KFin Technolog Management Discussions


Global Economic Overview

The global economy continued its recovery from the impact of geopolitical tensions and the COVID-19 pandemic in 2022. The steep increase in commodity prices that followed Russias invasion of Ukraine has moderated, but the conflict continued_ and the_ geopolitical tensions remained_ elevated. COVID-19 strains caused extensive outbreaks, but economies that were severely affected, notably China, appeared_ to be recovering, thereby reducing supply-chain disruptions. Despite the benefits of lower food and energy costs and enhanced supply-chain functioning, risks are increasing as a result of the current financial sector volatility. The global economy is expected to grow by 2.80% in CY2023 and 3.00% in CY2024, as against the 3.40% growth recorded in CY2022.*

The financial instability of the gilt market in the United Kingdom and the recent failure of a few regional banks in the United States demonstrate that both banks and non-bank financial institutions are vulnerable. In both cases, authorities acted promptly and decisively and have so far succeeded in containing the financial crisis. The advanced economies are anticipated to experience GDP growth rates of 1.30% in 2023 and 1.40% in 2024, compared to 2.70% in 2022. Financial institutions with high debt, credit risk, or interest rate exposure, an over reliance on short-term finance, or locations with limited fiscal space may encounter difficulties in the future. An abrupt tightening of global financial conditions could have a significant impact on credit conditions and public finances, as well as significant declines in global activity as a result of decreased confidence, household expenditure, and investment.

It is anticipated that emerging markets and developing economies, which grew by 4.00% in 2022, will continue to witness growth of 3.90% in 2023 and 4.20% in 2024. Going forward, the emerging markets are expected to outperform the global markets due to strong regional growth estimates and powerful economic development in India, China, and other ASEAN nations.

World Economic Growth (%)

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

Indian Economy Overview

The economy of India has been expanding on a constant basis, and at a rate that is far higher than the economic growth of the majority of other countries. The growth has been sustained by strong private consumption amid pent-up demand, a rapid recovery in contact-intensive service industries, and the governments ongoing focus on capital expenditure. However, persistently rising inflationary pressures and predictions of higher interest rates for a longer period of time might weigh on the global economy, pulling down Indias economic trajectory. Hence, Indias GDP, which grew by 9.10% in FY 2021-22 is expected to grow by 7.20% in FY 2022-23, according to the NSOs (National Statistical Office) second advance estimates.

In addition, the RBI SPF (Survey of Professional Forecasters) report predicts that the GDP will grow by 6.00% in FY 2023-24 and 6.40% in FY 2024-25. In March 2023, the total CPI (Consumer Price Index) inflation rate declined to 5.66%, down from 6.95% in March 2022. The RBI projects a decline in consumer inflation to 5.00% in FY 2023-24 and then 4.90% in FY 2024-25.

A well-capitalized banking sector with low non-performing assets enables the financial sector to fuel Indias economic growth and accelerated digitalization provides citizens with greater access to opportunities, reduces loopholes through targeted delivery of services, and provides a platform for innovation.

Indian GDP Growth (%)

Source: NSOs Second Advanced Estimates dated May 31, 2023 RBI SPF report as on June 2023, MPC report for June 2023

Industry Overview

Indian Financial Services Industry Overview

According to SEBI, a number of organizations are recognized as market infrastructure institutions (MII) and intermediaries, which perform a variety of activities to facilitate the seamless operation of capital markets. The Securities and Exchange Board of India (SEBI) has classified stock exchanges, clearing corporations, and depositories as systemically essential institutions because they provide, among other things, the infrastructure necessary for the seamless and uninterrupted operation of the securities market. In addition, SEBI has classified numerous other entities as intermediaries. Each market intermediary executes its function in a transaction in accordance with the rules established by SEBI to facilitate the execution and transmission of funds. These independent intermediaries establish an ecosystem in which the financial market exists and play a prominent role due to their technological expertise, infrastructure, size, and track record. These intermediaries include various types of funds, asset managers, distributors, brokers, and advisors who market their products and services to end-investors, as well as intermediaries like registrars and transfer agents, fund accounting firms and fund administrators who provide the aforementioned entities with a variety of products and services.

