Arihant Capital Markets Ltd Management Discussions

Macroeconomic Overview

The global economy demonstrated resilience during FY26 despite persistent challenges arising from elevated tariffs, geopolitical tensions, rising public debt and policy uncertainty. Growth was supported by robust domestic demand across major economies, increasing investments in technology and artificial intelligence, and gradual monetary easing by central banks. However, the global outlook remained cautious, with trade and economic activity expected to moderate amid geopolitical risks, rising protectionist measures and continued uncertainty surrounding global trade policies.

Against this backdrop, India continued to outperform major economies, with real GDP growth accelerating to 7.7% in FY26 from 7.1% in FY25. Growth was supported by strong domestic demand, sustained investment activity and sound macroeconomic fundamentals. Lower inflation continued fiscal consolidation and proactive policy measures contributed to economic stability during the year. Despite periods of volatility in global financial markets and capital flows, Indias economy remained resilient, aided by healthy consumption, improving private investment and a stable macroeconomic environment.

Global Outlook

As the West Asia conflict prolongs without any meaningful resolution in sight, risks to both inflation and growth have increased. Energy markets have been volatile; crude oil reserves are declining, and global commodity prices have firmed up. Faced with difficult trade-offs, monetary policy has turned more cautious. Major advanced economy central banks are likely to pivot towards monetary policy tightening. Global financial markets have shown mixed trends, with equities remaining buoyant driven by AI optimism, while sovereign bond yields have hardened on fiscal sustainability concerns and inflation worries. The US dollar index has appreciated amid shifting rate expectations and changing risk sentiment.

Key Developments and Events

Expanded Global Market Access : India announced/signed major trade agreements with the US, EU, UK, New Zealand, and Oman, significantly enhancing access to some of the worlds largest consumer and business markets.

Boost to Merchandise Exports : The agreements provide preferential or duty-free access across key sectors including textiles, apparel, pharmaceuticals, engineering goods, chemicals, gems & jewellery, agriculture, processed foods, and auto components, improving Indias export competitiveness.

Investment & Manufacturing : Government initiatives such as the PLI Scheme, India Semiconductor Mission 2.0, PM E-DRIVE, Biopharma SHAKTI, and infrastructure investments are expected to support manufacturing growth, reduce import dependence, and drive private sector investment.

Agriculture & Rural Economy : Agricultural performance remains contingent on monsoon conditions, although initiatives related to crop diversification, irrigation, climate-resilient farming, and technology adoption are expected to support rural incomes and agricultural productivity.

Startup Ecosystem Milestone

India had 128 unicorn startups with a combined valuation exceeding $392 billion by end of FY26, solidifying the countrys position as the worlds third-largest unicorn ecosystem. India also surpassed 2.23 lakh recognised startups under the DPIITs Startup India initiative by March 31, 2026.

Iran – US war and the tension around Strait of Hormuz

The Middle East is experiencing a severe escalation and a highly volatile regional conflict Tensions remain at a critical peak following direct military exchanges between the US and Iran. Disruptions in the region have led to a sharp rise in crude oil prices, higher freight and insurance costs, and increased volatility across commodity markets. The resulting increase in energy, transportation, and input costs could exert inflationary pressures globally and impact trade flows, particularly for energy-importing economies. The situation highlights the vulnerability of global supply chains to geopolitical shocks and underscores the importance of trade diversification and energy security initiatives.

Economic Indicators and Growth

GDP and Consumption

Indias real GDP grew 7.7% in FY26 (vs. 7.1% in FY25), pushing the nominal value to around $4.15 trillion. The Jan–Mar 2026 quarter recorded robust growth of 7.8%, driven by strong performance in manufacturing, construction and services sectors. Private Final Consumption Expenditure (PFCE) expanded by 7.7% in FY26, compared with 5.8% in FY25, reflecting broad-based improvement in household consumption supported by easing inflation, healthy rural demand and resilient urban spending.

Fiscal and Monetary Indicators

Fiscal Deficit : The fiscal deficit stood at ?15.19 lakh crore, or 4.4% of GDP, aligning with the revised estimates set

by the Union Budget.

l Inflation : Retail inflation averaged 1.7% during April–December 2025, down from 4.9% in FY25. In April 2026, CPI reached 3.48%, marginally higher from the six-year low of 3.16% recorded in April 2025. The comfortable inflation trajectory allowed the RBI to shift its focus towards supporting growth through monetary easing measures.

l Monetary Policy : The RBI lowered the cash reserve ratio by 100 bps to 3% in its June 2025 meeting and reduced the repo rate by 25 basis points (bps) to 5.25% in its December 2025 meeting, balancing growth support with inflation control, currently adopting a neutral stance.

l Q4 FY26 Results : Q4 FY26 Results: A sample of 2,013 listed companies reported an 11.4% increase in net sales and a 16.9% rise in adjusted net profits, driven by strong performance in financials, power, cement and other cyclical sectors, highlighting the resilience of corporate India despite global economic uncertainties.

