Geojit Financial Services Ltd Management Discussions

Economy Overview Global Economy Overview

During the disinflation period of 2022-24, the global economy showcased remarkable resilience, maintaining robust economic activity. Factors such as increased government spending, undiminished household consumption, and an unforeseen expansion in labour force participation have contributed to this steady growth. According to the April 2024 World Economic Outlook publication, titled ‘Steady but Slow: Resilience amid Divergence, global growth is at 3.2% in 2023 and is projected to continue at the same pace in 2024 and 2025. The pace of expansion is low by historical standards due to persistent challenges, which include near-term factors such as high borrowing costs and withdrawal of fiscal support, alongside longer-term effects stemming from the COVID-19 pandemic and geopolitical tensions. The unabating conflict between Russia and Ukraine and the war between Israel and Gaza seeded the possibility of sustained disruptions to regional trade in food, energy and other commodities while, the slowdown in the Chinese economy posed a risk to the pace of overall global economic activity.

The outlook for global growth remains modest, with estimates projecting a continuation of the current pace in the coming years. Inflation is expected to gradually decline, with advanced economies returning to their targets sooner than emerging markets. However, the forecast for global growth five years from now is at its lowest in decades, suggesting a slowdown in the convergence of living standards among countries.

Indian Economy Overview

In the fiscal year 2023-24, India achieved significant economic milestones amidst global adversities. Despite a slowdown in the global economy, driven by high interest rates and geopolitical tensions, India demonstrated remarkable resilience, maintaining its position as the worlds fifth-largest economy. Indias GDP exceeds estimates, grows at 8.2% in FY2024. This growth was propelled by robust domestic consumption, increased government capital investment, a strengthened financial sector, and stable monetary policies. The RBI has raised Indias real GDP forecast for FY2025 to 7.2% from 7% earlier on prospects of improving rural and urban demand condition buoyed by monsoon forecast.

Both the manufacturing and service sectors exhibited strong performances. Manufacturing witnessed an impressive growth rate of 9.9%, with the Index of Industrial Production (IIP) for manufacturing showing a growth of 5.5% compared to the previous year. Meanwhile, the service sector remained resilient, with the Purchasing Managers Index (PMI) consistently above 50, indicating sustained expansionary activity. Additionally, GST collections surged by 11.7%, reflecting robust domestic demand.

However, global geopolitical tensions, notably between Russia and Ukraine, led to elevated oil prices and grain scarcity, exacerbating global inflation. This situation affected India, prompting higher inflation rates. To counter this, the Reserve Bank of India maintained a tight monetary policy, keeping key policy rates unchanged at 6.5%, effectively managing inflation within the tolerance band, with the average CPI inflation at 5.4% during the fiscal year.

Industry Overview Indian BFSI Sector

In recent times, Indias banking, financial services, and insurance (BFSI) sector showcased remarkable resilience and growth across various parameters. The sectors strength was evident in improvements in asset quality, enhanced provisioning for bad loans, sustained capital adequacy, and rising profitability. Strong credit growth was driven by lending to services and personal loans, while deposit mobilisation gained momentum due to re- pricing and higher term deposits. Non-banking financial companies (NBFCs) also saw accelerated lending and improved asset quality.

Scheduled commercial banks (SCBs) experienced significant deposit mobilisation, especially in term deposits, reflecting rate hikes and efforts to match credit demand. However, growth in current account and savings account (CASA) remained modest. Bank credit growth was robust, with lending to services and personal loans outpacing other sectors.

Asset quality across SCBs improved significantly, with gross non-performing asset (GNPA) ratios reaching an 11-year low in September 2023. Despite a slight increase in the half-yearly slippage ratio, the reduction in GNPA stock since March 2018 was driven by declines in new NPA accretions, write-offs, and recoveries.

The Reserve Bank of India (RBI) implemented regulatory reforms across banks and NBFCs, focussing on mitigating cybersecurity risks and enhancing operational resilience. The RBIs supervisory approach emphasised early identification and remediation of risk factors to safeguard financial stability. Efforts to maintain currency stability and the growth of Indias FinTech ecosystem further bolstered the BFSI sector.