Mutual Fund Industry Overview

A growing investor base has contributed to the robust growth of mutual fund assets in India, especially in recent years. This is due to increasing penetration across geographies, strong growth in capital markets, technological progress, and regulatory efforts aimed at making mutual fund products more transparent and investor-friendly. Equity mutual funds have been the most preferred investment mechanisms for investors in this volatile market scenario._ The average assets under management (AAUM based on the last quarter average of the period)_by the Indian mutual fund industry increased by approximately 5.55% to 40.51 trillion in FY 2022-23 from 38.38 trillion in the previous year, FY 2021-22. Since FY 2018-19, the AAUM has grown at a CAGR of 13.45%. Healthy net inflows in equity MFs, supported by strong retail investor participation, have lifted the overall mutual fund market in India. With interest rates expected to rise from current levels, debt funds will witness continued outflows as investors churn their allocation between short and long-term funds._ As the financial market remained volatile, retail investors seemed to be more attracted to mutual funds through systematic investment plans (SIPs) than direct equity investments.

Total Mutual Fund AAUM (_ trillion)

Source: AMFI, AAUM represent average assets under management of the last quarter of the respective financial year In FY 2022-23, the AAUM for equity, hybrid, and solution-oriented retail schemes surged from _ 18.36 trillion to _ 20.28 trillion, witnessing a growth rate of 10.46% and a CAGR of 18.80% over the period of FY 2018-19 to FY 2022-23. During the period, AAUM for debt-oriented programs totaled _ 20.23 trillion, as compared to__ 20.02 trillion in FY 2021-22. Over the years, the share of equity funds rose from 41.60% as of March 2019 to 47.80% as of March 2022 and further increased to 50.10% as of March 2023, led by a sharp rise in inflows through the SIP route and mark-to-market ("MTM") gains in the underlying stocks.

Equity AAUM (_ trillion)

Source: AMFI, CRISIL MI&A

AAUM represent average assets under management of the last quarter of the respective financial year The industry has seen increased participation from households in recent years, owing to growing awareness, financial inclusion, improved access to banking channels, and increased adoption of technology by non-bank distributors. Between March 2019 and March 2023, the industrys folios increased by approximately 63 million to 146 million, at a CAGR of 15.51%, driven almost entirely by individual investors, namely retail and HNIs.

Trend in individual investor folios (Million units)

Source: AMFI, CRISIL MI&A

SIPs are gaining popularity among Indian investors due to their ability to facilitate rupee cost averaging and disciplined investing without concern for market volatility or market timing. With benchmark indices remaining volatile and muted_for the year, investors place their confidence in the Indian stock market by investing in mutual funds. The SIP inflows for FY 2022-23 totaled _ 1.56 trillion, a Y-o-Y (year over year) increase of 25.20%, with _ 142.76 billion in March 2023, representing the highest monthly inflow ever. The sustained rise in retail inflows into mutual funds via the SIP channel reflects the continued strength of indirect participation. Approximately, 63.60 million SIP accounts, as on March 31, 2023, are being used by investors to invest regularly in Indian mutual fund schemes.

Monthly SIP Inflows (_ in billion)

Source: AMFI

In the long-term, the overall industrys AUM is projected to sustain a growth trajectory of 14% CAGR up to FY 2026-27, driven by a pick-up in corporate earnings following Indias economic growth, higher disposable income and investable household surplus, an increase in aggregate household and financial savings, deeper regional penetration as well as better awareness of mutual funds as long-term wealth creators, continuous improvement in ease of investing, and technological innovations and expanding internet footprints.

Source: AMFI, CRISIL MI&A

Capital Market Overview

The capital market in India is well-developed and equivalent to international standards. The capital market segment has expanded substantially over the years, aided by consistent technological development and regulatory support. SEBI (Securities and

Exchange Board of India) has increased its efforts to educate investors and implemented a number of steps to strengthen investor protection. The recent transition to a T+1 settlement cycle for equities is a commendable accomplishment that places India ahead of other developed and emerging economies.