Banking and Financial Sector

l Banking Profits : Indias banking sector achieved record profits of approximately Rs 4.1 lakh crore in FY26, compared with Rs 3.71 lakh crore in FY25. Public sector banks (PSBs) contributed around Rs 2.01 lakh crore, while private sector banks reported profits of about Rs 2.09 lakh crore, reflecting improved asset quality, healthy credit growth and strong operating performance across the sector.

l Asset Quality : Indias Gross Non-Performing Assets (GNPA) ratio for Scheduled Commercial Banks is projected to remain at a multi-decade low of roughly 2.1% to 2.4% throughout FY26, while Net NPAs hovered around 0.5%.

l Deposit Growth : Bank deposits grew by approximately 13.5% in FY26, compared with 10.6% in FY25. The acceleration was driven by higher term deposit mobilisation, attractive deposit rates and a shift of household savings towards bank deposits amid volatility in other asset classes.

l Corporate Cash Reserves : Listed Indian companies cash and bank balances surpassed Rs 19.02 lakh crore for the first time in FY26, primarily driven by cautious capital expenditure, lower dividend payouts, and a strategic buildup of liquidity amid macroeconomic and demand uncertainty.

Indian Capital Markets: FY26 Overview

1. Market Performance Impacted by Global Uncertainty

l BSE Sensex declined 7.1% during FY26 despite strong domestic economic fundamentals.

l Nifty 50 declined by 5.05% during FY26, reflecting heightened market volatility amid geopolitical tensions, foreign portfolio outflows, and global trade-related uncertainties l Investor sentiment was affected by Middle East geopolitical tensions, tariff uncertainties, and concerns around AI-related valuations.

2. Strong Domestic Institutional Support

l FPIs remained net sellers, with outflows of Rs 2.7 lakh crore during FY26. l DIIs provided strong support with net investments of Rs 8.5 lakh crore, reflecting growing domestic participation and reducing dependence on foreign capital.

3. Robust Primary Market Activity

l Companies raised Rs 2.3 lakh crore through IPOs, FPOs, and Rights Issues. l QIPs and preferential allotments contributed another Rs 2.2 lakh crore, indicating continued corporate confidence and healthy capital market activity.

4. Retail Participation Remained Strong

l Average monthly SIP inflows increased to Rs 29.1 thousand crore from Rs 24.1 thousand crore in the previous year.

l Sustained growth in SIP investments highlights the ongoing financialization of household savings and strengthens the long-term resilience of Indian equity markets.

5. India Underperformed Major Global Equity Markets

l India delivered a -7.1% return, making it one of the weakest-performing major equity markets during FY26. l In comparison, Brazil (+43.9%), Japan (+43.4%), Mexico (+30.7%), South Africa (+30.6%), and China (+16.7%) generated significantly higher returns.

l The underperformance was driven more by valuation correction and foreign capital outflows rather than domestic economic weakness.

IPO Market

In total, 363 companies went public in FY26 (108 mainboard + 255 SME), raising close to nearly Rs 1.8 trillion. Funds raised were driven by several large issues like HDB Financial Services, LG Electronics & Swiggy. IPO funding in FY26 was lower compared to FY25(Rs 1.92 trillion) because of a structural market reset. The massive IPO frenzy in FY25 absorbed significant liquidity, leading to weaker post-listing performance, aggressive initial valuations, and reduced foreign investments in FY26.

Mutual Funds

l The mutual fund industry continued its strong growth trajectory, with average assets under management (AUM) rising to Rs 73.73 lakh crore from Rs 65.74 lakh crore in the previous year, reflecting sustained investor participation and growing financialisation of household savings.

Retail investor participation remained robust, with SIP contributions reaching a record Rs 3.40 lakh crore during FY26, while SIP accounts increased to 9.72 crore, underscoring the increasing preference for disciplined long-term investing.

l Equity-oriented mutual funds attracted net inflows of Rs 3.47 lakh crore despite heightened market volatility and foreign portfolio outflows, demonstrating strong confidence of domestic investors in Indias long-term growth prospects.

l The industry witnessed growing diversification across asset classes, with Gold ETFs recording significant inflows of Rs 68,868 crore and passive investment products continuing to gain traction, reflecting evolving investor preferences and increased portfolio diversification.

