Emk.Global Fin. Management Discussions


GLOBAL ECONOMIC OVERVIEW

2023 is likely to be a year of slowing growth across the world, as the impact of various shocks from last year continues to play out. Just as the world was emerging from over two years of Covid-19 pandemic-led disruptions, the beginning of 2022 saw another shock in the form of the Russia-Ukraine war, which caused inflation to spike across the world. Global central banks had a fight on their hands, and we saw some of the fastest rate tightening actions in the last 50 years. This has helped tame inflation somewhat going into 2023, with the International Monetary Funds (IMF) World Economic Outlook (WEO) for April 2023 projecting global inflation at 7.0% in 2023, down from 8.7% in 2022, and further declining to 4.9% in 2024. The April WEO also reported that the global economy grew at a rate of 3.4% in 2022, with an anticipated growth rate of 2.8% in 2023 and 3.0% in 2024. Nonetheless, the global economy has demonstrated recovery and resilience to exhibit a better growth trend driven by strong labor markets, considerable household consumption, and business investment. Furthermore, core inflation, which excludes the more volatile energy and food prices, is anticipated to remain under control given the current conditions. However, taking recent spillovers into consideration, a cautious stance will be maintained by policymakers during this time.

(Source:IMF)

INDIAN ECONOMIC OVERVIEW

The Indian economy has demonstrated remarkable growth and has established itself as one of the fastest-growing economies globally in FY 2022-23. This growth trajectory began after the onset of the Covid-19 pandemic, and it has been sustained through remarkable progress in private sector consumption and infrastructure development.

Despite global challenges and tighter domestic monetary policies, Indias growth momentum has remained resilient, underscoring the inherent robustness of the countrys economy in rebounding and stimulating growth drivers. India has been grappling with inflationary pressures since the beginning of 2022. In response, the Reserve Bank of India hiked the repo rate by 250bps across the year, with the rate currently at 6.50%. This calibrated approach has resulted in a gradual easing of inflationary pressures, as evidenced by moderating inflation rates. The central bank has forecasted a CPI of 5.4% for second quarter of FY 2023-24, indicating a gradual reduction in the inflationary grip on the economy.

Indias robust economic fundamentals are shaping its long-term economic outlook positively. The Governments focus on growth-enhancing policies, such as the Production-Linked Incentive Scheme, self-reliance, and increased infrastructure spending, is resulting in a stronger multiplier effect on jobs, income, productivity, and efficiency. Additionally, the Governments emphasis on manufacturing and service exports, fueled by stronger digitization and technological transformation worldwide, is poised to aid the countrys economic growth. According to The National Statistical Office, the Indian economy is projected to register 7.2% growth in FY 2022-23.

Over the past two decades, the Government has focused on capital expenditure, aiming not only to bridge infrastructure gaps but also to attract private investment by divesting Public Sector Enterprises and utilizing idle public sector assets. The 37.4% increase in the Capex budget to Rs 10 Lakh crore in the Union Budget 2023-24, along with higher direct tax and GST collections, enabled the Government to utilize the Capex budget without hampering the fiscal deficit targets. The gross GST revenue collection for FY 2022-23 marked a 22% rise, amounting to Rs 18.10 Lakh crore. Also, the direct tax collection marked an increase of 17.63%, amounting to Rs 16.61 Lakh crore for FY 2022-23. With increased Government spending announced in the Union Budget FY 2023-24 and a rise in private consumption and investment, economic activity is poised to further boost demand, thereby propelling Indias economic growth. (Source:https://pib.gov.in/PressReleasePage. aspx?PRID=1894932, RBI Estimates, NSO Estimates)

The Indian economys growth outlook for FY 2023-24 has been revised downward to 6% by S&P Global Ratings, as per their recent forecast. Although this falls short of the National Statistical Offices earlier estimate of 7%, Indias remarkable recovery from the recent hindrances continues to drive growth, supported by pent-up domestic demand and increased capital investment. The Governments emphasis on capital expenditure has played a significant role in counterbalancing the private sectors cautious investment stance, with high GST and direct tax collections further strengthening this trend.

However, as the global economy faces numerous challenges such as high inflation and contractionary monetary policies, it is essential to exercise caution in sustaining Indias steady growth trajectory. Indias trade and financial linkages with advanced economies have grown, resulting in increased short-term ramifications for Indias growth cycle, given its high synchronization with developed nations. The potential for global spillovers cannot be overlooked, and the Indian economy must brace itself to face these challenges. (Source:MOSPI, NSO, https://www.outlookindia.com/business/ growth-premium-news-244264, https://www.deccanherald.com/ business/business-news/indias-gdp-to-grow-at-6-in-2023-24-sp-1204173.html)

