GLOBAL ECONOMY
The global economy is heading for its weakest medium-term growth in more than last 30
years as the world grapples with geopolitical fragmentation, slower labour force growth
and weaker prospects for previously fast-growing economies such as China, the
International Monetary Fund (IMF) warns in its World Economic Outlook.
It expects global growth to be around 3% in 2028 - the lowest medium-term forecast in
an IMF report since 1990. Rising geopolitical tensions from issues such as the war in
Ukraine and Brexit are leading to a fragmentation of the global economy that could
increase financial stability risks, the report adds. This could hit cross-border
investments, asset prices, payment systems and banks ability to lend.
The International Monetary Fund (IMF) has long warned of increased costs, economic
friction and GDP output losses associated with the global economy fragmenting into
geopolitical blocs.The agency has also trimmed its 2023 global growth outlook slightly, as
higher interest rates cool economic activity. It now forecasts global real GDP growth at
2.8% for 2023 and 3.0% for 2024, marking a slowdown from 3.4% growth in 2022. According to
IMF, the unexpected failures of two specialised regional banks in the US in mid-March 2023
and the collapse of confidence in Credit Suisse have roiled financial markets, with bank
depositors and investors re-evaluating the safety of their holdings and shifting away from
institutions and investments perceived as vulnerable. It also stressed that the world
economy is not currently expected to return over the medium term to the rates of growth
that prevailed before the pandemic.
In a world that is more interconnected than ever before, all countries are getting
impacted by whats happening in other countries. The uncertainty caused by the evolving
global scenario is weighing heavily on the outlook for economies across the globe.
INDIAN ECONOMY
In its annual World Economic Outlook, IMF lowered the forecast for 2024-25 fiscal
(April 2024 to March 2025) to 6.3 per cent from the 6.8 per cent it had predicted in
January this year. The growth rate of 5.9 per cent in the 2023-24 fiscal compares to an
estimated 6.8 per cent in the previous year. IMF growth forecast is lower than projections
by the Reserve Bank of India (RBI). RBI sees a 7 per cent GDP growth in 2022-23 and a 6.4
per cent in the current fiscal that started on April 1.
India is also set to act as an important contributor of global economic recovery in the
current year. The IMF expects emerging economies to account for four-fifth of global
growth this year, with India alone expected to play the role of a global growth engine and
contribute more than 15 per cent. The stable growth of the Indian economy is aided by
sustained government capital expenditure, deleveraging of the corporate sector, lower
gross non-performing assets in the banking sector, and moderation in commodity prices.
According to CRISIL, Indias consumer inflation will moderate to 5 per cent on average in
FY2023-24 from 6.8 per cent in the last financial year.
To support the ongoing growth momentum, Union Budget 2023-24 stuck a commendable
balance between growth and fiscal consolidation. Particularly noteworthy is the
Governments announcement of enhancing the capital expenditure outlay by INR 10 lakh
crores, an increase of 33 per cent from last years print. This amounts to 3.3 per cent of
Indias GDP and will immensely bolster economic growth and employment through a multiplier
effect.
INDIAN CAPITAL MARKET
The Indian stock market continued to clock a monthly slide in March 2023 with the Nifty
1.08% lower and the Sensex down by 1.29% on the back of global uncertainties fuelled by a
banking crisis and persisting inflation. Major events including the collapse of the
Silicon Valley Bank (SVB), Credit Suisses buyout by rival UBS, global inflation and
continuing geopolitical tensions kept the stock markets on the edge.
Indias greatest strength lies in its domestic consumption, amply supported by a young
and large working population with disposable incomes and boosting business confidence. The
opportunities for growth and investment are ample at present and likely to multiply every
passing year.
In the past two years, Indian markets have outperformed emerging markets by a wide
margin. This is partially explained by the resilience of the domestic economy when all the
emerging markets were faced with the same global challenges.
Decent correction has been observed beginning December 2022 with foreign portfolio
investment (FPI) flows seeing some pressure in the new year. The world GDP growth rates
are seeing consistent downgrades over the past few months as well.
Currently Indian markets are trading at one of the highest premiums to emerging markets
in its history. Although early days, current year-to-date has seen a reversal, with most
global indices in the green while our market has seen sustained pressure.
INDIA M&A TRENDS 2023
Indias M&A activity is expected to remain strong in 2023, even as there are global
headwinds from rising interest rates and elevated inflation levels leading to increased
margin pressures for companies. The M&A market in India crossed USD 160 Bn during
2022.
Mega deals (>USD 1 Bn) grew 123% as the Financial services, medical and pharma and
construction sectors witnessed some of the largest ever M&A transactions.
Strategic M&A in India is expected to remain resilient backed by continued strong
domestic demand and healthy balance sheets while PE activity may rebound backed by better
valuations resulting in higher deployments, particularly beyond H2 2023.