Foreign Portfolio Investments (FPI)

FPIs made net sales of Rs 2.7 lakh crore in the domestic equity market during 2025-26 as against net sales of Rs 2.6 lakh crore during the previous year. Domestic institutional investors (DIIs) made net purchases of Rs 8.5 lakh crore during 2025-26."

Broking Industry & Retail Boom

Market Size & Growth :

The Indian securities brokerage industry continued to demonstrate strong growth during FY 2025-26, supported by increasing retail investor participation, rapid digital adoption, and expanding access to capital markets. The industry was estimated at approximately USD 4.25 billion in 2025, up from USD 3.98 billion in 2024, and is projected to grow at a CAGR of around 7.8% through 2030.

Retail participation remained a key growth driver, with the number of demat accounts crossing 120 million, reflecting growing investor awareness, rising financial inclusion, and increased participation from Tier-II and Tier-III cities. Technology-led brokerage platforms, seamless digital onboarding, and regulatory initiatives have further strengthened market accessibility and investor engagement.

The sector is expected to benefit from continued digitization, increasing financial literacy, and a favorable long-term outlook for Indian capital markets, creating opportunities for brokerage firms to expand their customer base and diversify service offering.

Global Economic Standing

The global economic outlook for CY 2026 remains challenging, with growth projected to moderate amid heightened geopolitical tensions, elevated energy prices, trade uncertainties, and persistent inflationary pressures. These factors are expected to increase volatility in financial markets and weigh on global trade and investment activity. Despite these headwinds, Indias economic outlook remains positive, supported by strong domestic demand, healthy corporate and banking sector balance sheets, continued government capital expenditure, and ongoing policyinitiatives.

Outlook for FY27

l GDP Projections : The Reserve Bank of India (RBI) revised its FY27 real GDP growth forecast downward to 6.6% from 6.9%, citing heightened geopolitical uncertainties arising from the West Asia conflict, elevated crude oil prices, supply-chain disruptions, and weather-related risks. Despite these challenges, domestic demand conditions and macroeconomic fundamentals continue to support growth prospects.

l Inflation Expectations : RBI projects CPI inflation at 5.1% for FY27, reflecting the potential impact of higher energy prices, supply-chain disruptions, and weather-related uncertainties on food and commodity prices.

However, adequate foodgrain stocks, improving agricultural output, and proactive policy measures are expected to provide support to price stability.

Fiscal Targets : The Government continues to pursue fiscal consolidation while maintaining growth-supportive public investment. The Union Budget FY27 has targeted a fiscal deficit of 4.3% of GDP, alongside a capital expenditure outlay of Rs 12.2 lakh crore, reflecting the Governments commitment to infrastructure development and long-term economic growth.

Arihant Capital Overview:

Since last three decades, Arihant Capital has been helping Indians meet their financial goals through investment in securities. Our client first approach and integrity has established us as one of the nations premier financial services companies, earning a reputation for trust and respect.

We offer both full brokerage services and digital only brokerage services to retail, institutional, and corporate clients. Our main objective is to assist our customers in growing their wealth by providing them with the right tools, platforms, and services so they can effectively manage their risk and maximize returns. The company offers a flat fee broking plan for its digital customers and a turnover-based fee model to full-service brokerage clients

We are building a comprehensive financial services ecosystem designed to serve our clients needs at every milestone

of their wealth journey, strengthening engagement and increasing wallet share.

Products and Services We Offer:

Broking and Depository : Retail broking (equity, derivatives, commodity and currency), depository services (NSDL and CDSL)

Institutional Broking : Serving banks, insurance companies, mutual funds and other institutions

Trading Platforms : Mobile, web and desktop trading platforms for equities, ETFs, derivatives, mutual funds, IPOs,

NCDs, commodities and currencies

Merchant Banking : Capital markets services, corporate finance, strategic advisory services, valuation and

specialised services

Third party solutions : Mutual funds, fixed income, bonds, NPS distribution services NBFC & MTF Loan against shares and margin trading funding services Portfolio Management Services Investment portfolio in stocks, fixed income NRI Depository services, investment across asset classes and platforms

Our broking and distribution network blends the strengths of both physical and digital channels to create unmatched

value for clients.