INDIAN EQUITY MARKET OVERVIEW

The Indian equity market has been a center of attraction for the investor community for many years. The steady growth trajectory of the countrys economy, backed by the Governments push for re-energizing the countrys infrastructure development and vision to be a USD 5 trillion economy has significantly improved investment sentiment. Also, Indias current progress as a manufacturing-led country has given a boost to investment opportunities in the market. Apart from these, the self-reliance attitude of the Government and the whole country aligning with the vision have established the country as one of the prime investment destinations. The factor is further backed by the countrys robust start-up ecosystem, which has been contributing significantly to the countrys economy. A contribution to these factors is driving the growth of the investment market in the country, and the trend is likely to be followed for a longer period of time in the future. Followed by a meteoric rise in the Covid-19 pandemic-affected time, the growth trajectory of the Indian equity market witnessed some hindrances due to the prolonged inflationary pressure on the economy and the volatile trade scenario due to geopolitical tension between Russia and Ukraine, causing a dent in global oil prices. Also, hindrances occurred due to the higher valuation of the Indian markets, making global investors prune their investments in the country. However, on the domestic front, the market has done remarkably well during FY 2022-23. The current account deficit (CAD) during the third quarter narrows to 2.2% of GDP from 3.7% in the second quarter. The change is owing to the narrowing of the merchandise trade deficit to USD 72.7 billion from USD 78.3 billion in the second quarter of FY 2022-23, coupled with robust services and private transfer receipts. According to the Reserve Bank of India (RBI), the services exports reported a growth of 24.5% on a year-on-year (y-o-y) basis on the back of rising exports of software, business and travel services. (Source:https://www.businesstoday.in/latest/economy/story/ indias-current-account-deficit-narrows-to-22-of-gdp-in-q3-from-37-in-q2-375645-2023-03-31)

During FY 2022-23, the top-gaining sectors of Indian equity markets were Defense (+48.59), PSU banks (+36.34), FMCG (+26.50), Automobiles (+16.03), Private Banks (+11.93), and Logistics (+9.74); while the under-performing sectors were Information Technology, Consumer Durables, Pharmaceuticals, Metals, and Real Estate. Despite being a roller coaster ride for the Indian equity market, it ended up being one of the best-performing entities among the other emerging markets. The resilience of Indian equities was mainly boosted by robust inflows from domestic investors. While the foreign private investors continued to do away with their investments, the domestic institutions pumped nearly Rs 2.52 Lakh crore into the market. (Source:https://economictimes.indiatimes.com/markets/stocks/ news/strong-domestic-flows-help-india-outperform-most-ems-in-fy23/articleshow/99161664.cms. Internal research)

Annual Growth in Equity Indices during FY 2022-23 (in %)

(Source:Yahoo Finance, https://www.hindustantimes.com/business/indian-stock-markets-volatile-bse-sensex-worst-performer-in-three-years-with-0-7-gain-in-2022-23-crude-oil-prices-moderate-but-opec-decision-likely-to-raise-prices-indian-rupee-worst-performing-currency-in-asia-101680861898743.html)

Performance Indicators

In FY 2022-23, the Nifty MidCap 100 exhibited superior performance with a growth rate of 1.15%. Moreover, the Nifty Bank index experienced a substantial rise of 11.6% in the past year as compared to the Nifty 50 benchmark. Conversely, the Nifty SmallCap 100 showed a lower level of performance in the same period.

(Source:Bloomberg)

The headline indices demonstrated superior performance in comparison to a majority of major global peers, including the American Dow Jones, S&P 500, Nasdaq 100, Hong Kongs Hang Seng, and Australias S&P/ASX 200 during FY 2022-23. Nonetheless, the domestic Indian indices exhibited a lower level of performance when juxtaposed with the Euro Stoxx 50, CAC 40, FTSE 100, and Japanese Nikkei 225.

Indian Benchmarks Outperform Most Global Peers in FY 2022-23

(Source:Bloomberg)

Considering the indices performances, the Nifty 50 grew by (0.60)% with a 105-point derailment while the BSE Sensex grew by 0.72% with 423.01 points.

Nifty 50 Performance Indicator (FY 2022-23)

Nifty 50 Performance FY 2022-23

(Source:https://www.niftyindices.com/reports/historical-data)

Sensex Performance

(Source:https://www.bseindia.com)

Outlook

The potential performance of the Indian equity market in FY 2023-24 is heavily reliant on macroeconomic factors, particularly inflation and policy changes implemented by authorities to mitigate any associated risks emanating from domestic or external factors. Indias macroeconomic state has improved both structurally and cyclically, with the economy enjoying the goldilocks of stable growth and easing inflation.

The RBI is more or less done with the rate hike cycle, after a cumulative increase of 250 basis points throughout FY 2022-23. The policy reaction function is largely hinged on inflation which has seen gradual easing in recent months. Consumer price index-based (CPI) inflation,also referred to as retail inflation, has displayed a downward trend in India, declining gradually from a peak of 7.8% in April 2022 to 4.25% in May 2023. The RBIs projections indicate a further decrease to 5.1% during the final quarter of FY 2023-24. Moreover, globally, the reduction in oil and commodity prices, resilient activity data and the shift in focus by Foreign Portfolio Investors towards purchasing Indian equities are paving the way for a positive growth trajectory for the Indian equity market. However, the open nature of the foreign market renders the landscape vulnerable to external risks for the Indian equity market. Thus, cautious optimism with regard to the Indian equity market in the near future is warranted.

