iifl securities ltd Management discussions

GLOBAL ECONOMY

Recovery in global economy from the negative impacts of the pandemic and Russia-Ukraine crisis is likely to be gradual, not steep. Positively, war-induced disruptions in the supply chain are easing out. At the same time, massive and synchronised tightening of monetary policy by a majority of central banks is helping to rein in inflation. Economies that were severely affected from COVID-19, notably China, appear to be recovering, thereby reducing supply-chain disruptions.

Despite the benefits of lower food and energy costs and enhanced supply-chain functioning, risks are emerging from the instability seen in the financial sector in recent times.

There are visible signs that monetary policy tightening is starting to cool demand and inflation, but the full impact is unlikely to be realised before CY 2024. The global economy which grew by 3.4% in CY 2022 is expected to witness growth of 2.8% in CY 2023 and 3.0% in CY 2024.

World

Advanced Economies

Emerging Markets and Developing Economies

Source: International Monetary Fund (IMF) April 2023 report P: Projected

The financial instability of the gilt market in the United

Kingdom and the recent collapse of a few banks in the United States demonstrate that both banks and non-bank financial institutions have vulnerabilities. In both instances, governments and authorities acted swiftly and have thus far successfully controlled the financial crisis.

In this scenario, economic growth for advanced economies is projected to slow from 2.7% in CY 2022 to 1.3% in CY 2023 and stabilise at 1.4% in CY 2024. The emerging markets and developing economies which grew by 4.0% in CY 2022 are expected to grow at 3.9% in CY 2023 and 4.2% in CY 2024. The expected pickup in CY 2024 in both groups of economies reflects gradual recovery from the effects of the war and subsiding inflation. Poorly governed financial institutions with excessive leverage, credit risk, or interest rate exposure, excessive reliance on short-term funding may face adversities in future. A sharp tightening of global financial conditions andcould have a significant public finances and lead to decline in global activity due to estment. inv lowerconfidence, household spending and

INDIAN ECONOMY

Indias economic activity has remained stable despite widespread global uncertainty and it is in a far stronger position than most other economies. Strong private consumption amid pent-up demand, a faster rebound in contact-intensive service industries and the governments continued emphasis on capital investment have all contributed to the growth. While this momentum is expected to continue, the gradual waning of pent-up demand, the slow pace of recovery in private capex and unfavorable weather ahead of the rabi harvest season might pose downside risks to economic growth. Further, continuously growing inflationary pressures and forecasts of higher interest rates for an extended period of time may weigh on the global economy, rubbing off unfavorably on Indias economic growth. According to the NSOs second advance projections, Indias GDP expanded by 9.1% in FY22 and is predicted to rise by 7.0% in FY23, retaining its position as one of the fastest growing major economies in the world.

IInflation reached 7.4% in the second quarter of FY23, prompting the RBI to raise the repo rate from 4.4% in May 2022 to 6.25% in December 2022, over the course of four separate sessions. By Q4FY23, effective RBI intervention had brought inflation levels to 5.7%, which was within the target range of 4-6%. In Q1FY24, Q2FY24, Q3FY24 and Q4FY24, respectively, the RBI expects the inflation rate to reach 5.0%, 5.4%, 5.4% and 5.6%.

Inflation Trends in FY23 and FY24 (%)

Source: PIB, RBI Bulletin

RBI Repo Rate Trends

Date	RBI Repo Rates	Changes in Repo Rates
May 2022	4.4%	40 BP
June 2022	4.9%	50 BP
August 2022	5.4%	50 BP
September 2022	5.9%	50 BP
December 2022	6.25%	35 BP
February 2023	6.5%	25 BP

Source: RBI BP: Basis Points

In April 2023, The Reserve Bank of Indias (RBI) Monetary Policy Committee (MPC) paused the rate hike cycle and kept the repo rate unchanged at 6.5%. The MPC, though retained its stance of "withdrawal of accommodation". The RBI projects a decline in consumer inflation to 5.3% in FY24 and its Survey of Professional Forecasters (SPF) report projects real GDP growth at 6% for FY24. The governments robust capex drive would be a key factor driving economic growth. Improved infrastructure would increase connection and lower logistical costs for industries, while digital infrastructure would increase efficiency by providing a platform for innovation and efficient payment systems. According to the CRISIL India

Outlook March 2023 report, overall industrial capex is likely to climb to 5.7 trillion on average between FY23 and FY27, up from 3.7 trillion in the previous five-year period. Robust growth in fixed investment, a revival in private consumption, strong credit growth in the banking system, easing of global inflationary pressure led by falling international commodity prices and strong government measures are expected to aid economic growth in India.

EQUITY MARKETS

Indian equities stayed volatile over the entire FY23, amid an aggressive monetary policy by central banks around the world, high inflation and outflows from overseas funds. Nifty ended FY23 down by almost 0.6%, while the Sensex rose by approximately 0.8% during the year. The Nifty 500 Index declined 1.2% in FY23. The Nifty Midcap 50 Index increased by 4.5% while the Nifty Small Cap 50 Index declined by 13.8% in FY23.