Market Performance across Equity Indices

Indicator Name March 2023 1M ago 3M ago 12M ago 1M (%) 3M (%) 6M (%) 12M (%) YTD (%)
Equity Indices
NIFTY 50 17,360 17,304 18,105 17,465 0.30 -4.10 1.60 -0.60 -4.10
NIFTY 500 14,558 14,519 15,449 14,895 0.30 -5.80 -1.80 -2.30 -5.80
MSCI INDIA 1,920 1,910 2,069 2,034 0.50 -7.20 -3.90 -5.60 -7.20
India Volatility Index (%) 13 14 15 21 -7.70 -13.00 -35.20 -37.10 -13.00
MSCI WORLD 2,791 2,715 2,603 3,053 2.80 7.30 17.40 -8.60 7.30
S&P 500 COMPOSITE 4,109 3,970 3,840 4,530 3.50 7.00 14.60 -9.30 7.00
DOW JONES INDUSTRIALS 33,274 32,657 33,147 34,678 1.90 0.40 15.80 -4.10 0.40
HANG SENG 20,400 19,786 19,781 21,997 3.10 3.10 18.50 -7.30 3.10
FTSE 100 7,632 7,876 7,452 7,516 -3.10 2.40 10.70 1.50 2.40
NIKKEI 225 28,041 27,446 26,095 27,821 2.20 7.50 8.10 0.80 7.50

Source: NSE Market Pulse April 2023

As a consequence of Chinas easing of restrictions and the subsequent economic recovery, Asian equities have posted gains, led by Taiwan, Singapore, and South Korea. Since March 2022, the Hang Seng Index (Hong Kong) has decreased by 7.30%, while the Nikkei 225 Index (Japan) has shown moderate growth of 0.80%. The Nifty 50 Index and Nifty 500 Index declined by 0.60% and 2.30%, respectively, during FY 2022-23. The Nifty Midcap 50 Index increased by 4.50% while the Nifty Small Cap 50 Index declined by 13.80% during the year under review. Despite robust domestic participation, foreign institutional investors (FIIs) sought investment opportunities in the other global markets in FY 2022-23, net FII outflows totalled USD 5.10 billion, which was substantially less than the record USD 18.50 billion in FY 2021-22. Since March 2021, DIIs have continued to be significant buyers of Indian stocks. This trend persisted in FY 2022-23, with net inflows of DIIs reaching _2.60 trillion, up from _ 2.10 trillion in the preceding fiscal year. As a growing proportion of young people sought investment opportunities, the number of demat accounts increased sharply during the year. During FY 2022-23, an average of slightly more than 2 million demat accounts were added every month, for a total of 24.80 million. India had a total of 114.46 million demat accounts as of the end of FY 2022-23, registering a CAGR of 40.62% over the last three years.

Demat Accounts (in million)

Source: SEBI

Indias primary equity market witnessed record-breaking IPO issuances in FY 2021-22 despite multiple pandemic surges. The surge was driven by investments in a number of tech firms focused on growth. SEBI has relaxed the eligibility and listing criteria for the Innovators Growth Platform (IGP), a dedicated exchange platform for emerging start-ups, in order to promote the listing of such ventures. Increased retail participation and optimistic market sentiment were also significant contributors. In FY 2021-22, the Indian equity market raised a total of 1.10 trillion through the listing of 120 IPOs. As of the beginning of FY 2022-23, there had been a significant decrease in resources raised through IPOs compared to the previous year. According to SEBI data, a total of 0.52 trillion has been raised in FY 2022-23. This decline has been caused by numerous variables, including economic stagnation, geopolitical unpredictability, tightening financing conditions, and high inflation.

Indias favorable demographic profile, rise in financial savings, increasing awareness about capital markets among the population, regulatory support towards digital adoption and rise in share of discount brokers to aid growth in demat accounts and retail investor folios in the capital market.