Indias FinTech ecosystem grew significantly, driven by technologies like the Unified Payments Interface (UPI). UPI facilitated digital payments, and initiatives like ‘Conversational Payments and ‘UPI One World highlighted its global potential. The RBIs Central Bank Digital Currency (CBDC), e-Rupee, aimed at enhancing digital transactions, reflecting a commitment to a digitally inclusive financial ecosystem. The introduction of round-the-clock retail and large-value payment systems boosted digital transactions, with 485 million digital payments daily. The RBIs Digital Payment Index surged nearly four-fold over the last five years.

Indias FinTech ecosystem, the worlds third-largest, has made financial services faster, more cost-effective, and accessible. With an adoption rate of 87%, Indias FinTech market is projected to reach US$ 150 billion by 2025. The integration of bank accounts, Aadhaar, and mobile phone numbers, known as the JAM trinity, has transformed Indias FinTech landscape, catalysing financial inclusion and service delivery. Overall, the BFSI sector in India demonstrated resilience, innovation, and adaptability, positioning itself for sustained growth and financial inclusion in the years ahead.

Sources: RBI Speech and RBI Financial Stability Report

Money and Capital Market

Between April 2023 and March 2024, the National Stock Exchange (NSE) saw a significant surge in the equity cash segments average daily turnover, increasing by over 89%, indicating strong investor demand for equity investments. The Nifty index also rose by 28.6% in FY2024. The IPO market was vibrant, with proceeds totalling US$ 7.89 billion in CY 2023, nearly matching

With an adoption rate of 87%, Indias FinTech market is projected to reach US$ 150 billion by 2025. The integration of bank accounts, Aadhaar, and mobile phone numbers, known as the JAM trinity, has transformed Indias FinTech landscape, catalysing financial inclusion and service delivery the previous years US$ 7.99 billion. This growth is driven by strong consumption demand, government capital expenditure, rapid digitisation, and supportive policies. Indias stock market briefly became the worlds fourth- largest in January 2024, with a market capitalisation of US$ 4.33 trillion. Additionally, in September 2023, JP Morgan announced Indias inclusion in its Global Bond Index-Emerging Markets Global Series starting in June, highlighting confidence in Indias growth potential, macroeconomic stability, and fiscal policies.

Equity Markets

The Indian stock market ended fiscal year 2024 strongly, with stocks reaching all-time highs and generating significant wealth for investors. Mid-small and PSU stocks were outperformers, while large-cap stocks also delivered multi-bagger returns. The Nifty 50 and BSE Sensex indices surged about 28.6% and 24.9%, respectively, showcasing market resilience. In November 2023, the market capitalisation of BSE-listed companies exceeded 333 lakh crore (US$ 4 trillion) for the first time, highlighting Indias growing global market prominence. The BSE Sensexs 24.9% gain in FY 2023-24 was the second-largest rise in five years. Strong economic growth, solid corporate results, and robust domestic and foreign institutional investor inflows fuelled the bullish trend. The IPO market also thrived, with 78 (mainboard) new issues. Regulatory advancements like T+1 and optional T+0 settlement cycles enhanced market efficiency and liquidity, while SEBIs reforms improved governance and investor protection.

Commodity Markets

The combined number of traded clients for futures and options on Multi Commodity Exchange of India (MCX), Indias first listed, national-level, electronic exchange, witnessed a 50% growth to 9.3 lakh in FY 2023-24 from 6.2 lakh in FY 2022-23. MCX is Indias leading commodity derivatives exchange with a market share of about 95.9% in terms of the value of commodity futures contracts traded in financial year 2023-24.

Derivatives

An increasing number of Indian investors are venturing into more speculative investments, experimenting with stocks in pursuit of rapid returns. The turnover of futures and options on the NSE, the worlds largest derivatives market in terms of contract volume, has surged two- fold between the conclusion of CY22 and CY23. As per Bloombergs data analysis, based on a 10-day moving average, it reached US$ 5.04 trillion by December 2023, marking a significant leap from US$ 2.5 trillion recorded at the close of December 2022.