Source: www2.deloitte.com
EMERGENCE OF ALTERNATIVE INVESTMENT FUNDS (AIFs) IN INDIA
An Alternative Investment Fund (AIF) is a special type investment fund that invests in
assets beyond traditional investment avenues listed stocks, bonds and cash. AIFs can
invest in a wide range of other assets including private equity, hedge funds, derivatives,
real estate, and commodities. AIFs are typically managed by professional fund managers and
are regulated by the Securities and Exchange Board of India (SEBI). Its worth noting that
AIF managers or sponsors are required to have a "skin in the game" with a
continuing investment of 2.5% of the corpus or Rs 5 crore, whichever is lower, to ensure
better protection of investors investments. The minimum investment into an AIF is Rs 1
crore, limiting the entry for retail investors.
The growth of Alternative Investment Funds (AIFs) as an asset class in India has been
significant in the last few years. As per SEBI estimates, fund managers who run AIFs
raised nearly Rs 7 lakh crore of capital until 2022 from less than Rs 4.5 lakh crore two
years ago. Compared to a decade ago, when a majority of capital raised was from offshore
LPs, nearly 80-90 per cent of funds raised today are domestic money.
BUSINESS OVERVIEW
Highlights of Financial Performance during FY 2022-23
• Total Income from Operation of Rs. 6047.92 Lacs (Rs. 5659.43 Lacs for FY21-22)
• Profit Before Tax of Rs. 145.37 Lacs (Rs. 454.82 Lacs in FY21-22)
• Net Profit of Rs. 101.92 Lacs (Rs. 259.87 Lacs in FY21-22)
• Basic EPS after extra ordinary items stood at Rs. 1.28 compared to Rs. 3.25 in
FY21-22
Sumedha Fiscal Services Limited is one of the countrys leading merchant bankers with
specialization in debt syndication, financial restructuring and corporate advisory,
managing private placement as well as public issues of both equities and debt. The Company
has evolved over a period of time to a leading diversified financial services firm and
today is acknowledged for its unmatched management consultancy and advisory services. The
Company is primarily engaged in providing various fee based services such as fund
mobilization through issuance of debt, quasi-equity, structured hybrid instruments etc.,
corporate restructuring, trading and loan syndications. Its vast clientele includes
Indias premier public and private corporates. The Company continually fulfills its
objective of serving clients in an integrated manner and relentlessly strives to
accomplish its vision of ‘adding values to value in each of its deliverables.
INVESTMENT BANKING BUSINESS
One of the businesses of the Company, Investment Banking remains a prime focus of the
Company. The business segment has contributed Rs 696.73 lacs, for the year under review in
comparison with Rs. 741.23 lacs in the Financial Year 2021-22.
Investment banking business will likely face a unique set of challenges in 2023 which
shall include macroeconomic conditions,
including divergent interest rate trajectories across the globe. Volatility across
asset markets may bode well for the Fixed Income, Currencies, and Commodities (FICC) and
equities divisions. Yet, the same market unpredictability could create headwinds for
prospective deal-making and underwriting and also stress capital and liquidity buffers.
These dynamics are in sharp contrast to the last two years, when investment banking
division posted profits.
The key to a successful year will be to remain in the position of preparedness. The
Company shall continually evaluate strategy to grow the investment banking division as a
sustainable franchise.
RISK MANAGEMENT
We have in place a comprehensive risk management strategy to effectively handle the
various external and internal risks that can impact our business performance. The strategy
involves identification, quantification and management and reporting of the principal
risks that have the potential to affect our ability to create and deliver long-term value
to our stakeholders.
The Company is having a system of risk management commensurate with its size and nature
of activities to address the consequent vulnerability. Quarterly reports on relevant areas
are placed before the Audit Committee and the Board of Directors of the Company. All major
risks are identified, monitored and acted upon within the internal framework. However, the
Company is not yet required to constitute a Risk Management Committee pursuant to
Regulation 21 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
Risk management forms an integral part of the Companys business operations and
monitoring activities. Due to increasing globalisation, integration of world markets,
newer and more complex products and transactions and an increasingly stringent regulatory
framework, the financial services industry is subject to continuously evolving legislative
and regulatory environment.
Against the backdrop of the credit environment and general macro factors playing out
across sectors, we remain confident of our integrated risk and governance approach, which
has demonstrated the capability to withstand economic and credit cycles, as well as
dynamically adopt new scenarios and learnings into the risk and governance framework. We
are well positioned to accelerate our growth across all lines of business, given to our
strong risk architecture, coupled with our strong management capability, robust capital
and liquidity management and high governance standards with pan India presence.
RISKS AND CONCERNS
The company is subject to following broad risks -
• Operational Risk-
The Companys business is largely dependent upon people and processes. Any shortcomings
in internal processes and system shall result into material adverse impacts on the
operation and financial position of the Company.
The Company regularly conducts audits of internal processes and system and has well
defined internal control firmly in place. Its workforce in terms of key management team
consists of professionals having high level of commitment and expertise and is equipped in
handling the affairs of the Company thereby mitigating such risks arising out of
operational mismanagements.
• Market Risk-
Risks arising from fluctuation in the value of financial instruments due to volatility
in market variables such as stock prices, interest rates, currency rates, credit spreads
and other asset prices. Being a financial services intermediary, our business is
vulnerable to such risks, including that pertaining to our proprietary trading activities.
