Management Discussion and Analysis
India stepped into FY2021 with Covid-19 induced lockdown in place. To check the spread
of the virus, government announced lockdown for 21 days till April 14 and later on
extended it to May 31. RBI announced a number of measures to help tackle the COVID-19
pandemic like repo rate cut by 115 bps to 4%, moratorium of three months of EMIs on all
outstanding loans which was later on extended by another three months till August end,
auction of targeted long term repo operations worth R 1 trillion, Special refinance
facility for HFCs etc. The main aims of these measures were to facilitate and incentivize
credit flows, ease the financial stress and enable the formal functioning of the market.
Government first announced an economic stimulus package worth R 1.7 trillion to help
millions of low income cope with lockdown and a second package of R 20 trillion later on
to revive the countrys economy. The year also witnessed India-China border dispute and
ban of certain Chinese apps by Indian government. On global front, the major events that
made headlines include US China trade tensions, US presidential election, West Asia peace
initiatives, negative oil prices etc.
International Monetary Fund projected an impressive 12.5% growth rate for India in
FY2022, making the country the only major economy of the world to register a double-digit
growth this year amidst the corona virus pandemic. However, with the resurgence of
Covid-19 cases posing risks to economic recovery, leading brokerages have downgraded
Indias GDP growth projections for the current fiscal year to as low as 10% on local
lockdowns threatening fragile recovery. World Bank has slashed Indias GDP forecast for
FY2022 to 8.3% from 11.2% predicted earlier, as the second COVID-19 wave hit India hard.
Disruption in global supply chain has highlighted risk of overdependence on a single
country. Many global MNCs are likely to consider diversifying their manufacturing
operations from China and India could be a likely beneficiary given the low corporate tax
rate, skilled population, relatively low wages and a large domestic market. Thus, once the
situation stabilizes, India could see relatively stronger recovery.
Indian Economic Overview:
Indias real GDP to record a 11.0% growth in FY2021-22 and nominal GDP to grow by
15.4%. India expected to have a Current Account Surplus of 2% of GDP in FY21, a historic
high after 17 years. India remained a preferred investment destination in FY 2020-21 with
FDI pouring in amidst global asset shifts towards equities and prospects of quicker
recovery in emerging economies:
• Net FPI inflows recorded an all-time monthly high of US$ 9.8 billion in November
2020, as investors risk appetite returned.
• India was the only country among emerging markets to receive equity FII inflows
in 2020.
V-shaped recovery is underway, as demonstrated by a sustained resurgence in high
frequency indicators such as power demand, e-way bills, GST collection, steel consumption,
etc. India became the fastest country to roll-out 10 lakh vaccines in 6 days and also
emerged as a leading supplier of the vaccine to neighboring countries and Brazil.
India adopted a four-pillar strategy of containment, fiscal, financial, and long-term
structural reforms:
• Calibrated fiscal and monetary support was provided, cushioning the vulnerable
in the lockdown and boosting consumption and investment while unlocking.
• A favorable monetary policy ensured abundant liquidity and immediate relief to
debtors while unclogging monetary policy transmission.
India entered the top-50 innovating countries for the first time in 2020 since the
inception of the Global Innovation Index in 2007, ranking first in Central and South Asia,
and third amongst lower middle-income group economies.
(Source: Economic Survey 2021)
Equity Markets
Market had a roller coaster ride in FY2021. From the lows seen during the end of FY2020
on account of Covid-19 induced lockdown, the markets started gradually recovering led by
phase wise unlocking, various policy measures announced by governments, central banks as
well as a better than expected corporate earnings performance. Market erased its 2020
losses in November 20. The next booster dose for markets came with the approval of
vaccines against Covid and this catapulted the market to reach new highs. Both Sensex and
Nifty closed at an all-time high of 52,154 and 15,315 respectively in the month of
February21. Sensex and Nifty closed at 49,509 and 14,691 levels respectively in March
2021.
India recorded the highest ever FII inflows of R 2,740 billion in FY2021, greater than
the cumulative inflows of the last six years. The size of inflow in December 2020 at R 620
bn was the highest ever monthly inflows ever recorded. On the contrary, DIIs recorded the
first outflows of R 1,341 billion after five years of inflows.
Broking Business
The average daily traded volumes (ADTO) for the equity markets during FY2021 stood at
Rs. 27.41 lakh crores, up 90% YoY from Rs. 14.44 lakh crores in FY2020. The overall Cash
market ADTO reported growth of 66% YoY at R 64,951 crores in FY2021. Delivery saw growth
of 39% YoY to Rs. 12,718 crores. Within derivatives, futures volume increased 24% YoY to R
1.09 lakh crores while options rose 95% YoY to R 25.67 lakh crores. Amongst cash market
participants, retail constitutes 56% of total cash volume, institution constitutes 18% of
total cash volume and prop constitutes 26%. The proportion of DII in the cash market was
7%.
