GCM Capital Advisors Ltd Management Discussions

ANNUAL OVERVIEW AND OUTLOOK ECONOMIC OUTLOOK

India is set to dominate the global economic landscape, maintaining its status as the fastest-growing large economy for the next two fiscal years. The January 2025 edition of the World Banks Global Economic Prospects (GEP) report projects Indias economy to grow at a steady rate of 6.7% in both FY26 and FY27, significantly outpacing global and regional peers. At a time when global growth is expected to remain at 2.7 per cent in 2025-26, this remarkable performance underscores Indias resilience and its growing significance in shaping the worlds economic trajectory. The GEP report credits this extraordinary momentum to a thriving services sector and a revitalised manufacturing base, driven by transformative government initiatives. From modernising infrastructure to simplifying taxes, these measures are fuelling domestic growth and positioning India as a cornerstone of global economic stability. With its closest competitor, China, decelerating to 4 per cent growth next year, Indias rise is more than just a statistic. It is a powerful story of ambition, innovation, and unmatched potential. Complementing the World Bank report, the latest update from the International Monetary Funds (IMF) World Economic Outlook (WEO) also reinforces Indias strong economic trajectory. The IMF forecasts Indias growth to remain robust at 6.5% for both 2025 and 2026, aligning with earlier projections from October. This consistent growth outlook reflects Indias stable economic fundamentals and its ability to maintain momentum despite global uncertainties. The continued strength of Indias economic performance, as projected by both the World Bank and IMF, underscores the countrys resilience and highlights the sustained strength of its economic fundamentals, making India a crucial player in the global economic landscape.

INDUSTRY OVERVIEW

Indias economic outlook remains positive, demonstrating resilience amidst persistent global economic headwinds. Stabilising inflationary trends have enabled the RBI to reduce the key policy rate in February 2025. Further policy rate adjustments could be anticipated in the subsequent quarters, contingent upon suitable domestic and international economic conditions. Capital deployment into Indias real estate sector remained strong at USD 2.9 billion in Q1 2025, driven by sustained momentum in land / development sites and investments into built-up assets. Investment inflows were primarily fuelled by developer activity and significant interest from real estate investment trusts (REITs) and institutional investors during the quarter. Investment activity is projected to maintain its positive trajectory in 2025, primarily fuelled by capital flows into built-up office and warehousing assets and robust acquisition pipelines for residential, warehousing, and mixed-use development sites. Indias metros and tier-I cities will likely remain the primary recipients of equity inflows. Investment activity is expected to accelerate in the latter half of 2025, contingent upon improvements in global economic conditions and the deployment of dry powder accumulated from an active exit market in 2024.

OPPORTUNITIES & THREATS Opportunities

Over the last ten years, Indias private equity and venture capital (PE/VC) sector has undergone a significant transformation. This evolution has been characterized by rapid innovation, sectoral diversification, and an ability to adapt to changing market dynamics, establishing India as one of the most attractive investment destinations globally. In 2024, the Indian PE/VC industry demonstrated its resilience amid global uncertainties and market fluctuations, securing investments worth US$56 billion a 5% increase from the previous year. There was a marked shift in investor focus towards buyout transactions, which saw a 39% surge in value, outpacing growth investments. The bulk of PE/VC activity remained concentrated in sectors that have traditionally attracted interest. However, there was a noticeable expansion in financial services, e-commerce, and technology sectors, outperforming their performance in 2023. Despite a downturn in the value of large deals, the investment landscape was energized by a record number of transactions, propelled by a rekindled interest in start-ups and growth in private credit transactions. Exit strategies also evolved, with a total of US$26.7 billion realized, representing a 7% year-on-year increase. Open market exits dominated, while PE-backed initial public offerings (IPOs) gained momentum, buoyed by a capital market that offered robust opportunities for investor exits.

Threats

The Indian stock market has experienced a significant downturn in early 2025, with the BSE Sensex and Nifty50 indices plunging to eight-month lows, erasing over 16.97 lakh crore in investor wealth within five trading sessions. This crash, marked by persistent foreign institutional investor (FII) outflows, geopolitical tensions, and domestic economic headwinds, reflects a complex interplay of global and local factors. The resurgence of US protectionist policies under President Donald Trump has reignited global trade war fears. The imposition of 25% tariffs on steel and aluminium imports and threats of additional duties on Chinese goods have destabilized international markets, including India. These measures heighten concerns about reduced global trade volumes and disrupted supply chains, particularly for Indian exporters in sectors like textiles and pharmaceuticals. The uncertainty surrounding Trumps tariff announcements has exacerbated market volatility, as investors brace for potential retaliatory measures and reduced export competitiveness.

RISKS AND CONCERNS

GCM Capital Advisors Limited (GCM) has exposures in the business of Investments in Indian Stock Market. GCM are exposed to specific risks that are particular to their respective businesses and the environments within which they operate, including market risk, competition risk, credit risk, liquidity and interest rate risk, human resource risk, operational risk, information security risks, regulatory risk and macro-economic risks. The level and degree of each risk varies depending upon the nature of activity undertaken by them.

MARKET RISK

The Company has quoted and/or unquoted investments which are exposed to fluctuations in stock prices. GCM continuously monitors market exposure in equity and, in appropriate cases, also uses various derivative instruments as a hedging mechanism to limit volatility.

LIQUIDITY AND INTEREST RATE RISK

The Company is exposed to liquidity risk principally, because of lending and investment for periods which may differ from those of its funding sources. Management team actively manages asset liability positions in accordance with the overall guidelines laid down by various regulators. The Company may be impacted by volatility in interest rates in India which could cause its margins to decline and profitability to shrink. The success of the Companys business depends significantly on interest income from its operations. It is exposed to interest rate risk, both as a result of lending at fixed interest rates and for reset periods which may differ from those of its funding sources. Interest rates are highly sensitive to many factors beyond the Companys control, including the monetary policies of the RBI, deregulation of the financial sector in India, domestic and international economic and political conditions and, inflation. As a result, interest rates in India have historically experienced a relatively high degree of volatility. The Company seeks to match its interest rate positions of assets and liabilities to minimize interest rate risk. However, there can be no assurance that significant interest rate movements will not have an adverse effect on its financial position.

HUMAN RESOURCE DEVELOPMENT

The Company recognizes that its success is deeply embedded in the success of its human capital. During 2024-25, the Company continued to strengthen its HR processes in line with its objective of creating an inspired workforce. The employee engagement initiatives included placing greater emphasis on learning and development, launching leadership development programme, introducing internal communication, providing opportunities to staff to seek inspirational roles through internal job postings, streamlining the Performance Management System, making the compensation structure more competitive and streamlining the performance-link rewards and incentives.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

The provision of the Companies Act, 2013 relating to CSR Initiatives are not applicable to the Company.

COMPLIANCE

The Compliance function of the Company is responsible for independently ensuring that operating and business units comply with regulatory and internal guidelines. The Compliance Department of the Company continues to play a pivotal role in ensuring implementation of compliance functions in accordance with the directives issued by regulators, the Companys Board of Directors and the Companys Compliance Policy. The Audit Committee of the Board reviews the performance of the Compliance Department and the status of compliance with regulatory/internal guidelines on a periodic basis. The Company has complied with all requirements of regulatory authorities except delay in complying with the provisions of SEBI LODR Regulations, 2015. Delay was mainly due to the difficult phase of COVID-19 pandemic wherein the normal life was disrupted and staffs were forced to perform their duties with limited resources. The Company has made payment of penalty of 0.73 Lakh to BSE. No penalties/strictures were imposed on the Company SEBI or any other statutory authority on any matter related to capital market during the last three years.