BUSINESS OVERVIEW

Emkay Global Financial Services Limited (‘EGFSL, also referred to as ‘Emkay or ‘Our Company) is a well-regarded financial services firmthat provides an extensive array of transactional and advisory services encompassing equity, debt, currency, and commodities. Originally founded as Emkay Share and Stock Brokers Private Limited in January 1995, our Company underwent a transformation in 2006 when it became publicly listed on stock exchanges. This milestone led to the renaming of our organization as Emkay Global Financial Services Limited in 2008.

We cater to a wide range of clients with varied backgrounds, including foreign institutional investors, domestic mutual funds, banks, insurance companies, private equity firms, corporate entities, small and medium-sized enterprises, as well as high-net-worth individuals. Our expertise and customized solutions are tailored to meet the unique needs of each client. To ensure exceptional service quality, our team of seasoned research professionals is supported by a robust infrastructure and well-defined processes, ensuring that our offeringsconsistently uphold the highest standards of excellence.

BUSINESS SEGMENTS

1. Equity

Emkays foremost priority is the cultivation of long-term value and investment opportunities. Our proficient research team plays a pivotal role in identifying undervalued stocks using a comprehensive blend of qualitative and quantitative analysis, with a key focus on safeguarding capital. We extend our services to both institutional and non-institutional clients, offering them diligently researched, reliable, and high-potential portfolio constructions. In FY 2022-23, the institutional equities segment constituted 45% of the total equity broking business, while the non-institutional segment accounted for the remainder.

Institutional Equities

We take pride in offering Institutional Equities services that cover an extensive range of markets across the globe. These markets include Europe, Hong Kong, India, Singapore, Taiwan, the UK, and the United States, among others. Our clients in this segment are primarily Mutual Funds, Insurance Companies, Banks, Foreign Portfolio Investors (FPI), Family Offices, Global Hedge Funds, and Alternative Investment Funds (AIF).

During the year the Institutional Equities team organized many thematic conferences including Emkays flagship conference ‘Emkay Confluence, Electric Vehicle Conference 2.0, Emkay Konnect (Festive Channel Check Conference), Emkay Cresta (a two-day physical conference in Singapore), and the third season of our highly successful digi-banking conference ‘FinShift.

The team additionally conducted over 230 expert and client calls and more than 40 roadshows.

Non-Institutional Equities

Our Non-Institutional Equities division caters to clients in India and Non-Resident Indians worldwide. Our clientele in this segment includes Corporates, High-Net-Worth Individuals, Family Offices, Non-Resident Indians, Trusts, and Private Equity firms. We have an extensive network of offices throughout the country to serve these clients effectively. As of 31st March, 2023, the number of institutional and non-institutional clients stood at 315 and 1,48,367, respectively.

Research

At Emkay, we take pride in delivering unparalleled, distinctive, comprehensive, and exhaustive real-time insights through our research capabilities. Emkay is well-known in the financial industry for producing exceptional, high-quality research. Leveraging our proprietary research methodology, we conduct thorough due diligence using institutional-grade analytics and gain an understanding of macro- and micro-economic trends and the outlook for capital markets to analyze and plan the capital allocation strategies for our clients. Our research team was honoured with top accolades at the Asiamoney Brokers Poll, the largest Asia-focused equity services provider poll.

Our team of analysts and research associates possess extensive experience and sound domain knowledge in their respective industries. We cover 263 stocks as of 31st March, 2023, including 47of the Nifty 50 and all 30 of the BSE Sensex companies.

2. Asset Management

Emkay Investment Managers Limited (EIML) serves a diverse clientele, including family offices, HNIs, corporations, NRIs, and trusts, through Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs). Our investment strategies are backed by thorough research in sectors and companies with a promising growth outlook, and we tailor our offerings to meet the specific requirements of each client.

Our team of certified portfolio managers and analysts employ proprietary frameworks to ensure consistent long-term returns while prioritizing capital preservation and client comfort. At EIML, we believe in transparency and make sure our investors are well-informed about their investments. Our distinct stock evaluation modules differentiate us from conventional investment strategies, as our portfolios are built on two distinctive methodologies - E-Qual and Smart Alpha, which have consistently helped us outperform our competitors.

E-Qual

EIMLs patented governance system, ‘E-QUAL, has been able to assess managements based on criteria such as management capability, management integrity, and wealth distribution ability, among others

Smart Alpha

The Smart Alpha framework employed by EIML is designed to identify stocks and themes such as value migration and consumption. This innovative framework is unique in the country and utilizes robust risk management mechanisms to eliminate selection and allocation biases in a portfolio. The result is consistent returns that are generated with a high degree of reliability We have the following offerings under the two approaches:

Emkay L.E.A.D.