Source: CareEdge

National Pension Scheme (NPS) Industry Overview

NPS is a retirement benefit scheme introduced by the Government of India to facilitate income post-retirement for all subscribers and is governed by the Pension Fund Regulatory and Development Authority of India (PFRDA). The scheme was initially launched only for government employees but was later opened to all sections of the economy. This scheme also provides tax benefits, wherein the subscribers get an additional deduction of up to _ 50,000 over and above the section 80C limit of _150,000. The total number of subscribers under NPS stood at 17.30 million as of March 31, 2023 as compared to 15.74 million recorded as of March 31, 2022. As of March 31, 2023, the total assets under_management_by the National Pension System amounted to _ 8.71 trillion as compared to _ 7.16 trillion recorded as on March 31, 2022. State Government sector occupied the largest share of the NPS subscribers pie, occupying 35.22% of the total NPS subscriber base. Over the past three years, NPS has seen strong growth in number of subscribers under the "All Citizen" model, meant for citizens other than Central and State government employees, more than tripled from 0.92 million at end of March 2019 to 2.96 million as of March 2023. The Central government NPS subscriber base grew by 4.90% Y-o-Y, the State government by 9.30% Y-o-Y, the All-Citizen model by 29% Y-o-Y, the corporate sector by 19.7% Y-o-Y, while NPS Lite declined by 0.30% Y-o-Y. The formalization of the economy would be a significant growth driver for the retirement fund industry since it would bring individuals into the mainstream segment_of the financial landscape. Moreover, the NPS industry is expected to grow at a CAGR of 18-19% over the years to come until FY 2026-27.

NPS Subscribers – Sector-Wise (in million)

Source: NPS

Alternative Investment Funds (AIF) Industry

AIF is a privately aggregated investment vehicle that gathers funds from sophisticated private investors in India and abroad and invests them in accordance with a predetermined investment philosophy. In recent years, AIFs have gained significant attraction due to their ability to generate higher returns for Ultra HNI ("UHNI") / HNI clients and surge in investment activities and fundraising in India, along with support from regulatory reforms brought by SEBI. As of March 31, 2023, there were 1,100 AIFs funds registered with SEBI overseeing over 8,337 billion in investor commitments, as against 885 AIFs funds with over _6,413 billion in investor commitments as of March 31, 2022, reflecting 24% growth in funds registered with SEBI and 30% growth in terms of investments committed. Over the last decade, the investments made by AIFs in India, have grown from over 3 billion, as on March 31, 2013 to over 3,380 billion, as on March 31, 2023. Despite such strong growth, Indias AIF market is still underdeveloped as compared to the rest of world. Pension funds and insurance companies are expected to increase their allocation to private debt as the AIF market matures and generates higher yields as compared to traditional asset classes. Furthermore, offshore funds and

UHNIs / HNIs are expected to continue to bring in additional funds for higher returns. In addition, an increase in the overseas investment limit for AIFs and the simplification of procedures by way of single window approval for the set-up of units in GIFT City, India, shall drive the industry growth. The industry is expected to grow at a CAGR of 27 – 29% till FY 2026-27 and will help the allied investor services industry by serving the rising demand.

Source: Prospectus / CRISIL MI&A Estimates

AIF Investments AUM (_ billion)

Source: CRISIL MI&A

Portfolio Management Services (PMS)

Asset Management Companies (AMC)s, banks, brokers, and independent investment managers offer Portfolio Management Services (PMS)_in India. PMS typically focuses on discretionary, non-discretionary, or advisory service offerings that are tailored to meet particular investment objectives through fundamental portfolio management services for equities, cash, fixed income, debt, structured products, and other individual securities. Aside from administering mutual fund schemes, AMCs in India have begun offering investors customized strategies with greater flexibility through PMS. PMS AUM stood at _ 27,796 billion as of March 31, 2023, as compared to _ 24,193 billion as of March 31, 2022.