Arihants extensive footprint across Indias Tier2 and Tier3 cities remains a cornerstone of our growth strategy. Here, experienced relationship managers deliver hightouch, personalised services, offering clients tailored investment guidance powered by our robust inhouse research. This deeprooted, localised approach not only fosters trust but also nurtures enduring relationships, enabling us to serve clients with relevance, consistency, and longterm value.

The digital model caters to self-directed investors through Arihant Plus-a worldclass application featuring intuitive interface, seamless onboarding, access to an extensive range of wealth products and powered by smart researchdriven insights. This empowers tech savvy investors to make informed decisions and manage their investments across asset classes with speed, convenience, and confidence.

Revenue Performance – FY2025 - 26

Arihant Capital recorded a total income of Rs 206.39 crore in FY2025-26 as against Rs 248.01 crore in FY2024-25, representing a decline of 16.78% year-on-year. The decrease was primarily attributable to prevailing market conditions

and intermittent volatility during the year. Nevertheless, the Companys diversified business model, strong operational capabilities, and broad presence across equity broking, distribution, merchant banking, and allied services enabled it to maintain business resilience and continue serving its clients effectively.

Profit After Tax (PAT) declined from Rs 58.57 crore in FY2024–25 to Rs 31.69 crore in FY2025–26, representing a year-on-year decrease of 45.89%. The decline was primarily attributable to higher operating and finance costs, coupled with a significant reduction in treasury gains during the year.

Review of Operations : The companys financial performance and key financial ratios for the period under review are mentioned as follows:

Consolidated Financial Figures

Year ended	March 31,2026	March 31,2025
Income from operations	20,583.99	24731.70
Other Income	54.93	69.38
Total Income	20,638.92	24801.08
Total Expenditure	16,453.27	17721.66
Profit before Tax	4,181.98	7728.62
Tax on Profit	1,035.73	1858.37
Net Profit for the period	3,146.25(PAT)	5870.28 (PAT)
Total Comprehensive Income	3,168.71	5857.38

Key Financial Ratios:

Ratios	March 31,2026	March 31, 2025
1 Earnings per Share	2.87	5.64
2 Debt to Equity Ratio	0.54	0.25
3 Return on Net Worth	7.13%	15.27 %
4 ROCE	13.64%	23.80%

l Consistent expansion in our client base through both physical and digital channels. l Higher retail and institutional participation supported by a robust research and advisory ecosystem. l Increased contribution from interest income, distribution, and merchant banking fees alongside our core brokerage business.

Our strategic focus on strengthening revenue streams, scaling wealth management offerings, and deepening wallet share has positioned us to deliver resilient growth even in challenging market environments. Going forward, we remain committed to leveraging our omni channel presence, technology investments, and research driven approach to accelerate income growth while ensuring sustainable value creation for stakeholders.

Segmental Revenue Growth

l Brokerage Income : Brokerage Income declined from Rs 12,481.33 lakhs in FY25 to Rs 10,355.86 lakhs in FY26, representing a decrease of 17.0%. The decline was primarily attributable to lower trading activity and changes in market participation during the year.

l Interest Income : Interest Income declined by 6.3%, from Rs 8,018.78 lakhs in FY25 to Rs 7,512.60 lakhs in FY26. The movement reflects lower deployment of client assets, reduced margin funding activity, and/or changes in treasury income during the year.

l Third Party Distribution & Commission Income : Third-Party Distribution & Commission Income increased by 19.6%, from Rs 549.91 lakhs in FY25 to Rs 657.50 lakhs in FY26, reflecting the success of the Companys expanded wealth product suite and cross-sell initiatives.

l Fees from Merchant Banking : increased significantly from Rs 462.97 lakhs in FY25 to Rs 1,106.30 lakhs in FY26. During FY26, The division also maintains a strong pipeline of SME IPOs, Mainboard IPOs, and advisory mandates that are in advanced stages of execution.

l Other Income : declined from Rs 69.15 lakhs in FY25 to Rs 54.90 lakhs in FY26. Treasury gains and ancillary business income continued to contribute to this segment. Meanwhile, Gain on Fair Value decreased substantially from Rs 2,168.49 lakhs in FY25 to Rs 469.99 lakhs in FY26, reflecting market-linked valuation movements, whereas Dividend Income and Depository Receipts Income remained largely stable during the year.

Technology & Digital Transformation:

During FY 2025-26, we accelerated our digital transformation agenda through the modernization of technology infrastructure, adoption of hybrid cloud architecture and microservices, and continued enhancement of our in-house technology capabilities. A key milestone in this journey is Arihant Plus, our AI-powered super app, which seamlessly integrates investment, advisory, and wealth management solutions on a unified platform. This initiative strengthens scalability, enhances security, improves customer experience, and creates new avenues for sustainable growth and value creation.