Emkay L.E.A.D. endeavors to attain long-term capital appreciation by mainly investing in large and mid-cap high-growth firms that exhibit leadership traits in their respective sectors, along with a strong economic moat, quality management, and reasonable valuations

Emkay Emerging Stars Fund

• Emkay Emerging Stars Fund intends to produce capital appreciation over the long-term for investors from a collection of equity and equity-related securities

• Benchmark Index:BSE SmallCap Index

• The performance of Emkay Emerging Stars Fund was recognized with an award from PMS - AIF World

• Successfully returned funds to all investors in Emkay Emerging Stars Fund AIF I, II & III within the stipulated time

Successfully closed fund raising for Series V with commitments of more than Rs 200 crore.

Emkay Capital Builder

• Based on EIMLs E-Qual Module

•A multi-cap portfolio that aims to identify companies with the potential to build wealth over an investment horizon of 3-5+ years

•The strategy successfully completed 10 years, outperforming both Nifty50 and Nifty500 over the last decade.

Emkays 12

• An equal-weighted twelve-stock large-cap-oriented strategy

•A buy and hold strategy focusing on companies with a wider economic moat and a dominant position in the sector

•Combination of value + growth to deliver medium - and long-term wealth creation

Emkay GEMS

•An equal-weighted twenty-stock mid-cap-oriented strategy

•Focuses on risk adjusted returns

•No wide diversification

•Lower portfolio volatility and high liquidity

• Low portfolio turnover

Emkay New Vitalized India Strategy

A multi-cap portfolio aimed at achieving long-term capital appreciation

Invests in companies that will benefit from trends like private and public capex, greater indigenization to reduce dependence on imports, robust export growth, a strong turnaround in the industrial sector and services that are an integral part of industrial growth.

Focus on absolute Returns and high emphasis on Purchase Price Emkay received in-principle approval from the Securities And Exchange Board Of India (SEBI) for sponsoring a Mutual Fund. With a strong fund performance track record and over a decade of experience in PMS and AIF, this is a logical progression to expand the reach of tailored investment solutions to a broader audience, both domestically and internationally.

Other Key Highlights

We bagged the award for ‘Most Innovative Company of the Year (BFSI) at the National Feather Awards.

• We made the customer on-boarding experience more convenient by introducing the digital onboarding facility.

• Successfully launched and closed Series V of our highly appreciated AIF ‘Emkay Emerging Stars Fund, and also launched a PMS strategy ‘Emkay New Vitalized India Strategy, both of which focused on investing in companies that are primed to benefit from the manufacturing uptick in the country.

• Successfully distributed funds to all the investors of Emkay Emerging Stars Fund I, II & III, which were launched in CY2018. Over the course of five tumultuous years, spanning we skillfully managed to divest our portfolio investments, culminating in a pre-tax XIRR of 15%-18% for our AIF investors. This stands in contrast to the underwhelming low- to mid-single-digit returns delivered by the benchmark BSE SmallCap indices during the same period.

• Received commitments of more than Rs 200 crore in AIF V Emkay Capital Builder, the flagship Portfolio Management Strategy of EIML successfully completed 10 years, outperforming both Nifty50 and Nifty500 over the last decade.

3. Wealth Management

Our process orientation and strong research-based approach allows us to build on our view of the markets and asset classes to help provide investment products and Wealth Management Services to our clients. Using Quantitative and Qualitative techniques, our wealth research team can scan through the myriad of products and services available. Our team of private bankers, using advanced client profiling techniques and spending more time with clients is able to understand their specific requirements and provide the right kind of products and services.

We provide a range of services within the Wealth Management segment, starting with client risk profiling,Analysing existing portfolios, asset allocation, portfolio creation and following up with performance measurement, monitoring and rebalancing. We also provide transaction support, MIS and information support and advisory services to all our clients including UNHIs, Family Offices and Corporate treasuries. Emkay Wealth Advisory Private Limited, a subsidiary of our Company, offers estate and succession planning services and is also a Registered Investment Advisor. Our research team regularly publishes articles on the economy, markets, and various asset classes to keep our clients informed of market changes. Emkay Wealths effectiveness stems from its systematic approach to distribution, product development, client selection, asset allocation, and technology.

With the support of our dedicated and experienced private bankers and wealth managers across our 10 branches in India, Emkay Wealth has expanded its operations significantly since its establishment less than four years ago. As of the end of FY 2022-23, we have more than 2,000 clients, which is an increase from 1,529 in the previous year, and we manage assets worth Rs 2,213 crore.

4. Investment Banking

During the year Emkay transacted a block of nearly 30 Lakh shares in Advanced Enzymes, approximately 2.75% of the Company, with Nalanda India Equity Fund, raising their stake in the Company to nearly 9%. The Investment Banking team also successfully completed its second IPO as a left lead manager with Rs 427 crore fund raise for Ethos Indias leading luxury watch retailer. The team also executed a Series E Private Equity investment of Rs 80 crore in Awfis and Rs 84 crore Rights Issue in Bhagiradha Chemicals. Additionally, the IB team executed Rs 18 crore PE funding in Series E of Silverpush and Rs 170 crore on promoter block in Route Mobile. In the last quarter of FY 2022-23, the team completed a buyback of Rs 300 crore in EClerx Services and provided advisory services for a preferential issue of Rs 113 crore in Dynamatic Technologies Limited.