Portfolio Management Services AUM (_ billion)

Source: CRISIL MI&A and SEBI

Account Aggregator (AA)

AAs are essentially non-banking financial companies, licensed by the RBI, that act as an intermediary to collect and consolidate data from all financial information providers ("FIPs"), such as banks, NBFCs, fintechs, that hold users personal financial data and share that with financial information users ("FIUs"), such as lending agencies or wealth management companies that provide financial services. According to Sahamatis statistics, as of June 14, 2023, 65 FIPs and 223 FIUs were live in the account aggregator ecosystem. Until March 2023, the cumulative count of accounts linked to account aggregators was 5 million and 5.90 million of consent requests were successfully fulfilled. The volume of transactions within the AA ecosystem is expected to increase, with the annual transaction volume reaching 1 billion by 2025 and 5 billion by 2027, according to the E&Y September 2022 report. _In addition, an increase in FIUs and FIPs will result in multiple use cases for financial-services products such as loans, wealth management and insurance._ The Reserve Bank of India ("RBI") is the license issuing authority for the account aggregators in India. As on June 2023, there were 11 account aggregators with operating license and another six had in-principle approval.

Fintech remains the most attractive sector for global investors due to Indias large consumer base, which has embraced online payments, alternative lending, digital insurance, and other allied financial services. In addition, the governments drive for a digital economy and the rising internet penetration in both rural and urban areas have significantly contributed to the countrys development of the fintech sector. According to the Tracxn report, as on April 10, 2023, there were 7,936 fintech start-ups in India.

Wealth Management

The wealth management industry has experienced robust growth on a low base as a result of new investments from household savings into organized financial assets and a growing demand for customization, with clients typically seeking advice for asset management, financial planning, tax planning, estate planning, and succession planning. _ Due to an increase in investments by HNIs and UHNIs, the wealth management industry has been gaining pace and expanding at a rapid_rate. As the industry is still in its early stages in India, it has huge potential to become a high-growth market supported by a young affluent investor base, improving wealth levels, strengthening the regulatory environment, and an increasing share of organized players, including banks, independent wealth advisors, and brokers, who act as financial advisors. The thrust on customization, technology dependence, rising awareness, and financial assets as opposed to physical assets is expected to create large opportunities for the wealth management industry. As per CRISIL MI&A estimates Indias wealth management industry assets, including banks and broking companies offering such services, to be at around _ 25.00 trillion in FY 2021-22, and 30.00_trillion in FY 2022-23 which is expected to grow at a CAGR of 12 – 14% to 46.70 trillion by FY 2026-27. This is expected to be supported by significant under penetration compared to other developed economies, an increasing population of affluent clients, an increase shift from physical assets to financial assets and increasing complexity of assets amid rising competition.

Wealth Management AUM (_ trillion)

Source: CRISIL MI&A

Digital adoption in BFSI sector including mutual fund industry

The Information technology (IT) supplies financial institutions with digital transformation, core banking products, and customer experience services. Technology assists in overcoming problems posed by Indias huge geography, which renders physical footprints in smaller locations financially unviable. Given Indias young demographic structure, technology serves as an enabler for the people and the country. Demonetization, which led to a decline in cash transactions and the opening of many new accounts, prompted a shift in consumer preference towards digital channels. In addition to COVID-19, social distancing_contributed to the transition. The use of technology has resulted in an increase in the number of do-it-yourself (DIY) investors choosing a less expensive method of investment. The use of financial technology (also known as "fintech") in India has increased dramatically over the past several years, and the country now has the highest rate of fintech adoption in the world at 87%. This rate is much higher than the global average rate of 64%, which was recorded in September 2021. There has been an increase in the engagement of persons from non-metropolitan cities in banking as a result of an increase in financial literacy, mobile penetration, awareness, and the Prime Ministers Jan Dhan Yojana bank accounts, a plan that is intended to bring the unbanked into the official banking system. As of July 05, 2023, a total of 1.99 trillion had been deposited into Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts. According to the RBI, the digital transactions volume reached 113.95 billion in FY 2022-23 as compared to 71.97 billion in FY 2021-22, witnessing an annual growth of 58.30%. According to the NPCI (National Payments Corporation of India), the UPI transactions volume reached 83.75 billion for the year FY 2022-23, as compared to 45.97 billion recorded in FY 2021-22, thereby growing by 83% Y-o-Y. Due to an increase in smartphone and internet penetration, digital payment methods, including UPI, mobile banking, and e-wallets, have spread to rural areas of the country. In FY 2022-23, internet-based trading generated _ 96 billion in Average Daily Turnover (ADT) on the cash market. Moreover, digitization of Indias insurance market, along with an increase in FDI limits to 74%, is expected to increase the flow of long-term capital, global technology and international best practices, which would in turn support the growth of the financial sector.