In FY2021, a record of 1.44 crores new demat accounts were added as against 0.48 crores
in FY2020. This spike is attributed to the disposable income and saved time due to work
from home culture coupled with strong rally in equity markets. CDSL, the largest
depository in India in terms of number of demat clients, crossed the 3 crore accounts mark
in January. The number of demat accounts stood at 5.51 crores in FY2021, a growth of 35%
YoY.
Indian equities witnessed continued net inflows from FIIs for most of the part of the
financial year, with December recording the highest ever inflows. Highest ever FII inflows
was recorded in FY2021, greater than the cumulative inflows of the last six years. On the
contrary, DIIs recorded the first outflows after five years of inflows.
Primary Market:
Indian companies garnered close to Rs. 92,000 crore through public issuance of equity
during April-December this fiscal, a 46 per cent jump from the preceding financial year,
with rights issue remaining the most preferred route for financing business needs.
Companies had raised Rs. 62,816 crore in the April-December period of 2019-20.
During April-December 2020, however, the number of companies raising money through
public issue reduced to 33 from 49 in the same period last year. Of the total Rs. 91,993
crore mopped up through public issuance of equities in April-December 2020, Rs. 60,907
crore was raised through 16 rights issues as compared to Rs. 51,866 crore from 13 issues
in April-December 2019.
With regard to private placement route, the year 2020-21 (up to December) witnessed a
decline in fund raising through such route compared to the similar period for previous
year. This could be attributed to lower fund mobilization via preferential issue of equity
shares. In April-December 2020, there were 183 issues mobilizing Rs 91,631 crore through
private placement compared to 229 issues raising Rs 1,79,444 crore during the same period
last year.
Within the private placement route, 21 qualified institutional placements (QIPs) raised
Rs 64,148 crore during the period under review as compared to 9 QIPs that raked in Rs
34,028 crore in the April-December period preceding fiscal.
(Source: Economic Survey 2021)
Market Resource Mobilization by Mutual Funds
Indian capital market has shown its resilience to withstand the ripples caused by
exogenous shocks like the pandemic. Assets under management (AUM) of Mutual Fund Industry
increased by 41% from Rs 22.26 lakh crore as on March 31, 2020 to Rs 31.43 lakh crore as
on March 31, 2021. The number of unique investors across Mutual Fund schemes also
increased by 10% from 2.08 crore as on March 31, 2020 to 2.28 crore as on March 31, 2021.
With increasing expansion of the MF industry in smaller cities, the AUM from below top 30
cities increased by 54% from Rs 3,48,167 crore as on March 31, 2020 to Rs 5,35,373 crore
as on March 31, 2021. Investors in Mutual Fund industry may choose to invest in any of the
1,735 mutual fund schemes across categories as per their investment objective as on March
31, 2021.
OUTLOOK
Introduction
India has a diversified financial sector undergoing rapid expansion, both in terms of
strong growth of existing financial services firms and new entities entering the market.
The sector comprises commercial banks, insurance companies, non-banking financial
companies, co-operatives, pension funds, mutual funds and other smaller financial
entities. The banking regulator has allowed new entities such as payment banks to be
created recently, thereby adding to the type of entities operating in the sector. However,
financial sector in India is predominantly a banking sector with commercial banks
accounting for more than 64% of the total assets held by the financial system.
The Government of India has introduced several reforms to liberalize, regulate and
enhance this industry. The Government and Reserve Bank of India (RBI) have taken various
measures to facilitate easy access to finance for Micro, Small and Medium Enterprises
(MSMEs). These measures include launching Credit Guarantee Fund Scheme for MSMEs, issuing
guideline to banks regarding collateral requirements and setting up a Micro Units
Development and Refinance Agency (MUDRA). With a combined push by Government and private
sector, India is undoubtedly one of the worlds most vibrant capital markets.
Market Size
As of April 2021, AUM managed by the mutual funds industry stood at Rs. 3,237,985 crore
(US$ 444.11 billion). Inflow in Indias mutual fund schemes via systematic investment plan
(SIP) were Rs. 96,080 crore (US$ 13.12 billion) in FY21. Equity mutual funds registered a
net inflow of Rs. 8.04 trillion (US$ 114.06 billion) by end of December 2019.
Another crucial component of Indias financial industry is the insurance industry.
Insurance industry has been expanding at a fast pace. The total first year premium of life
insurance companies reached Rs. 2.59 lakh crore (US$ 36.73 billion) in FY20.