At Arihant, operational resilience extends beyond business continuity. It reflects our ability to anticipate challenges, adapt quickly to changing market dynamics, and consistently deliver uninterrupted services across both digital and physical channels. Supported by a robust technology framework, strong governance practices, and research-driven processes, we remain committed to providing secure, reliable, and efficient solutions that support our clients financial goals under all market conditions.

Across all business verticals, we continue to focus on improving operational efficiency, strengthening human capital, and leveraging digital innovation. These efforts are helping us build a future-ready organization that is well-positioned to deliver sustainable growth, operational excellence, and superior client outcomes.

Risk factors relating to our business operations:

The company prioritizes risk management to mitigate potential business impacts. It has established clear policies to address changing market conditions and evolving regulations, regularly reviewing its risk management framework. Dedicated resources, including people, processes, and technology, are in place to manage risks effectively. Proactive measures are taken to identify and address risks and opportunities, safeguarding and adding value for stakeholders. Key risks include economic, geopolitical, technology, operational, market, regulatory, governance, resource, and reputation risks.

Risk Management : At Arihant, risk management is central to our business strategy and decision-making. We have established a comprehensive framework that enables us to identify, assess, and mitigate risks across all aspects of our operations. By integrating risk management into our core processes, we aim to maintain an optimal balance between risk and return while ensuring prudent financial discipline. Compliance with applicable laws and regulations remains a top priority, supported by a strong risk culture that promotes accountability and foresight across the organization. The Audit Committee regularly reviews our risk policies, assessments, and mitigation plans, ensuring a vigilant and proactive approach to safeguarding business continuity and stakeholder interests.

Human Resources : Our people are at the heart of Arihants success. Guided by our Code of Conduct and Ethics, we are committed to fostering a workplace built on respect, equality, and inclusion-f ree from discrimination or harassment. With a talented and experienced workforce, we continue to drive business efficiency, innovation, and adaptability in a dynamic environment.

We prioritize career development and employee growth through structured promotions, role enhancements, and enrichment opportunities. Training programs focus on technical expertise, leadership, business excellence, and behavioural skills, while reinforcing our core values and ethical standards. We also place strong emphasis on employee well-being, implementing robust health, safety, and wellness initiatives. By nurturing a diverse, inclusive, and future-ready workforce, Arihant ensures long-term organizational growth and resilience.

Corporate Social Responsibility (CSR) : At Arihant Capital, Corporate Social Responsibility is woven into our purpose of creating sustainable value for all stakeholders. We view CSR as a commitment to inclusive growth and community development.We believe that our business growth is meaningful only when it uplifts communities and preserves the environment. By empowering individuals with education, skills, and opportunities, Arihant Capital strives to contribute to Atmanirbhar Bharat and build a more equitable future.

Governance:

Our CSR activities are aligned with Schedule VII of the Companies Act, 2013, and overseen by the CSR Committee of the Board. Projects are implemented both directly and through credible registered agencies, ensuring transparency and measurable outcomes.

FY 2025–26 CSR Highlights: l CSR Obligation (2% of average net profit) : Rs 125.34Lakhs (2024-2025) l Total Spent During the Year : Rs 131.10 Lakhs

l Focus Areas : Education, skill development, preventive healthcare, gender equality, environment sustainability, and community development.

Key Initiatives Undertaken:

l Skill Development Training Programme : A multi-year project to empower women, youth, and students with employable skills and entrepreneurial capacity.

l Education Support : Contributions to schools, academies, trusts, and educational institutions, providing facilities to socially and economically backward groups.

l Healthcare & Preventive Care : Support to hospitals, trusts, and healthcare initiatives to improve community health access.

l Community & Environmental Projects : Initiatives through registered trusts for sustainability, rural development, and ecological balance.

Cautionary Statement :

The Management Discussion and Analysis (MDA) report provides a comprehensive overview of the companys objectives, projections, estimates, and expectations. It is important to note that these statements may be forward-looking, as defined by applicable laws and regulations. However, it is crucial to understand that the actual outcomes and results may vary significantly from what is expressed or implied in the report. Numerous factors can influence the companys operations, including changes in governmental regulations, tax regimes, forex markets, economic developments and other incidental factors. Therefore, it is essential to consider these dynamic elements when interpreting the information presented in the MDA report.