The Company continually monitors its portfolio and securities and the usage of
derivatives to minimize such risks.
• Liquidity Risk-
Any lack of liquidity in the market which adversely impacts the ability of the Company
to pay out its short-term financial obligations, to sell its assets quickly in a market
without loss, to access funds at competitive rates, shall inevitably bear material impact
on its financials. Severe liquidity crunch in the market and associated market disruptions
shall also withhold the clients from honoring their commitment towards the Company which
would indirectly lead to the Companys inability to perform its financial obligations.
The Company has got strong business strategies in place to maintain a long-term
orientation despite rocky short term performances. Its businesses are adequately
capitalized. Further, the Company also maintains a portion of Capital in liquid assets to
address any unforeseen liquidity crisis. Its main focus remains upon planning well in
advance and building financial buffers which shall go a long way towards mitigating the
effects of a coordinated economic downturn.
• Regulatory and Compliance Risk-
Most of our businesses as well as the Company itself operate in strongly regulated
business segments. The risk arising out of a change in laws and regulation governing our
business. It could also arise on account of inadequate addressal of regulatory
requirements or differences in interpretation of regulations vis-a-vis the regulators.
The Company operates in a strict regulatory compliant environment. It has dedicated
teams of professionals looking after the compliance with applicable laws, rules,
regulations and guidelines involving the businesses of the Company. External advises and
professional services are sought when needed to remove any iota of non-compliance.
Internal Audit is also carried out regularly to monitor the compliances with the Companys
policies and the applicable statutory regulations.
• Reputation Risk-
Companys reputation is a vital ingredient to business success, whether in regards to
customer trust or employee loyalty. While key ingredients for acquiring a good corporate
reputation, such as high quality, outstanding service, and competitive prices, are
relatively well understood, there are seemingly countless ways in which a brand might be
damaged. Reputation Risk is a very high risk factor and cause long term or irreparable
loss to the business or profitability.
The Company takes pride in the enormous goodwill and brand value that it has built due
to decades of providing exemplary services guided by the sole principle of customer
centricity. It has built a truly dedicated workforce which share the same responsibility
of delivering utmost good services whilst safeguarding the interest of the stakeholder and
the reputation of the Company.
INTERNAL CONTROL SYSTEMS
The internal control system of the Company is designed to suit the complexity of its
business operations. The system ensures strict adherence to all applicable statutes and
regulations governing the business operations. The internal financial controls with
reference to financial statements as designed and implemented by the Company are adequate.
The internal financial control procedure adopted by the Company is adequate for
safeguarding its assets, the prevention and detection of frauds and errors, the accuracy
and completeness of the accounting records and the timely preparation of reliable
financial information.
There has been no material developments in the area of Human Resources.
The Company had 39 permanent employees during the year under review.
DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS, ALONG WITH DETAILED
EXPLANATIONS THEREFOR:
| RATIO ANALYSIS |
2023 |
|
2022 |
|
REMARKS |
| Debtor Turnover |
217915/6047917 |
0.04 |
226222/5659431 |
0.04 |
No Changes |
| Inventory Turnover |
1508688/6047917 |
0.25 |
1305477/5659431 |
0.23 |
Increased by 8.69% (a) |
| Operating Profit Ratio% |
166416/6047917 |
0.03 |
314674/5659431 |
0.05 |
Decreased by 40.00% (b) |
| Net Profit Ratio% |
101916/6047917 |
0.02 |
259867/5659431 |
0.04 |
Decreased by 50.00% (b) |
| Debts Equity Ratio % |
Nil (No debt) |
|
3002/798442 |
0.01 |
Decreased by 100.00% (c) |
| Interest Coverage Ratio % |
485.31 Times |
|
427.41 Times |
|
Increased by 13.55% (b) |
| Current Ratio % |
2946696/39075 |
75.41 |
3048032/44033 |
69.22 |
Increased by 8.94% (d) |
| Return on Networth % |
2.20% |
5.63% |
Decreased by 60.92% (b) |
|
|
NOTE
(a) Due to increase of fund deployment towards Capital market exposure.
(b) On account of low consultancy fee earned by the Company and low income from Capital
market along with marginal increase in operating cost.
(c) Due to repayment made by the Company towards all outstanding loans.
(d) Majorly due to increase of available funds in liquid instruments and stock
inventory.
Details of change in return on Net Worth as compared to the immediately previous
Financial Year along with a detailed explanation thereof :
There has been low return on Networth in the current year owing to losses arising
primarily due to volatile secondary market situations.
Cautionary Statement
This Management Discussion and Analysis provides the details of the Company objectives.
Statements detailed here are not exhaustive but are for information purposes only. The
actual performance of the Company in future may vary substantially from those outlined
herein. Some of the statements written herein are forward looking and should not be
construed as a guarantee of performance. The readers must exercise their due diligence
before forming any opinion based on this statement.
|
For and on behalf of the Board |
| Place: Kolkata |
Ratan Lal Gaggar |
| Date: 6th May, 2023 |
Chairman |
+91-9892691696