As per the NSE Market Pulse April 2023 report, as a consequence of China easing restrictions and the subsequent economic recovery, Asian equities, led by Taiwan, Singapore and South Korea, have posted profits in the first quarter

CY23. In the 12 months up till March 2023, the Hang Seng Index (Hong Kong) declined by 7.3%, while the Nikkei 225 Index (Japan) exhibited moderate growth of 0.8%. Despite robust domestic participation, Foreign Institutional Investors (FIIs) sought investment opportunities outside India that were comparatively less expensive due to the high valuation premium of Indian equities relative to their emerging markets (EM) counterparts.

Indicator Name	23-Mar	1M ago	3M ago	12M ago	1M (%)	3M (%)	6M (%)	12M (%)	YTD (%)
Equity Indices
NIFTY 50	17,360	17,304	18,105	17,465	0.3	-4.1	1.6	-0.6	-4.1
NIFTY 500	14,558	14,519	15,449	14,895	0.3	-5.8	-1.8	-2.3	-5.8
MSCI INDIA	1,920	1,910	2,069	2,034	0.5	-7.2	-3.9	-5.6	-7.2
India Volatility Index (%)	13	14	15	21	-7.7	-13	-35.2	-37.1	-13
MSCI WORLD	2,791	2,715	2,603	3,053	2.8	7.3	17.4	-8.6	7.3
S&P 500 COMPOSITE	4,109	3,970	3,840	4,530	3.5	7	14.6	-9.3	7
DOW JONES INDUSTRIALS	33,274	32,657	33,147	34,678	1.9	0.4	15.8	-4.1	0.4
HANG SENG	20,400	19,786	19,781	21,997	3.1	3.1	18.5	-7.3	3.1
FTSE 100	7,632	7,876	7,452	7,516	-3.1	2.4	10.7	1.5	2.4
NIKKEI 225	28,041	27,446	26,095	27,821	2.2	7.5	8.1	0.8	7.5

Source: NSE Market Pulse April 2023

INDUSTRY OVERVIEW

Retail Equity

Massive inflows into secondary markets, an increase in new buyers of Indian stocks. investor registrations and a rise in the share of retail investors in the overall cash market turnover indicate that direct retail participation and proprietary in Indian equities has increased significantly over the past few years. In fact, retail investors have been net buyers in the Indian equity markets for the last three years. Despite a recent peak in inflows in October 2022, retail investors held 9.2% of the NSE-listed universe as of December 2022, compared to 9.7% in December 2021. The number of retail investors participating in secondary markets has increased significantly from 3 million in January 2020 to approximately 8 million in March 2023 in NSEs Cash Marketwill no longer be available when calculating long-segment (CM segment). In FY23, the NSE has added 13.3 million new investors as compared to 19 million in FY22. In FY 2023, the share of retails traders in equity derivative turnover segment stood at 27.7% as compared to 23% in FY 2016. Increased accessibility through technology, widespread financial literacy and a customer-centric government and regulatory environment have contributed to the growth of retail participation.

On the flipside, factors such as stretched valuations, surging commodity prices, muted corporate earnings and improved prospects of few Asian peers post reopening of China resulted in FIIs withdrawing money from Indian equities. In FY23, net FII outflows totalled USD 5.1 billion, which was substantially lower than the record USD 18.5 billion outflow in FY22. However, even at this level, inflows in India remain strong. Since March 2021, Domestic Institutional Investors (DIIs) have continued to be significant trend persisted in FY23, with net inflows reaching 2.6 trillion, up from 2.1 trillion in the preceding fiscal year.

Mutual Funds

Equity mutual funds have been the most preferred investment vehicles for investors in the current uncertain market. The mutual fund industry has been bolstered by healthy net inflows into equity mutual funds. As investors alter their allocation between short-term and long-term funds amid elevated interest rates, debt funds continue to experience outflows. From 1st April 2023, the indexation benefit term capital gains on Specified Mutual Funds, i.e. mutual funds that invest less than 35% of their proceeds in domestic company equity shares. As the tax burden on returns may increase, this change may reduce the appeal of debt funds as an investment option. Without indexation benefits, debt mutual fund investments would now be comparable to bank deposits and other fixed-income products. During FY23, the average assets under management (AAUM) for mutual funds increased by approximately 7% to 40.05 trillion from

37.70 trillion in FY22. The retail assets under management (AUM) for equity, hybrid and solution-oriented schemes increased from 18.75 trillion in FY22 to 20.34 trillion in FY23, thereby growing at 8.5%. The average AUM increased to 20.46 trillion on March 31, 2023, from

183.5 million on March 31, 2022. The AUM for debt-oriented plans totalled 11.82 trillion in FY23, compared to 12.99 trillion in FY22.

In a span of ten years, the Assets Under Management (AUM) of the Indian mutual fund industry increased from 7.01 trillion on March 31, 2013 to 39.42 trillion on March 31, 2023, a fivefold

(AMFI) report. The total number of folios stood at 145.7 million as of March 31, 2023. However, the number of folios under Equity, Hybrid and Solution Oriented Schemes in which the majority of investments come from retail customers, stood at approximately 116.5 million for FY23. Net mutual fund equity collection stood at 2,754 billion in FY23 as against

3,495 billion in FY22. increase as per Association of Mutual Funds in India

Systematic Investment Plans (SIPs) remain popular among Indian investors because they facilitate rupee cost averaging and disciplined investing without concern for market volatility or market timing. In March 2023, the SIP inflows reached a new all-time high of about 143 billion, registering a growth of 16% YoY. This translates to 130 billion in average monthly inflows for the year ended FY23, as compared to 104 billion average SIP inflow recorded in FY22.