Insurance

According to Insurance Regulatory and Development Authority of India (IRDAI), Life Insurance sector of India has collected New Business Premium (NBP) of a record

3.77 trillion in FY2024 with a YoY growth of 2%. The 25 private insurers registered 12.1% growth in NBP at 1.55 trillion as against 1.38 trillion. The highest growth was in the group single premium at 22.0% at 53,719 crore ( 43,748 crore previously). The only public sector life insurer, Life Insurance Corporations (LIC) NBP declined 4.0% to 2.22 trillion against 2.31 trillion in the previous financial year. The decrease was in segments of individual single premium, individual non-single premium, group single premium and group non-single premium while group yearly renewable premium improved by 140.5%. The private life insurance industry has a market share of 41.1% where LIC holds 58.9%. The sector is set for continued growth, driven by increasing demand, digital transformation, enhancing customer engagement and product innovation, with private insurers expected to expand their market share.

The General Insurance Council reports that Indias insurance sector grew significantly in FY2024, despite some fluctuations. Non-life insurers gross direct premium rose by 12.8% YoY to 2.89 trillion, the growth is underpinned primarily by the health and motor insurance segments. General insurers premiums increased by 14.2% to 2.45 trillion, with public sector insurers growing by 9.0% to 90,344 crore and private sector by 17.5% to 1.55 trillion. The industry expanded coverage and focussed on sustainable growth and customer-centricity. In March 2024, general insurers gross direct premium grew by 9.6% YoY to 21,422 crore, demonstrating resilience and potential for further growth.

Mutual Funds

In FY2024, Indias mutual fund sector saw significant growth, reflecting changes in investor behaviour and market dynamics. According to AMFIs annual report, the number of folios hit a record 17.78 crore, with an investor base of around 4.46 crore individuals. Women accounted for 23% of investors, indicating broader demographic participation. The Assets Under Management (AUM) surged by 35% to 53.40 lakh crore by March 2024, up from 39.42 lakh crore the previous year. This 14 lakh crore increase marked the highest gain since FY2021, showcasing a shift in investor sentiment. Individual investors in equity, hybrid, and solution-oriented schemes drove this growth, representing nearly 58% of industry assets and 80% of folios by March 2024. Systematic investment plans (SIPs) further boosted growth, with monthly net inflows of approximately 19,300 crore in March 2024. For FY2024, SIP net inflows surpassed 2 lakh crore, with SIP assets comprising over 20% of industry assets and nearly 8.4 crore accounts. This robust growth highlights the maturing market and the pivotal role of mutual funds in wealth creation and financial planning.

Financial Planning and Advisory

The Financial Planning and Advisory sector in India is poised for significant growth and expansion in the coming years. This expansion will be driven by increasing incomes and a growing demand for expert guidance in navigating the intricacies of the evolving economic landscape. The surge in demand for financial advisory services underscores the growing recognition among investors of the importance of informed decision-making and strategic wealth management. As individuals and institutions alike seek to optimise their financial portfolios and mitigate risks in an increasingly complex financial landscape, the role of financial advisers becomes indispensable. With a growing emphasis on financial literacy and the adoption of tailored investment strategies, the sector is well-positioned to play a pivotal role in shaping the financial futures of individuals and organisations across the country.

Major Growth Drivers

Indias financial sector has witnessed a remarkable transformation in recent times. This surge can be attributed to a confluence of factors :

Company Overview Company Background

Geojit Financial Services Limited, referred to as “the Company” or “Geojit”, is a prominent investment services provider in India, with a growing presence in the Middle East. With a history spanning over three decades since its establishment in 1987, the Company has been a significant player in the Indian Capital Market. Serving a client base of 13.89 lakh+ individuals, Geojit operates through 503 branches across India and abroad, offering a wide range of financial products and services, including stock and currency derivatives, portfolio management, mutual fund and insurance, online financial planning, and commodity derivatives.