Furthermore, Indias leading bourse, Bombay Stock Exchange (BSE), will set up a joint
venture with Ebix Inc to build a robust insurance distribution network in the country
through a new distribution exchange platform.
In FY21, US$ 4.25 billion was raised across 55 initial public offerings (IPOs). In
FY21, the number of listed companies on the NSE and BSE were 1,793 and 5,647,
respectively.
Investments/Developments
• In May 2021, the Reserve Bank of India (RBI) granted authorization to Eroute
Technologies to operate as a prepaid payment instruments (PPI) company.
• In February 2021, the Reserve Bank of India (RBI) cleared the Rs. 34,250 crore
(US$ 4.7 billion) acquisition of Dewan Housing Finance Corporation (DHFL) by the Piramal
Group.
• In January 2021, Sundaram Asset Management Company announced the acquisition of
Principal Asset Management for Rs. 338.53 Crore (US$ 46.78 million).
• In January 2021, the National Stock Exchange (NSE) launched derivates on the
Nifty Financial Service Index. This service index is likely to provide institutions and
retail investors more flexibility to manage their finances.
• In November 2020, LIC took initiatives to facilitate quicker proposal completion
by launching a digital application - ANANDA.
• In November 2020, Paytm reported 2x growth in digital gold transactions in the
last six months. New customers have increased 50% since the beginning of this financial
year and the average order value has increased by 60%.
• In November 2020, the Reserve Bank of India (RBI) announced establishment of its
Innovation Hub. In order to encourage access to financial services and goods and foster
financial inclusion, this initiative would create an ecosystem. The Innovation Hub of the
Reserve Bank (RBIH) is intended to promote innovation across the financial sector by
leveraging technology and creating a conducive environment for innovation.
• VC investments grew to US$ 3.6 billion in July-September 2020 from US$ 1.5
billion in the previous quarter, powered by the mega deals, which included the US$ 1.3
billion raised by the online retailer—Flipkart.
• On November 6, 2020, WhatsApp started its UPI payment services in India on
receiving the National Payments Corporation of India (NPCI) approval to Go Live on UPI
in a graded manner.
• In April 2021, Unified Payments Interface (UPI) recorded 2.73 billion
transactions worth Rs. 4.93 lakh crore (US$ 67.31 billion).
• The number of transactions through immediate payment service (IMPS) increased to
322.96 million (by volume) and amounted to Rs. 2.99 trillion (US$ 40.85 billion) by value
in April 2021.
Government Initiatives
• The government has approved 100% FDI for insurance intermediaries and increased
FDI limit in the insurance sector to 74% from 49% under the Union Budget 2021-22.
• In January 2021, the Central Board of Direct Taxes launched an automated
e-portal on the e-filing website of the department to process and receive complaints of
tax evasion, foreign undisclosed assets and register complaints against Benami
properties.
• In December 2020, the Reserve Bank of India issued a draft circular on
declaration of dividends by NBFCs, wherein it proposed that NBFCs should have at least 15%
Capital to Risk Weighted Assets Ratio (CRAR) for the last 3 years, including the
accounting year for which it proposes to declare a dividend.
• In November 2020, the Union Cabinet approved the governments equity infusion
plan for Rs. 6,000 crores (US$ 814.54 million) in the NIIF Debt Platform funded by the
National Investment and Infrastructure Fund (NIIF) consisting of Aseem Infrastructure
Finance Limited (AIFL) and NIIF Infrastructure Finance Limited (NIIF) (NIIF-IFL).
• In November 2020, two MoUs were signed—one between India International
Exchange (India INX) and Luxembourg Stock Exchange and another between State Bank of India
and Luxembourg Stock Exchange for cooperation in financial services, ESG (environmental,
social and governance) and green finance in the local market.
• On November 11, 2020, The Cabinet Committee on Economic Affairs approved
continuation and revamping of the scheme for financial support to public-private
partnerships (PPPs) in Infrastructure Viability Gap Funding (VGF) Scheme until 2024-25
with a total outlay of Rs. 8,100 crore (US$ 1.08 billion).
Road Ahead
• India is expected to be the fourth largest private wealth market globally by
2028.
• India is today one of the most vibrant global economies on the back of robust
banking and insurance sectors. The relaxation of foreign investment rules has received a
positive response from the insurance sector, with many companies announcing plans to
increase their stakes in joint ventures with Indian companies. Over the coming quarters,
there could be a series of joint venture deals between global insurance giants and local
players.
• The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold
growth in AUM to Rs. 95 lakh crore (US$ 1.47 trillion) and more than three times growth in
investor accounts to 130 million by 2025.