In March 2023, the total number of outstanding SIP accounts reached a new high of 63.6 million, approximately 20.5% more than the total number of SIP accounts as of March 31, 2022.

Source: AMFI, IIFL Research

Despite the market volatility led by global geo-political tensions and inflation, the increase in number of investors indicates resilient investor behaviour and continued confidence in the equity markets via the mutual fund route.

Stock Broking

The escalation of geopolitical tensions into war, supply chain disruptions in response to pent-up demand, weak listing gains in initial public offerings (IPOs), tightening monetary policies in US as well as India and elevated crude oil prices have impacted equity market sentiment. In FY23, equity capital market (ECM) activity declined as a result of the US Federal Reserves aggressive monetary tightening followed by steep increase in market volatility. During FY23, the average daily turnover in the cash market stood at 575 billion, compared to 725 billion in FY22.

Average Daily Market Turnover in Cash Segment ( billion)

In FY2023, the average daily traded volumes (ADTO) for the equity markets reached 153.9 trillion, indicating a significant

YoY increase of 121% from 69.5 trillion in FY2022. The Cash market ADTO, on the other hand, experienced a YoY decline of 21% at 575.64 billion in FY2023. Looking at derivatives, the options volume witnessed a remarkable YoY growth of 125% at 152.2 trillion, while the futures volume decreased by 4% YoY to 1.1 trillion. When analysing the participants in the cash market, retail investors accounted for 47% of the total cash volume, followed by institutional investors at 25% and proprietary (prop) investors at 28%. Additionally, the proportion of Domestic Institutional Investors (DII) in the cash market was 10%.

According to NSE statistics, index options premium turnover has increased significantly since FY18, when it stood at

4,607 billion. In FY23, the index options premium turnover increased by 188% annual growth to 109,556 billion as compared to 58,423 billion recorded in FY22. The stock option premium declined by approximately 10.2% YoY in FY23, reaching 9,327 billion as compared to 10,388 billion recorded in FY22.

Over the past few years, Indias index and stock options premium turnover exhibited remarkable growth, indicating a surge in derivatives trading and investor engagement in the market. This heightened interest is a signal that the Indian traders and investors are getting more strategy oriented in the market.

Impact of twin pressures, namely, inflation and global spillovers on Indian exports are significant short-term barriers to the countrys growth. It has kept the Indian equity markets under pressure and could be the cause of a sustained underperformance in 2023. As more and more of the young population is looking for investment avenues, more and more demat accounts are being added every year. In FY22, there were around 90 million new demat accounts outstanding, which climbed to 114 million in FY23, representing a YoY increase of 28%.

New entrants, digitalisation and disruption and favourable regulations have altered the business landscape of the

Indian financial services sector. Value-added services, such as wealth management, research, advisory, Asset

Management Companies (AMC) and financial planning, have been prioritised to ensure optimum customer engagement and enhance the wealth creation journey of clients. The cost structure and operational efficiency of brokerages have improved in recent years as a result of increased technological adoption. In addition, brokerages are focusing on customer experience and payback period to enhance unit economics. Consequently, the acquisition of high-quality, revenue-generating customers and the provision of value-added services will continue to be essential for long-term earnings growth.

Investment Banking

A total of 37 IPOs were completed in fiscal 2023 raising around

520 billion. The IPO activity was fairly robust while lower than the levels witnessed in fiscal 2022. The focus of IPOs was more on funding for growth capital in companies having a track record of profitability. The offer for sale by existing shareholders continued to be an important consideration for

IPOs in fiscal 2023 similar to the themes seen in fiscal

As part of the governments ongoing efforts to simplify the process of operating businesses, there have been numerous regulatory and administrative modifications. These include a drive towards digitalisation and the continued relaxation of foreign exchange regulations for inbound and outbound investments. In the meantime, the judicial system has incorporated virtual court technology, which has increased accessibility and decreased litigation costs and duration. The Indian market had a record high Mergers & Acquisitions (M&A) deal value as nearly 20 deals totaling USD 152 billion were completed in 2022. The annual inbound M&A activity included 276 deals in 2022 with a total deal value of USD 23 billion. The number of inbound deals and deal value stood at 232 and USD 28 billion in 2021, respectively. Additionally, the year was marked by some of the largest domestic transactions in the civil aviation, cement and pharmaceutical industries. In 2022, outbound M&A transactions reached a four-year high, rising from a total of 92 deals in 2019 to 121 deals in 2022. With the implementation of investor-friendly reforms, it is anticipated that the volume of investments will increase. Pharmaceutical, technological, telecommunication and infrastructure (including roads and ports) investments are anticipated to continue to attract both domestic and international investors and dominate the M&A market. Investment growth may 2022 also result from ESG investments and enabling government policies. In addition, given the expanding transition towards sustainable energy, there is likely to be an increase in investments in the electric vehicle, battery and green energy industries. The funding winter may have begun to take shape and start-ups may see an increase in consolidations in order to overcome the cash deficit. Conglomerates will continue to expand into emerging markets. Despite the decline in PE-backed deal volume over the past year, an upward trend could be anticipated by the second half of 2023.

