retirement of Shri D K Mehrotra as Chairman, LIC of India on 31/05/2013.

ii) Shri Kailash Kumar Bang appointed w.e.f. 25/04/2013 as Director in casual vacancy arising from the resignation of Shri A N Kumar Raj w.e.f. 25/02/2013. The term of Shri Kailash Kumar Bang will end at this Annual General Meeting in accordance with the provision of section 262/161 of the Companies Act, 1956/2013 and being eligible, offers himself for reappointment

iii) Shri Takashi Saruta appointed as Nomura Nominee Director w.e.f. 20/06/2013 in place of Shri Yugo Ishida who ceased to be Director w.e.f. 20/06/2013

iv) Shri Satish Kamat appointed as Director w.e.f. 30/08/2013 in place of Shri Aditya Narayan who ceased to be Director w.e.f. 20/06/2013.

v) Smt. Sunita Sharma appointed as LIC Nominee Director w.e.f. 25/02/2014 in place of Shri V.K. Sharma who ceased to be Director w.e.f. 01/11/2013.

The Board wishes to place on record valuable contributions made to the Company by the Directors, who ceased during the year and till date, during their tenure and welcome new Directors on the Board.

Audit Committee

The Audit Committee of the Company consists of 4 independent members of the Board. The role and terms of reference of the Audit Committee covers the areas as per the statutory provisions, besides other areas as may be referred to by the Board of directors. During the year under review, the Committee met 4 times.

Auditors

In accordance with the provisions of section 139 of the Companies Act, 2013 read with Companies (Audit and Auditors) Rules, 2014, the auditor of every company appointed at an Annual General Meeting shall hold office from the conclusion of that general meeting till the conclusion of the sixth Annual General Meeting. Further, an individual shall be appointed as an auditor for not more than one term of five consecutive years and an audit firm shall be appointed or reappointed as auditor for not more than two terms of five consecutive years.

However the period for which the individual or the firm has held the office as auditor prior to the commencement of the Act shall be taken into account for calculating the period of five consecutive years or ten consecutive years, as the case may be.

M/s Price Waterhouse, the statutory auditor of the Company during the financial year 2013-14 has expressed their unwillingness to be re-appointed vide their letter dated August 08, 2014. Therefore the Board in accordance with the aforesaid provisions recommends the appointment of M/s B.S.R. & Co. LLP, as statutory auditor of the Company for a period of 5 consecutive years commencing from the conclusion of this Annual General Meeting till the conclusion of the twenty fifth Annual General Meeting, subject to the ratification of the members at every Annual General Meeting.

M/s. B.S.R. & Co. LLP has confirmed their willingness to accept the offer, if appointed.

Directors’ Responsibility Statement

Your Directors confirm:

i) that in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures:

ii) that they had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for that period;

iii) that they had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv) that they had prepared the annual accounts on a going concern basis;

v) that they had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Employee Particulars:

Out of 306 employees on roll of the Company, there are 3 employees receiving remuneration exceeding the amount prescribed under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 and their details as required to be included in Boards report under subsection (2-A) of section 217 of the Companies Act, 1956, are as shown in Annexure I:-

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and outgo:

Particulars required to be furnished in this report under the section 217(1)(e) of the Companies Act, 1956, read with the companies (Disclosure of particulars in the report of the Board of Directors) Rules, 1988 relating to the conservation of the energy and technology absorption are not applicable for the year under review, and hence not furnished.

For the Financial Year Ended 31st March, 2014, the Company has earned foreign currency income of Rs 306.35 lakh. The information on Foreign Exchange earnings is contained in note no. 30, of financial statement for the year.

Acknowledgements:

Your Directors place on record their appreciation of the support extended by the Investors, Bankers, Custodians, Registrars, Brokers, Board of Directors of LIC NOMURA Mutual Fund Trustee Company Pvt. Ltd., LIC of India, LIC Housing Finance Ltd., and Nomura Asset Management Strategic Investments Pte. Ltd., Auditors and various Government agencies/associations including SEBI, AMFI, RBI etc. Your Directors would also like to place on record the contribution made by the employees at all levels for the success of your Company during the year.

For and on behalf of the Board of Directors of LIC NOMURA Mutual Fund Asset Management Company Limited
Director & CEO	Chairman
Place: Mumbai
Date: August 26, 2014