Leveraging technology, Geojit focusses on reducing operational costs, establishing a scalable growth model, and enhancing customer service. Through subsidiaries, joint ventures, and partnerships with local banks and financial institutions, Geojit maintains a substantial presence in the Middle East. The Company also holds strong client relationships in Tier II and Tier III cities in India, managing assets worth 93,091 crore as of March 31, 2024.

Innovation has been a key driver for Geojit, pioneering commodity trading in various sectors and introducing internet-based depository transactions and integrated trading systems. The Company continues to explore innovative avenues, such as digital loans secured by shares and loans against mutual funds, to stay competitive and meet evolving client needs.

Products and Services

Geojit offers a range of products and services to its large and growing client base.

Investment products

Equity Mutual Funds

Currency Commodities

IPO

Sovereign Gold Bond Gold ETF

Loan

Loan Against Shares/ Mutual Funds

Margin Trading

Funding 3^rd Party Loan

Protecti

General

Insurance Life Insurance

Servic

Private Wealth Services Global Investments Smartfolios Portfolio Management Services Financial Planning NRI Services Portfolio Analysis

Financial Performance

In FY 2023-24, the consolidated operational income surged from 439.29 crore to 614.13 crore, while the total revenue reached 623.97 crore, a significant increase from 447.63 crore in FY 2022-23. During this period, Profit Before Tax (excluding extraordinary items) climbed from 118.94 crore to 191.97 crore. The Profit after tax for the year also saw a notable rise, amounting to 149.38 crore, up from 100.96 crore recorded in FY 2022-23.

Segment-wise Performance

Equity

The revenue from stock and equity-related income saw a robust increase of 33%, reaching 375.42 crore in FY 2023-24, up from 282.24 crore in FY 2022-23. Total brokerage services income also experienced significant growth, rising by 36% to 283.49 crore in FY 2023-24, compared to 208.95 crore in the previous fiscal year.

Throughout the year, 1,08,759 new customers were acquired, expanding the total client base to 13,88,900. Additionally, assets under management and custody surged to 93,091 crore, up from 64,475 crore in March 2023.

The Companys extensive office network now encompasses 503 locations across 19 states and 2 union territories in India, as well as four GCC nations in the Middle East, including Kuwait, Bahrain, the United Arab Emirates, and Oman.

Financial Product Distribution

In FY 2023-24, the Companys Mutual Fund distribution income increased by 18% year-over-year to reach 81.72 crore from 69.36 crore in FY 2022-23.

As of March 31, 2024, the company had 2,55,780 Mutual Fund Holding Clients. The Mutual Fund Assets Under Management (AUM), including the Overseas Joint Venture, stood at 15,671 crore on March 31, 2024, a significant increase from 11,200 crore on March 31, 2023.

Revenue from insurance distribution activities in FY 2023-24 surged to 66.16 crore, a substantial increase from 23.95 crore in FY 2022-23.

Portfolio Management Services (PMS)

The Portfolio Management Services (PMS) Assets Under Management (AUM) experienced a remarkable 103% year-over-year increase, more than doubling from 450 crore in March 2023 to 915 crore in March 2024.

Geojit offers four unique portfolios Advantage Portfolio, Dakshin Portfolio, Freedom Portfolio and Ethical Portfolio.

Some unique features are

No Entry load. 1% Exit load if exiting before 12 months Professional Management No Lock-in Period

Our discretionary portfolios are managed by a dedicated team of experts, according to agreed-upon investment objectives, risk tolerance, guidelines, and disciplined approach.

Our PMS Portfolios have outperformed their respective benchmarks over the long term.

Depository Services

The number of depository accounts increased by 8.36% from about 8.65 lakh at the end of March 2023 to about 9.40 lakh at the end of March 2023.

Private Wealth Services

The number of High Networth Individuals (HNIs) in India is increasing rapidly as the total wealth to GDP ratio in the country is estimated to have reached 4.5x. However, only 15% of financial wealth in the country is professionally managed. This presents a significant opportunity for Geojit to capture a larger slice of this growing pie. Accordingly, the company has hired senior resources to tap this opportunity.