The tremendous success and responses to these transactions have helped build our reputation further, as we continue to take leaps through the growth momentum we have gathered in the previous years.

5. Currency and Commodity

Emkay is a member of the Multi Commodity Exchange (MCX) and the National Commodity & Derivatives Exchange (NCDEX) and the NSE Commodity. The client services provided under Commodities are mainly through:

•Software:Omnesys Nest by Thomson Reuters. We offer a varied suite of Algo Strategies to our clients (Omnesys Nest/Greeksoft)

•Call & Trade through recorded lines and via Bloomberg and Reuters chat

•Online platform for execution as well as viewing. For latency-sensitive clients, we provide DMA

•Real-time research advisory through WhatsApp messages & phone, Bloomberg and Reuters chat.

•Online client back office access

• Electronic contract notes, SMS facility

Research reports such as the Daily - Technical Report, Monthly - Fundamental Review, and Periodic - Special Report also help keep our customers aware of the commodity market direction.

Key Service Offerings Provided in Currency

We provide technical reports that contain analysis and hedging strategies to our clients. Our FX Insights report tracks the movement and trend of the INR and presents a daily outlook. In addition, our RBI

MPC Meeting Preview report is a special report that analyzes macroeconomic indicators and estimates their impact on market movement. Our Daily FX Insight report provides an analysis of different segments of the Foreign Exchange (Forex) market, including technical and fundamental analysis. Regular updates on the Forex Markets are also available through WhatsApp. Our Exchange v/s OTC Spread report compares forward premiums between the Exchange and OTC markets. The USDINR Weekly Insight report captures the movement and trend in INR on a weekly basis and provides a hedging matrix for importers and exporters, along with a weekly calendar. Our Option Max Pain - USDINR report is a special report that analyzes major derivative concepts on USDINR and helps determine possible levels at expiry. Lastly, our USDINR Technical Report provides analysis along with hedging strategies.

During the year, the commodity team bagged the award for ‘Best Research in the Commodity Segment, by MCX.

Opportunities

1. Indias Start-up and SME Ecosystem:Booming with IPO Opportunities in 2023

India is experiencing a surge in the number of start-ups and small enterprises, owing to the Governments persistent support for entrepreneurship through initiatives such as Ease of Doing Business, Start-up India, and PLI schemes. The SME exchanges introduction has facilitated SMEs to become listed, and increasing M&A deals are anticipated due to sectoral consolidation and the growing penetration of private equity and venture capital in Indian companies. As soon as the current high stabilizes, companies that were planning to raise capital through the primary markets are expected to initiate the process. With the moderation in volatility and robust earnings support, a substantial volume upswing could arise from the backlog of such IPOs. In 2023, the robust traction in IPOs is expected to continue driven by domestic retail and institutional capital. Almost 100 public offerings are likely to be launched in 2023.(Source:https://www.livemint.com/market/ipo/nearly-100-public- offerings-in-2023-here-s-how-experts-see-ipo-market-performing-next-year-11671816211607.html)

2. Opportunities in Indian Household Financial Asset Investments

The household sector is a significant contributor, accounting for approximately 60% of gross savings in the Indian economy, thereby acting as the primary source of financial resources for gross investment. A notable trend observed in recent years is the increasing inclination of Indian households to invest larger amounts in financial assets, as compared to conventional physical assets like gold and real estate. This shift is reinforced by steady economic growth and the declining attractiveness of physical assets due to their relatively lower returns compared to financial assets. Consequently, various investment options such as mutual funds, equities, and ULIPs, among others, are expected to gain traction and experience growth.

3. Opportunity for Financial Services Companies in Indias Growing Digital Market

As of January 2023, India has seen a significant increase in its internet user base, with 692.0 million internet users, accounting for 48.7% of the total population. This has provided a vast untapped digital market for the countrys financial services companies to expand their services. Additionally, with the rise in the number of internet users, there has been a surge in social media usage, with 467.0 million social media users in India, which is about 32.8% of the total population.

The increase in internet and social media usage is further supported by the growing number of cellular mobile connections. As of early 2023, there were 1.10 billion active cellular mobile connections in India, equivalent to 77.0% of the total population. With the Governments focus on improving digital infrastructure and connectivity through initiatives like the ‘Digital India plan, it is expected that internet, social media, and cellular mobile usage will continue to grow rapidly, providing new opportunities for businesses and individuals alike.

The burgeoning untapped digital market in rural India has been observed to have a y-o-y increase. The ‘Digital India initiative of the Government has aided in improving internet connectivity, facilitating financial services companies to extend their reach to the vast untapped and underserved rural markets, while also contributing to enhancing the existing infrastructure of the urban markets.