• Indias mobile wallet industry is estimated to grow at a Compound Annual Growth
Rate (CAGR) of 150% to reach US$ 4.4 billion by 2022, while mobile wallet transactions
will touch Rs. 32 trillion (USD$ 492.6 billion) during the same period.
Note: Conversion rate used for May 2021 is Rs. 1 = US$ 0.01365
Source:https://www.ibef.org/industry/financial-services-india.aspx
RISKS AND CONCERNS
1. Product Risk: Such risk is due to products on offer in the market. EISL is a
well diversified financial services provided and uses various products to mitigate such
Risks.
2. Market & Regulatory Risk: Such risks are unavoidable and biggest threat to
the business. Any untoward incident in the market may lead to high losses. Any change in
the policy of market regulator may have negative impact on the business.
EISL uses robust risk management policy to avoid any significant risk arising out of
adverse change in market. EISL keeps its portfolio diversified so that its assets are not
concentrated in one particular segment. Further EISL employs highly qualified employees to
mitigate the risk due to changes in policies of market regulator.
3. Operation Risk: This risk relates to internal risk arising out of fraud by
employees or theft of important data.
The company has stringent internal control measures. The Audit committee also monitors
compliance with all aspects. Regular training and screening of employees is also done.
4. Technological Risk: The Company heavily depends on technology which is
provided by third parties and vendors. In the event of failure of technology and
connectivity company may incur significant losses.
The company gets its system audit regularly done. The company also have disaster
recovery plan to cope up with sudden break down at one particular location.
5. Financial Risk- Such risk is mainly due to inability of debtors to pay their
dues and losses due to trading. Company has policy to take proper margin from its clients
before allowing them to trade. The company also keeps a regular follow ups with clients to
pay their dues. Trading losses are minimized by allocation of funds to diversified
strategies and portfolios.
6. Strategy Risk- Risk arising out of failure of particular strategy
EISL keeps on devising different strategies to remain ahead of its competitors. All
such strategies are triggered keeping the business safeguarded.
SEGMENT WISE PERFORMANCE OF THE COMPANY
Below table shows performance of the company on the basis of turnover on different
exchange segments:
|
|
Amount in Rs (Crore) |
| EXCHANGE AND SEGMENT |
TURNOVER (2020-21) |
TURNOVER (2019-20) |
| BSE CASH |
1,193.49 |
2,173.93 |
| BSE EQUITY DERIVATIVE |
143.18 |
3,188.80 |
| BSE CURRENCY DERIVATIVE |
39,475.66 |
66,364.60 |
| BSE DEBT |
6,953.12 |
2,254.52 |
| NSE CASH |
60,755.55 |
45,044.13 |
| NSE EQUITY DERIVATIVE |
1,63,085.35 |
1,73,568.74 |
| NSE CURRENCY |
2,89,451.76 |
2,61,790.59 |
INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY
The Company has an adequate system of internal controls to ensure accuracy of
accounting records, compliance with all laws & regulations and compliance with all
rules, procedures & guidelines prescribed by the management.
The Company has set up an Internal Control Committee to oversee all the internal
control functions and report the observations to the Audit Committee on a periodic basis.
The Company has in place an effective internal audit department which plans and executes a
variety of audits with own staff as well as external professionals. Post audit reviews are
also carried out to ensure follow up. The Audit Committee of the Board reviews the scope
and observations of the internal audit on a regular basis.
HUMAN RESOURCES
Our promoters, Mr. Lakshmendra Kumar Agarwal and Mr. Vivek Agarwal, with their
knowledge and experience are well-assisted by our Key Managerial Persons who have helped
us retain entrenched relations with existing customers and also helped us engage new
customers. We believe that our experience, knowledge and human resources will enable us to
drive the business in a successful and profitable manner.
Our Company is committed towards creating an organization that nurtures talent. We have
employed a prudent mix of the experienced staff and youth which gives us the dual
advantage.
Our company also conducts regular training programs which are aimed towards
strengthening skills, enhancing productivity and building sense of ownership among its
employees.
CAUTIONARY STATEMENT
All forward looking statements are subject to risks, uncertainties and assumptions
about us that could cause actual results to differ materially from those contemplated by
the relevant forward-looking statement. Forward- looking statements reflect our current
views with respect to future events and are not a guarantee of future performance. These
statements are based on our managements beliefs and assumptions, which in turn are based
on currently available information. Although we believe the assumptions upon which these
forward-looking statements are based are reasonable, any of these assumptions could prove
to be inaccurate, and the forward- looking statements based on these assumptions could be
incorrect.
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