Geojit is also planning to start an entity at Dubai International Financial Centre (DIFC), which is a premier financial hub that is well-regulated and has an internationally recognised financial environment. Additionally, DIFC has a conducive legal framework, tax efficiency, and easy accessibility to regional and global markets. Further, the presence of advanced trading platforms, flexibility in creating and distributing structures, and a robust base of next-generation NRIs make DIFC an ideal location for Geojits private wealth entity.

Our Investment Platforms

Baskets of Stocks

Smartfolios offers baskets of stocks selected by professionals and driven by data intelligence to make investments easy. The stocks in these portfolios are selected based on parameters like quality, financial trend, valuation, technical, moving averages and liquidity. Investors can select baskets based on their risk appetite.

Digital Loan Against Shares & MF Portfolio

Investors can avail Loan Against Shares, Mutual Funds and Sovereign Gold Bonds in a few minutes through our platform. It is fast, easy, seamless and completely paperless.

MF Investment platform FundsGenie

This cutting-edge platform to analyse and invest in mutual funds provides a user-friendly, clutter-free experience. It also features mutual fund recommendations by Geojits in-house research team.

Trading Platforms

Flip and TraderX are state-of-the-art trading platforms loaded with powerful tools and features. They make investing easy, and reliable thereby helping investors make informed choices.

GROWTH OUTLOOK

Geojit Financial Services Limited is poised for continued growth, leveraging a hybrid model that offers a competitive edge in the market. With an extensive offline platform spanning Tier 2 and Tier 3 cities, Geojit provides one-stop solutions for all investment needs, ensuring convenience and accessibility for its diverse clientele. The companys strong client relationships and commitment to sustained wealth creation further reinforce its position as a trusted investment partner.

A key factor driving Geojits growth is its outstanding advisory services, supported by qualified and experienced team. By offering research-based advice and customised services, Geojit empowers investors to make informed decisions and achieve their financial goals. Moreover, the company conducts investor awareness programmes to enhance financial literacy and educate investors about market trends and opportunities.

In line with its digitisation drive, Geojit is fuelling growth through robust trading and investment platforms, employing advanced technology and digital transformation initiatives. By digitising processes, Geojit aims to enhance operational efficiency and elevate the overall customer experience, catering to the evolving needs of its tech-savvy clientele.

With these facets, Geojit Financial Services Limited is well-positioned for sustained growth, capitalising on its hybrid model, advisory services, and digitisation initiatives to drive innovation and deliver value to its customers and partners.

Risk Evaluation & Mitigation Product risk:

The company has a track record of innovation in launching various products. However, introducing new products entails the risk of consumer dissatisfaction. Given the capital-intensive nature of these ventures, any unsuccessful product launch could adversely affect the companys financial performance.

Risk mitigation:

The company has successfully developed and launched various investment platforms, such as Flip, TraderX, Selfie, and FundsGenie. To mitigate risks and challenges, the company incorporates them into its strategies and new product introductions. It offers a diverse range of financial products coupled with personalised services to assist consumers in safeguarding and enhancing their wealth, fostering long-term relationships to facilitate cross-selling opportunities. Additionally, professional financial consultants are available to help customers identify the most suitable financial solutions.

Regulatory risk:

Operating in a highly competitive environment governed by multiple statutory bodies, regulators, and regulations, the company faces regulatory risks. Increased regulatory scrutiny and unfavourable regulatory changes could adversely impact its operations. Any breach or noncompliance with regulatory standards may lead to penalties, reputation damage, or even licence revocation.

Risk mitigation: To mitigate regulatory risks, the company has established a dedicated compliance team to provide real-time support to corporate functions during significant changes in compliance standards. Digitisation of key processes with the requisite control mechanism is helping the company to ensure compliance of the regulatory changes. Moreover, the Company employs rigorous internal review processes to ensure compliance with statutory requirements and industry standards, thereby minimising the likelihood of regulatory issues.

Operational risk:

The company faces the potential of losses stemming from inadequate or faulty internal processes, personnel, or systems, as well as external events. Instances of inaction, omission, miscommunication, misrepresentation, or misconduct by a large number of staff across various locations could lead to reputational damage and financial loss for the company.