Threats

Our Companys progress may encounter impediments from various sources, including geopolitical tensions, market volatility, escalating commodity and energy prices, inflationary pressures, and anticipated interest rate hikes aimed at tightening the liquidity within the system. Despite these factors posing threats, it is important to examine additional threats that could hinder our Companys growth.

Highlight

Recently, the Securities and Exchange Board of India (SEBI) has put forth a proposal to rationalize the total expense ratio (TER) by implementing performance fees for funds. Within this suggested framework, SEBI recommends that equity schemes offered by asset management companies (AMCs) falling within the firstAUM slab (up to Rs 2,500 crore) should have a maximum TER of 2.55%. Additionally, SEBI aims to consolidate all supplementary expenditure components within the overall TER. This implies that all transaction charges should be considered part of the TER itself. The proposal suggests that brokerage and transaction fees should be encompassed within this limit, alongside the securities transaction tax (STT). While the intention behind this proposal is to enhance the benefits of economies of scale for investors, it is important to note that it may have a short-term,butsignificantnegative impactontheprofitmargins of fund houses, MF distribution houses, as well as the institutional broking business.

Risk Mitigation

Risk

Impact

Mitigation

Regulatory and Compliance Risks

Financial services companies in India are subject to a complex regulatory environment, which can pose risks to their operations. Failure to comply with these regulations can result in fines, penalties, and reputational damage.

We mitigate our regulatory and compliance risks by implementing robust compliance programs that ensure adherence to all relevant regulations. This includes ongoing monitoring, training programs, and regular internal audits.

Technology Risk

A substantial influx of users has the potential to temporarily overwhelm the server, resulting in inconvenience to clients. Moreover, the IT infrastructure holds significant importance from a business perspective, and therefore, the occurrence of system failures, security breaches, or other related risks cannot be ruled out.

In order to ensure uninterrupted service to our clients, we have implemented a cloud-based CRM for the Commodity PCG Desk and developed Web API services to facilitate seamless data exchange for the Wealth CRM. Furthermore, at Emkay, we make consistent investments in technology to establish a robust platform for our users.

Cyber Security Risk

Insufficient implementation of essential security systems can render a platform susceptible to cyber-attacks and hacking.

Our proficient IT security system and expert software team aid in thwarting, identifying, and responding to potential cyber security attacks.

Competition Risk

The escalating influx of emerging competitors into our industry has the potential to pose a significant threat to our market share.

We differentiate ourselves from our competitors by offering top-notch research, advisory services, and alpha-generation capabilities. We have also diversified our services and offerings to mitigate the impact of market fluctuations arising out of increased competition.

Inflationary Risk

Persistent worldwide monetarytightening in an inflationary reflected throughout FY 2022-23 to curve the prolonged inflationary pressure. Such instances wreak havoc on the economy and pose challenges to our growth strategies.

To manage financial growth effectively market, it is imperative to construct portfolios that adopt a balanced approach to mitigate market volatility and deliver inflation-beating returns.

 

Risk

Impact

Mitigation

Reputation Risk

Reputation risk is a significant concern that arises from negative public perception, stakeholder dissatisfaction, or adverse media coverage. This risk can lead to a loss of customers, market share, and regulatory scrutiny.

We mitigate reputation risk by developing a strong corporate culture that promotes ethical behavior and accountability, establishing a crisis management plan to prepare for potential reputation risk events, engaging with stakeholders to build trust and maintain a positive reputation, conducting regular risk assessments to identify potential risks and implementing mitigation strategies.

Financial Performance

Consolidated

(Rs in Lakhs)

Particulars

As of 31st March, 2023 As of 31st March, 2022

ASSETS

Financial Assets

(a) Cash and cash equivalents 2,948 9,473
(b) Bank balance other than (a) above 31,911 31,812
(c) Derivative financial instruments - 4
(d) Stock in trade (Securities held for trading) 72 147
(e) Trade receivables 10,529 8,876
(f) Loans 5,136 4,018
(g) Investments 2,368 3,424
(h) Other financial assets 13,920 14,337

Sub-total - Financial Assets

66,884 72,091

Non-Financial Assets

(a) Current tax assets (net) 510 151
(b) Deferred tax assets (net) 501 139
(c) Property, plant and equipment 2,999 2,772
(d) Right of use assets 747 412
(e) Capital work-in-progress - 166
(f) Intangible assets under development - 12
(g) Other intangible assets 55 25
(h) Other non-financial assets 1,399 624

Sub-total - Non-Financial Assets

6,211 4,301

Total – Assets

73,095 76,392

LIABILITIES AND EQUITY

Financial Liabilities

(a) Trade payables 12,026 13,666
(b) Borrowings (other than debt securities) 1,497 1,099
(c) Deposits 1,036 2,878
(d) Lease liabilities 763 435
(e) Other financial liabilities 33,129 34,190

Sub-total - Financial Liabilities

48,451 52,268

Consolidated

(Rs in Lakhs)