Source:https://www.iflr.com/article/2bdj3jm6k18dwd0xhxlhc/expert-analysis/mergers-acquisitions-report/m-a-report-2023-india

Portfolio Management Services (PMS)

Portfolio management services are provided in India by asset management businesses, banks, brokerage firms individual investment managers. Investing portfolios can incorporate a wide range of securities, including stocks, bonds and cash equivalents. This combination is arrived at after considering the investors risk tolerance, which determines the return potential of the portfolio. In addition to administering mutual fund schemes, AMCs in India have begun to offer investors tailor-made investment plans with greater flexibility through PMS.

As compared to December 2021, total assets under the control of portfolio managers grew by 14% to 26.8 trillion in February 2023. The discretionary part of PMS, in which the portfolio manager manages the assets of customers based on their requirements, was the primary driver of this rise. Discretionary PMS dominated the market, accounting for 86% of the market, followed by advise (8%) and non-discretionary (6%). High Net Worth Individuals (HNIs) are increasingly going outside traditional investment vehicles such as real estate, gold, fixed deposits and mutual funds after the fast evolution of the financial system and in India. HNIs are increasingly seeking customised solutions that may help diversify and increase their money at a far faster rate than typically accessible investing alternatives such as PMS.

Alternative Investment Funds (AIF)

AIF is a privately pooled investment vehicle that collects funds from sophisticated private investors in India and abroad and invests them according to a predetermined investment philosophy. AIFs cumulative investments in India increased to 3,231 billion by December 2022 as compared to 2,674 billion recorded in December 2021, rising significantly by

21% during the year. The total AIF investment commitments reached 8,338 billion at the end of March 2023, up by

1,924 billion from 6,414 billion at the end of March 2022. The total investments made by the AIF industry increased by 19% in FY23, reaching 3,380 billion, up from 2,841 billion in FY22.The increase in AIF growth is mostly due to favourable improvements in tax structure, fewer restrictions on FDI limits on Indian-owned AIF funds and SEBIs standardisation and transparency implementation. The ongoing positive upticks in AIF demonstrate investors interest in Indian financial markets. Due to changes in the mutual fund tax structure, AIF funds have become more attractive to investors. Investor confidencehas also increased as a result of a greater number of investment managers, track record of fund tenor completions and the robust nature of AIFs regulatory supervision.

AIF Investments ( billion)

Insurance

In the year 2022, the insurance sector has seen major alterations. The pandemic has expedited the industrys rapid digitalisation, boosted demand for health insurance, necessitated the development of new products and more. With the Insurance Regulatory and Development Authority of India (IRDAI) predicting that the Indian insurance market will reach USD 200 billion by 2027, there is ample opportunity for all insurance firms to grow and expand. In an effort to accomplish its aim of "Insurance for all by 2047", the IRDAI has launched a number of steps to enhance the growth of the insurance industry. The IRDAI has proposed introducing Bima Sugam, a centralised online platform employing Bima Vahak (similar to a Banking Correspondent in the banking sector) to distribute a singular product called Bima Vistaar, which will assist in providing a boost to parametric insurance in order to provide broad coverage. With the regulators decision to simplify the product registration and approval process by bringing all products under the Use and File regime, the introduction of new and innovative products will help insurance intermediaries increase insurance penetration in the shortest time possible. transformation in the

According to the General Insurance Council (GIC) report for FY23, the non-life insurance industrys total direct premiums increased by 16.4% from 2,208 billion in FY22 to 2,569 billion in FY23. The total premiums for General insurance grew from 1,849 billion in FY22 to 2,148 trillion in FY23, thereby registering a growth rate of 16.2%. The standalone private health insurance registered the highest growth for FY23. The premiums for health and specialised insurance stood at 209 billion and 150 billion for FY23, growing by 25.8% and 5.2%, respectively. On the life insurance front, life insurance premium collections grew to 3,705 billion in FY23, up from

3,143 billion in FY22. A similar set of themes will continue to drive growth in the future. It is expected that insurers would develop new and creative solutions as soon as possible to enhance insurance penetration.

Insurance Premiums ( billion)

Healthcare

Indias healthcare industry largely comprises the key segments of hospitals, pharmaceuticals, diagnostics, medical devices and equipment, health insurance and medical tourism. The industry has been growing at a CAGR of 16% since 2008 and expected to have a market size of USD 372 bn at the end of fiscal 2022.

Source: NITI Aayog

The COVID-19 pandemic and its adverse implications resulted in a significant healthcare ecosystem. Due to the rising demand for effective treatment, an uptick in healthcare related digital technologies and in-home services was witnessed, leading to the evolution of an array of solutions comprising e-pharmacies, teleconsultation, e-diagnostics, chronic care, elder care and others. Therefore, these services now account for 10% of the entire healthcare industry.

Source: Praxis Global Alliance, RedSeer and Internal

The demand for healthcare services in India is expected to remain strong on the back of:

Lower healthcare spend: India healthcare spend is

3.8% of GDP vs 17% in case of US. This works out to be USD 73 per person annually on health care vs USD 10,600 in case of US.