Risk mitigation:

To address operational risks, the company has implemented hierarchical and geographically dispersed risk control self-assessment methods and systems for its critical business operations. These procedures are monitored using a management information system (MIS) and regular audits. Additionally, a maker/checker procedure has been established to significantly reduce such risks by introducing a system of cross-verification and validation.

Business risk:

The company faces exposure to various external factors that directly influence its profitability and long- term viability. Fluctuations in the macroeconomic environment, changes in customer preferences, regulatory requirements, and shifts in financial market dynamics can all have adverse effects on the companys operational and financial performance.

Risk mitigation:

To address business risks, the company has established a strong brand presence in the financial services industry, characterised by its extensive reach and customer- centric approach. With a diversified product portfolio and a widespread presence in India and the Middle East, the company mitigates concentration risks, geographical risks, and product-specific risks. Furthermore, it utilises multiple trade channels, including the Internet, telephone, WhatsApp, and physical branches, to ensure accessibility and enhance customer engagement, thereby further reducing its overall risk exposure.

Technology risk:

Meeting heightened expectations for quality, timeliness, and cost efficiency necessitates continuous technical maintenance to sustain competitiveness amidst technological risks. Any lapses in technological adaptation could adversely affect the companys operations and its competitive edge.

Risk mitigation:

To safeguard its long-term viability, the company employs a crucial risk-mitigation strategy focussed on investing in innovation and technology upgrades. Geojit boasts a robust technology platform capable of addressing client needs across the sourcing and transaction processes, offering unparalleled value in portfolio evaluation, robotic advisory services, and financial planning. The company remains committed to investing in cutting-edge technologies aimed at reducing operational expenses and enhancing overall effectiveness.

Competition risk:

Operating in a fiercely competitive industry exposes the company to challenges such as aggressive pricing and substantial marketing expenses, potentially impacting its overall growth and earnings.

Risk mitigation:

The company counters competition through its diverse product range, customer-centric approach, technological innovations, multiple sales channels, extensive market reach, and strong retail brand, ensuring its competitiveness within the financial sector.

INTERNAL CONTROLS

The companys internal control system is tailored to its size and operational scope. It has implemented clearly defined processes, guidelines, and procedures, along with appropriate internal information systems, to strengthen internal controls. Internal financial controls have been established for each business process to ensure compliance with laws and regulations. These controls include built-in checks and balances and mechanisms to safeguard assets, ensure proper authorisation for asset utilisation, and maintain accurate accounting records.

Roles and responsibilities are clearly defined across the organisation, facilitating information flow and monitoring.

Regular internal audits and reviews are conducted, and recommendations from internal auditors for enhancing systems and procedures are duly considered. The Audit Committee oversees the internal control system and examines findings from both external and internal auditors.

The Audit Committee is responsible for assigning control responsibilities and reviewing the companys approved policies and procedures to ensure smooth and effective business operations. Following the design evaluation, management conducts tests on controls across all business processes and addresses any anomalies in operations. The Audit function provides reasonable assurance that operations are effective and efficient, assets are protected, financial records are accurate, and relevant laws and regulations are followed.

HUMAN RESOURCES

The Companys Human Resources (HR) policies are focussed on fostering the holistic growth and progression of its skilled and diverse workforce. Employees serve as the driving force behind Geojits expansion across all market segments, making training and employee motivation crucial components of its business strategy.

Encouraging employees to expand their professional horizons and climb the corporate ladder is a priority, achieved through meaningful opportunities for learning and career advancement. Recognising the importance of productivity and efficiency, top-performing employees are duly rewarded for their contributions.

As of March 31, 2024, the company employed 2,568 permanent staff members, excluding trainees, casual, and contract staff.

CAUTIONARY STATEMENT

This document contains some statements about expected future events, financial and operating results of Geojit Financial Services Limited, which are forward- looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that the assumptions, predictions and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause assumptions, actual future results and events to differ materially from those expressed in the forward-looking statements.