Particulars

As of 31st March, 2023 As of 31st March, 2022

Non-Financial Liabilities

(a) Current tax liabilities 4 44
(b) Provisions 2,192 2,277
(c) Other non-financial liabilities 1,409 1,741

Sub-total - Non-Financial Liabilities

3,605 4,062

Equity

(a) Equity share capital 2,464 2,464
(b) Other equity 18,575 17,599

Sub-total Equity

21,039 20,063

Total Liabilities and Equity

73,095 76,393

 

FY 2022-23 FY 2021-22 FY 2020-21 FY 2019-20
Revenue 21,548 27,377 16,183 13,513

Earnings before interest, tax and depreciation & amortization

2,601 5,685 2,800 (200)
Profit/(Loss) before tax 1,255 4,611 1,737 (1,657)
Profit/(Loss) for the year 1,408 3,380 1,113 (1,259)
Total assets 73,095 76,393 56,484 38,066
EPS (In Rs) 5.71 13.72 4.52 (5.12)

 

Metrics

Standalone Consolidated
31st March, 2023 31st March, 2022 % Change increase (decrease) 31st March, 2023 31st March, 2022 % Change increase (decrease)
Current ratio 1.04 1.12 -7.14% 1.16 1.24 -6.45%
Debt equity ratio NA NA NA 0.07 0.05 40.00%
Net profit margin 5.36% 7.35% -27.07% 6.53% 12.35% -47.13%
Return on net worth 7.03% 9.22% -23.75% 6.69% 16.85% -60.30%
Interest coverage ratio 2.57 7.47 -65.60% 3.93 15.61 -74.82%

INFORMATION TECHNOLOGY

Emkays strong client acquisition can be largely attributed to its commitment to digital transformation. Our Company places a financial markets through digital platforms. We prioritize enhancing the user significant interface and streamlining operational efficiency on our platforms to improve digital innovations, customer feedback, and cyber security enhancements play a vital role in our ongoing growth and in exploring untapped business opportunities on our platforms.

Emkays technology team strives to build a reliable and robust platform that offers a seamless digital experience across various touchpoints. Our goal is to proactively anticipate market needs and respond to digital disruptions by providing tailored offerings that cater to individual requirements. We are committed to creating a dynamic digital ecosystem that changing demands and ensures a dependable experience for our users.

In FY 2022-23, we have undertaken the following initiatives to enhance our technology prowess:= New hyper-converge platform improvising the capacity in global standard data center with scaled-up & fine-tuned hardware for reliability and improvisation in performance

• Added overclocked servers for a faster trading experience & multi-stream broadcast over the network for the clients.

• Upgraded the network bandwidth from Emkay POP to COLO for faster performance.

• Revamped the RMS department with a better monitoring layout, hardware refresh & visibility of trading platforms

• Introduction of a collaboration platform for the dealing team with a compliance archive for effective communication with clients.

FASTER TRADING EXPERIENCE THROUGH DIGITAL INNOVATION

Providing an optimal trading experience for our clients is pivotal to enabling them to make well-informed financial decisions. We strive to achieve this by furnishing our customers with faster, more accurate, and more secure access to data. Our platform offerings,coupled with API initiatives, enable us to deliver superior performance and an enhanced experience to our clients in a highly competitive landscape.

To enhance our software services and infrastructure robustness we have performed the following:

•Digitization of the Re-KYC process for the DP team

•Performed hardening of platforms and performing vulnerability assessments & pen-tests as an ongoing process

•We deployed a new marketing automation platform for our marketing team

•We upgraded our core accounting platform with the latest upgrades on the new servers over a hyper-converge platform

•Revamp of the Research Reports & Email templates for Institutional Research

We have enhanced our electronic execution through the following:

•Onboarded new trading applications in NSE, BSE, MCX and IFSC.

• Newly introduced Platform named Emkay Blitz for CTCL, internet-based trading and mobile trading facilities

• Newly introduced a strategy platform named Noren for arbitrage.

• Enhanced the FIX platform for the execution of fill reports to the clients

• API offerings for trading:REST, JAVA, Dot Net, and custom EM-API were introduced into the landscape

• API initiatives with Integrations in Back-office for Banks, KYC & Ops, deployed utilities for trade parameter monitoring

• New platforms were deployed, enabling the technology teams to manage privileged access and automated system patching.

CYBER SECURITY

Our Company has implemented several security measures to ensure the safety of our infrastructure and information.

These measures include implementing XDR and Next-Gen Antivirus technologies and maintaining a strong focus on information security and technology governance across all of our branches and head office. Additionally, we have onboarded a security operations center that provides around-the-clock monitoring of our platforms to ensure their safety. Our technology team has also worked towards developing an extended detection and response system that correlates various inputs across our landscape to provide enhanced security.