• Government push for healthcare: The government is also giving impetus to Healthtech adoption through various schemes. The rollout of the Pradhan Mantri Digital Health Mission is one example, which will create a unique digital health ID to provide a one-stop access to all health records. Programmes like ‘Ayushman Bharat

Digital Mission are further encouraging an integrated digital health infrastructure that will increase penetration of healthcare services not only in larger cities but also in Tier 2 and Tier 3 cities.

As a result, the industry is poised to grow at a 15-17% CAGR driven by ageing population, burgeoning lifestyle diseases, rising affordability which in turn drives quality healthcare and improved health insurance penetration. With ease of convenience of digital healthcare solutions, the market for wellness, outpatient and care services would expand at a CAGR of 17%–18%.

Source: PL Equity Research on Indian Healthcare, Praxis Global

Alliance, RedSeer and Internal oducts.pr

BUSINESS OUTLOOK

The current financial landscape, with rising incomes, increasing financial-savviness of customers and greater retail participation has benefited IIFL Securities Limiteds ("IIFL Securities" or "the Company") financial products distribution division. Recognising this opportunity, the Company is diversifying revenues with a greater focus on the distribution business, building an AUM-led model and acquiring more clients (particularly in the HNI/affluent segment). The Company has revised its strategy to concentrate on affluent customers in accordance with the re-organisation plan approved by its Board of Directors. Under the reorganising scheme, the Board of Directors approved the transfer of IIFL Securities Online Retail Trading Business to 5paisa Capital Limited, which is subject to regulatory and shareholders approvals.

To grow and grow more profitably with this pivot in the business model, the Company is adapting the organisation structure to effectively cater to different customer segments – high-volume traders, digital customers, affluent customers.

The Company is strengthening its financial product offerings to attract customers with tailored solutions, pitching the right product at the right time.

With customers increasingly preferring a digital-first experience, the Companys technology-based platforms have worked to enable self-service and partner-serviced operations while also offering a bigger base for cross-selling financial

The Company has a strong Pan India distribution network supported by its branches and Authorised Persons and plan to leverage them to penetrate further in Tier 2 and Tier 3 cities. Further, to enable its people to bring the best to customers, the Company is investing in capability building as well as cutting-edge technology and data-backed solutions for its sales leadership, relationship managers and Authorised Persons.

The global asset allocators are increasingly looking to raise their direct India exposure by giving out money management mandates to India dedicated funds, this plus the steady inflows for the domestic funds, augurs very well for the Companys Institutional equities business. Outlook for the Investment Banking business of the Company also looks very strong, given the pipeline of differentiated multi sector companies looking to go public along with the engagement in a number of private equity and other capital market transactions which are in various stages of execution. The Company has strengthened its team both in research as well as investment banking which shall hold it in good stead going ahead. Technology upgradation continues to remain a key work in progress and the Company will be able to tap new streams of business from this effort.

REGULATORY DEVELOPMENTS

The Regulatory framework of the Indian Capital Market has been continuously evolving to strengthen the corporate governance and protect the interest of investors. Some of the important regulatory developments are provided below:

1. SEBI has designated certain stock brokers, having regard to their size and scale of operations, likely impact on investors and securities market, as well as governance and service standards, as Qualified Stock Brokers (QSBs).

QSBs shall be required to meet enhanced obligations and discharge responsibilities to ensure appropriate governance structure, risk management policy and processes, scalable infrastructure and appropriate technical capacity, framework for orderly winding down, robust cyber security framework and investor services including online Complaint redressal mechanism.

The Company is also classified as one of the QSBs and the SEBI mandate is effective from July 01, 2023;

2. SEBI in partial modification to rules of settlement of client funds and to ensure uniformity has decided that running account settlement to be carried out on first

Friday of the Month/ Quarter as per clients preference and if such Friday is a trading holiday, then such settlement shall happen on the previous trading day;

3. To mitigate the misuse of "Power of Attorney" (PoA) executed by a client in favour of stock broker and to make the process more transparent and simpler,

SEBI introduced execution of ‘Demat Debit and

Pledge Instruction (DDPI) for transfer of securities towards stock exchange related deliveries / settlement obligations arising out of trades by a client and pledging / repledging of securities in favour of the trading/ clearing member for the purpose of meeting margin requirements of the client, etc;

4. SEBI introduced a new Regulation regarding the segregation of margin, in the form of cash and collateral, at client level, which was earlier being done at the broker level. This Regulation built new guardrails to secure client funds and eliminate any chance of misappropriation of client money. The said circular proposed clients to bring in at least 50% of their margins in the form of cash while the balance can be in the form of collateral. The circular, also allows brokers to apportion a part of their proprietary funds towards fulfillingthe 50% cash margin requirement at client level;

5. Inordertofurtherinsulateclientsfunds,SEBIinitsrecently concluded board meeting approved two proposals:

a) Introduction of Application Supported by Blocked Amount (ASBA) like facility for secondary market;

b) Upstreaming of clients funds by stock brokers / clearing members to clearing corporations.

While ASBA framework is optional for both the client and stock broker to offer, it will be implemented in a phased manner. Upstreaming of clients funds will be implemented in two phases starting from 1st July 2023. Under the approved framework, funds shall be upstreamed only in the form of cash, lien on Fixed Deposit Receipts (subject to certain conditions) or pledge of units of Mutual Fund Overnight Schemes;

6. SEBI amended the provisions of ‘SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2018 ("SEBI ICDR Regulations"), wherein it introduced the concept of ‘confidential pre-filing of IPO documents. mechanism, the information in the ‘Draft Red Herring Prospectus (‘DRHP) will be made available only to SEBI and the stock exchanges, thereby allowing the potential IPO-bound companies to keep their business-sensitive information private and away from their competitors;

7. SEBI has amended SEBI ICDR Regulations to introduce monitoring of utilisation of issue proceeds raised through preferential issues and qualified institutions placement (QIP), with credit rating agencies as monitoring agencies, for issues of size above

1 billion. This will enable shareholders to stay abreast of and keep a track on the status of the utilisation of funds raised by the company as against the disclosed objective of utilisation of funds.

COMPANY OVERVIEW

IIFL Securities has a legacy of over two decades led by visionary promoters having a deep understanding and experience in the financial industry. The Company is one of Indias leading independent stock brokerage firms, offering a wide variety of services to retail and institutional clients.

The Company has established itself through a combination of leading-edge technology, diverse product offerings, management expertise and a wide network of branches across India. It is committed to provide the highest level of service and support and building a long-term relationship based on trust, transparency and integrity to its clients. The Company excel in research-driven insights that are backed by best-in-class technology to fulfil the requirements of its clients.

The Company constantly upgrades its understanding of the financial goals, risk appetite, investment preferences of its clients to cater to their specific needs. The Company provides a comprehensive plethora of brokerage services, including equity, commodities and currency broking, depository participation services, mutual fund distribution, portfolio management services, etc. It also helps its client in achieving its financial needs and planning like Retirement, Succession,

Estate, etc. It caters to an extensive clientele, including Gen Z and young millennials, corporates, Foreign Institutional Investors, Domestic Institutional Investors, insurance companies, banks, pension funds, alternative investment funds, trusts, HNIs, Non Resident Individuals (NRI) and other retail consumers. The Company forms one of the major institutional broking franchises in India with robust research capabilities. The

By identifying research team covers 262+ stocks across a wide range of sectors and market caps. As of March 31, 2023, the combined market cap of stocks under coverage was about USD 2.4 trillion. The Company also provides Investment Banking services to corporate and institutional clients and has evolved as a leading domestic investment banker in recent years, engaging in a number of significant

Institutional Placements.

Strengths of the Company: Strong brand name:

With the legacy of being part of IIFL Group since 1996 and with a strong reputation and customer centric approach IIFL

Securities has established itself as a trusted and reliable player in the industry.

Focus on HNI segment:

Focusing on the high-net-worth individuals and affluent segment offers an opportunity to the Company to tap into a market with greater purchasing power, leading to increased profitability to the specific needs and preferences of HNIs and affluent individuals, the Company can build strong customer loyalty, fostering long-term relationships and reputation.

One- stop-shop for all financial needs:

The Company provides access to different asset classes like equities, fixed income, commodities, currencies, derivatives, mutual funds, alternative investments, portfolio management services, etc. catering to varied investment preferences and risk appetites. Through comprehensive research, risk management, compliance and education, the Company strives to optimise portfolio performance and help clients achieve their investment objectives.

Digital Offerings:

The Companys digital offering encompasses online trading platforms, research tools and account management features that enable the clients to execute trades, access market information and monitor their portfolios electronically. These offerings often include educational resources and customer support channels to assist the clients in making informed decisions and addressing their queries.

Presence across 2,000+ towns and cities:

Having a PAN India presence provides the Company with expanded market access and helps to reach clients and markets throughout the country. Additionally, a nationwide presence enhances brand visibility, builds trust and enables the Company to tap into the local expertise, establish partnerships, attract talent, ensure regulatory compliance and lay the foundation for scalability and future growth.

Strong Risk Management:

Strong and effective risk management helps the Company to mitigate financial andand enhance client confidence. addressing potential risks, the Company safeguards its reputation, improves operational efficiency and capitalise on opportunities. Effective risk management practices enable the Company to navigate market uncertainties, protect client investments and maintain a competitive edge in the industry.

OPPORTUNITIES:

Highly under penetrated market:

Emerging markets in developing countries present a highly underpenetrated market for the broking industry. Factors such as low financial literacy, limited access to financial services and a growing middle class contribute to this untapped potential. By leveraging technology, providing education and tailoring its offerings to local needs, the Company can enter these markets, expand its customer base and contribute to the development of financial markets in these regions.

Leveraging technology to enable best practices and processes:

The Company recognise the immense potential of leveraging technology to enable the implementation of best practices and optimised processes. This presents a valuable opportunity for the Company to enhance customer experiences, introduce innovative features that contribute to the clients financial success and ultimately improve the revenues. Furthermore, the automation of various operational processes can significantly reduce costs, leading to increased efficiency and profitability. By embracing this technological opportunity, the

Company can position itself at the forefront of the industry and drive sustainable growth.

Evolving regulatory reforms:

Regulatory reforms in the stock broking industry can be positive for incumbents by enhancing trust, credibility and market stability. Compliance with reforms can create a competitive barrier for new entrants, as incumbents demonstrate their commitment to best practices and regulatory standards. Moreover, regulatory changes can drive innovation, operational efficiencies and closer collaboration with regulators, enabling incumbents to adapt, differentiate themselves and strengthen their market position.