To enhance our cybersecurity division we undertook the following initiatives during FY 2022-23:

•We onboarded a CERT-IN empaneled managed Security Operations Center to monitor cyber risks for our critical infrastructure 24x7x365

•We rolled out a leading NGAV, EDR and Identity Protection platform across Emkay to replace the traditional signature-based antivirus platform

•We implemented Privileged Access Management platform to closely monitor and govern access to our critical assets

•We upgraded our DMARC services platform to enhance outbound email security

•We introduced a Cyber Attack Simulation and Cyber Awareness platform that helps us assess and enhance the cyber maturity of our users

•We have initiated enterprise-wide vulnerability assessments for all our technology platforms and are closely working with our service providers towards ensuring a cyber-safe environment Year after year, our dedication to technology deepens, and we are actively pursuing planned initiatives in the current fiscal year, encompassing the following:

•Enterprise-wide migration to the Microsoft 365 platform for Mail & Office

•Enterprise-wide Hardware Refresh & systems upgrade to the latest OS for a better user experience.

• DR Set Up the Trading & PMS platforms based on feasibility

• Enhanced backup automation solution for compliance requirement

Back office application upgrades to process the trades in multiples of the current volumes

• Implementation of an Identity Governance platform to streamline user identities across our corporate applications

•Implementation of a comprehensive next-generation Data Leak Prevention platform with data classification based on the sensitivity of the data

•Implementation of a granular application control platform

•Implementation of a zero-trust platform to replace the legacy VPN platform

HUMAN RESOURCES

Our Companys Human Resources department has implemented a focused approach to attract and nurture top talent while prioritizing their overall well-being. We have initiated a long-term journey of hiring across various functions and roles from well-known institutes such as the Institute of Chartered Accountants, Symbiosis Institute of Management, XIMB Bhubaneswar, and IMT Ghaziabad. These hires include full-time employees and interns, with the goal of attracting and grooming the best talent at the entry level. This year too, we continued to improve our online Talent Acquisition strategies to ensure that we tap the right talent from the right sources and have a steady supply of talent for the Group.

As a knowledge-based organization, we have focused on improving our employees functional and behavioral skills through various online and offline programs. We have also customized programs on Learning Management Systems (LMS) to allow employees to learn on the go and at their own pace. In addition to renewing online e-learning content, we capitalize on our in-house knowledge experts and convert them into recurring Learning Series for our employees. We have broadened the scope of potential employees roles and implemented well-defined paths for their professional growth and development. Additionally, we have established ongoing ‘CONNECT programs that involve one-on-one interactions and periodic surveys, particularly during the initial months of joining. Our internal role movement program, ‘EMBRACE, provides opportunities for internal career progression for our employees. Furthermore, we have revitalized our Rewards & Recognition system to acknowledge and incentivize high-performing individuals. We believe our employees are Ambassadors of Emkay and have leveraged our Employee Referral network The well-being of our employees and their families is of upgrades to process the trades paramount importance to us, and we have implemented various measures to support them, such as meditation sessions, expert-led diet programs, and ergonomically designed seats. We have also experimented with the Work from Anywhere concept in a few cases, with promising preliminary findings. This opens up a great opportunity for drawing a large pool of talent from around the country, which may be cost-effective and efficient. Our HRMS advancements have taken center stage to ensure that we deliver effortlessly and that data is integrated at a central level, making all our People Processes environment-friendly from hiring to retirement. At Emkay, we stand by our employees, promote gender equality, and focus on building skills and improving efficiency. Our policy initiatives help in nurturing future leaders who will take our legacy forward.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACIES

At Emkay, we take the implementation of Internal Control Systems seriously, ensuring that they are adequate, effective, and appropriate for the size of our business. We achieve this through the presence of a professional management team and the adoption of established policies and procedures. We also maintain an appropriate audit program, an internal control environment, effective risk monitoring, and management information systems. We regularly refresh our systems in line with industry-best practices, and we use internal audits to supplement the internal control systems. The Management conducts regular evaluations, and we have standard policies and norms in place to ensure that financial and other records used to compile financial statements and other data are accurate. Our Management Information System (MIS) is a crucial component of our control system, and we conduct regular checks and processes to ensure its effectiv eness.

An independent audit company carries out regular internal audits, and the reports are deliberated upon. An executive summary, as well as Action Taken Reports (ATR) and management actions to address the issues, are presented to the Audit Committee/Board meeting for evaluation. The Audit Committee reviews internal auditor reports, and corrective actions are taken to improve future systems and procedures in line with Internal Control Systems.

The auditors work is also recognized by the Board as an independent check on the information obtained from management on our Companys operations and performance.

CAUTIONARY STATEMENTS

The Management Discussion and Analysis contains statements about our Companys objectives, plans, estimates, and expectations. It should be noted that these statements may be deemed as ‘forward-looking statements under relevant securities laws and regulations. It is important to acknowledge that the actual outcomes may significantly differ from those stated or suggested due to various factors such as economic developments in the country, industry demand and supply circumstances, input pricing, changes in Government regulations and tax laws, as well as issues such as litigation and labor relations. These factors hold the potential to impact our Companys operations in a significant manner.