THREATS

Cyber Security related threats: risksCyber Security poses a significant breakout from the trajectory of past including data breaches, financial losses, service disruptions and regulatory consequences. Breaches can compromise sensitive client information, disrupt trading operations and undermine market integrity.

Increased competition:

With accelerated growth in new investors participation in the equity market in the past two years, there has been an influx of new brokers in the industry. This will have an impact on the margin of the existing players.

Global Economic Slowdown:

Global economic slowdown will have a negative impact on the macro environment. It may also lead to reduced liquidity which may impact the industrys growth rate.

OPERATIONAL REVIEW

The Company registered consolidated revenue growth of 4% to 13,704 million for FY23 as compared to 13,164 million for FY22. Consolidated Profit by 19% to 2,480 million in FY23 as compared to 3,057 million in FY22.

The Companies distribution business revenue grew by 15% to 2,436 million in FY23 from 2,119 million in FY22, which fewwas a significant years. Scaling of Distribution business has helped increase diversification of revenue stream. The healthy growth in the distribution business was led by growth in major product categories like Life Insurance premium which grew from

1,880 million in FY22 to 2,788 million in FY23 up 48%, AIF AUM increased from 24.0 billion in FY22 to 31.6 billion in FY23 up 32% and PMS AUM increased from 11.2 billion in FY22 to 15.6 billion in FY23 up 39% on YoY basis.

The Company completed 29 transactions, comprising 12

Initial Public Offers, 3 Qualified Institutional Placements,

6 debt transactions and number of advisory transactions, buybacks, offer for sale and open offers during the year.

FINANCIAL PERFORMANCE

in Million

Particulars	Year Ended
	March 31, 2023	March 31, 2022
	Audited	Audited
1. Income
a. Interest Income	2,024.9	1,794.1
b. Rental income	173.1	159.8
c. Fees and commission Income	11,322.8	10,369.3
Total Revenue from operations (a)+(b)+(c)	13,520.8	12,323.3
2. Other Income	183.0	840.8
3. Total Revenue (1+2)	13,703.9	13,164.1
4. Expenses
a. Employee benefits expense	3,581.3	3,240.6
b. Finance Cost	755.5	1,015.3
c. Depreciation and amortisation expense	668.4	634.6
d. Fees and commission expense	2,738.7	2,103.6
e. Administration and other expense	2,551.2	2,150.5
Total Expenses (a+b+c+d+e)	10,295.1	9,144.5
5. Profit before share of profit/(loss) of joint venture, exceptional items and tax (3-4)	3,408.7	4,019.6
6. Share of profit/(loss) of associates and joint ventures	-	1.5
7. Profit before tax (5+6)	3,408.7	4,021.0
8. Tax Expenses
a. Current Tax	969.3	998.3
b. Deferred Tax	(56.1)	(22.9)
c. Tax adjustment for prior years	(2.7)	(12.6)
Total Tax Expenses (a+b+c)	910.6	962.7
9. Profit for the period (7-8)	2,498.1	3,058.3

Income

Revenue from operations

The Companys revenue from operations consists mainly of Retail & institutional brokerage, investment banking and distribution income across several asset classes.

Interest Income

Interest income accounts for 14.8% of the Companys consolidated total income. Interest income grew by 12.9% y-o-y to 2,025 million in FY23 from 1,794 million in FY22 due to increase in the client funding book and the interest earned on fixed deposits placed with stock exchanges.

Brokerage & related income

Brokerage & related income increased from 6,747 million for FY22 to 7,600 million for FY23, increased by 12.6%. Average Daily Turnover (ADTO) has increased from 787 billion in FY22 to 1,536 billion in FY23 increased by 95%.

Investment Banking Income

Due to lower IPO participation in the primary market in FY23 vis-a-vis FY22 the company has witnessed a fall in revenue from 1,504 million in FY22 to 1,287 million in FY23, however the Company has diversified the business beyond

Equity Capital Market (ECM) with the private equity practice which is gaining momentum.

Financial Products Distribution Income

Financial Products Distribution (FPD) Income accounts for 17.8% of the consolidated proportion of the Companys other total income. Revenue from FPD has increased by 14.9% mainly due to increased focused on acquiring new relationships in affluent segment. Company FPD Assets Under Management (AUM) has increased from

170 billion in FY22 to 196 billion in FY23.

Other Income

Other revenue is primarily comprised of investment income, interest income on inter-corporate deposits placed and income tax refunds, profit resulting from the change in fair value of investments and profit on sale on Property. Other income declined during the year mainly due to mark to market losses and redemption of investment.

Expenses Finance costs

Finance costs include interest on borrowings & debt securities and other financial expenses such as bank guarantee commissions. Finance costs declined during the year borrowings was reduced.

Fees and commission expense

Fees and commission expenses consist of sub-brokerage fees & referral fees and other related expenses. The fee and commission expenses for FY23 amounted to 2,739 million, an increase of 30.2% y-o-y, mostly due to higher payouts resulted from an increase in authorised person revenues.

Employee benefits expense

Employee benefit expenses consist of salaries and wages, contributions to provident and other funds, shared-based payments, staff welfare expenses, leave encashment and gratuities. The employee cost has increased during the year mostly due to increased headcount and variable pay compared to previous year.

Depreciation, amortisation and impairment

Depreciation, amortisation and impairment expenses consists of depreciation of property, plant and equipment as well as amortisation of intangible assets.

Other Expenses

The significant are comprised of marketing, advertising and commission expenses, communication expenses, legal and professional charges, office expenses, electricity charges, rates and taxes, technology expenses and transportation and conveyance expenses. Other expenses increased by 18.6%, as compared to the previous year.

Liquidity and Capital Resources

The company constantly maintained liquidity through cash from operations and bank borrowings. Cash, bank balances and fixed deposits totaled 1,694 million as of 31st March 2023. In order to meet its future capital expenditure requirements as well as sustain the Companys growth momentum, IIFL Securities has adequate working capital and operating cash flows.

Segment-wise Performance ( in million)

in Million

	March 31, 2023		March 31, 2022
	Segment Revenue	Segment Results	Segment Revenue	Segment Results
Capital market activity	12,401.6	3,187.0	11,158.7	3,129.1
Insurance Broking and ancillary	980.2	217.9	545.2	236.8
Facilities and ancillary	826.5	3.9	2,000.1	655.1
Less: Inter Segment Revenue/unallocated	(504.5)	-	(540.0)	-
Total	13,703.9	3,408.7	13,164.1	4,021.0

Revenue from capital market activity increased from 11,159 million for FY22 to 12,402 million for FY23, an increase of 11% y-o-y. This was primarily driven by the growth in broking and distribution businesses. However, the Company has witnessed fall in Investment Banking Income due to slow down in primary market.

Revenue from Insurance broking and ancillary segment increased from 545 million for FY22 to 980 million for

FY23, an increase of 80% y-o-y. Our Life Insurance premium grew from 816 million for FY22 to 1,588 million for FY23 and Health Insurance from 1,064 million for FY22 to 1,200 million in FY 23.

Revenue from facilities and ancillary segment has declined from 2,000 million for FY22 to 827 million for FY23.

KEY FINANCIAL RATIOS

(i.e.Details of significant change of 25% or more as compared to the immediately previous financial year)

Key Ratios	FY23	FY22	Variance %
Debt/Equity Ratio	0.36	0.51	(30%)
Return on Net Worth	20%	29%	(31%)

Explanation:

1. Debt Equity Ratio – Debt to equity ratio decreased from 0.51 in FY22 to 0.36 in FY23, mainly due to an decrease in borrowings from 6,070 million in FY22 to 4,858 million in FY23 and higher shareholder equity from

11,818 million in FY22 to 13,498 million in FY23.

2. Return on Net Worth: RONW has decreased mainly on account of declined in profit 2,498 million in FY23 as compared to 3,058 million in FY22.

RISK AND CONCERNS

IIFL Securities being a financial services company is exposed to various internal as well as external risks such as Regulatory Risk, Operational Risk, Technology Risk,

People Risk, Liquidity Risk etc. which could affect the performance and reputation of the Company. Therefore, effective risk management is essential to address these risks and to mitigate their impact.

Towards this, the Company has established a well-defined

Enterprise Risk Management ("ERM") Framework and Policy for identifying, assessing, mitigating and monitoring risks thereby safeguarding clients assets, maintain its reputation and capitalise on business opportunities.

Please refer the Directors Report and the Narrative Section for details on the Companys Risk Management framework and Risk and Concerns.

HUMAN RESOURCES

The Company has always prioritised providing its employees with a discrimination-free environment that promotes diversity and inclusion. It acknowledges and operates in a diverse society and it is aware that its employees have diverse characteristics, experiences, requirements and aspirations. It has a robust framework for employee engagement that facilitates the development and retention of a highly motivated team. In an effort to strengthen the Companys journey into the future, it is providing specialised training to its employees in accordance with its mission and strategy. The training and development initiatives of the Company enable employees to acquire the technical and behavioural skills necessary for their professional and personal development.

As of March 31, 2023, the Company employed 1,579 individuals, with women accounting for around 22% of the workforce.

Refer Human Capital section in the Narrative section for further details.

INTERNAL CONTROLS

The internal control systems are adequate and effective to commensurate with the nature and size of the Companys business and operations. The Company ensures strict adherence to all applicable statutes and regulations governing the business operations. Further, the Company has a well-defined processes, guidelines and procedures for having an effective internal control system. These processes are periodically reviewed to ensure that they remain updated with the changes in the business environment and the applicable laws and regulations.

Further, the Company has a well-defined internal audit framework which ensures detailed coverage of the processes and systems needed to safeguard its assets, prevention and detection of errors and frauds, ensure accuracy and completeness of accounting transactions and the timely preparation of reliable financial information. The Internal

Auditors of the Company assess the adequacy of the internal controls procedures and processes and their reports are reviewed by the Audit Committee. Considering the recommendations of the Internal Auditors, requisite actions are undertaken to improve the systems and processes.

CAUTIONARY STATEMENTS

This document contains forward-looking statement and information. Such statements are based on our current expectations and certain assumptions and are therefore, subject to certain risk and uncertainties. Should one or more of these risks or uncertainties materialise, or should underlying assumptions prove incorrect, actual results may vary. IIFL Securities Limited does not intend to assume any obligation or update or revise these forward-looking statements in light of developments, which differs from those anticipated.