Source: CRISIL Market Intelligence and Analytics December 2022 report

South-East Asia and Hong Kong Mutual Fund Industry Overview

The mutual fund industry in Southeast Asian nations (Singapore, Malaysia, Thailand, Philippines and Indonesia) and Hong Kong is more than double the size of the Indian mutual fund industry in terms of assets under management. It has been on the rise as a result of the regions expanding population and increase in wealth across all income brackets. This has resulted in a rise in investable assets in the region, a significant component of which is invested in capital market products. In addition, individuals planning their retirement rely on the mutual fund industry to make up for any gaps in their government pension plans. Over the years, the regulatory scrutiny protecting investors interests and the moderation of fees to invest in mutual funds have attracted new investors. In addition, easy data availability and the inclusion of more millennials in the investing population have digitized the mutual fund market, thereby aiding easy investing methods. During CY2022, COVID-led impacts on economic activity, geo-political uncertainty, and the reversal of the global interest rate cycle led to volatile capital market conditions in the region which resulted in MTM losses for the asset managers. With the reopening of borders post-COVID-19, easing of geopolitical tensions and the recovery of the economy, the asset management industry across these nations is expected to improve and continue its growth trajectory by attracting inflows and new investors.

Assets under management (USD billion)

Countries 2016 2021 2022 2016 – 2022 CAGR
Singapore (Domestic) 374 691 NA 13.1%*
Hongkong (Domestic) 122 192 165 5.2%
Malaysia 167 228 218 4.5%
Thailand 139 195 172 3.6%
Indonesia 24 41 32 5.2%
Philippines 5 9 5 0.3%

*For Singapore the CAGR is calculated for period 2016 - 2021

The Monetary Authority of Singapore ("MAS") partnered with various industry stakeholders within the funds ecosystem to establish the Singapore Funds Industry Group ("SFIG") which is aimed at bringing together all key players across the entire asset management value chain, such as fund managers, lawyers, tax advisors and fund administrators, together to identify industry trends, new market opportunities and recommend development initiatives to transform Singapore into an asset management hub. An increase in ESG investments, the growth of millennials as investors and ageing savers increasing their allocation to investment products are expected to drive investment growth in the coming years.

In Hong Kong, to broaden the investor base for domestic funds and promote the development of local investment expertise and strengthen Hong Kongs position as an asset and wealth management center, the SFC is promoting cross-border offerings of qualified Hong Kong public funds into overseas markets through mutual recognition arrangements. Further, the ongoing development of the Greater Bay Area to enhance distribution channels, advances in technology and increased client engagement are expected to drive growth for the mutual fund industry in Hong Kong.

The asset management industry in Malaysia is highly concentrated and anchored by a few large players. The source of funds under management largely came from unit trust funds, private retirement schemes, employee provident funds, corporate bodies and wholesale funds and the majority of these funds were deployed inside Malaysia. While agency remains a key distribution channel for retail investors in the Malaysian mutual fund industry, digital disruption and the rise of on-demand services have caused the industry to further broaden its distribution channel through partnerships and reach out to a larger customer base. Further, digitization of financial services and the adoption of robo-advisory models for the creation of tailor-made long-term strategic investments for the client have increased the pace of financial literacy and mutual fund penetration in Malaysia.

According to Thailands Capital Market Strategic Plan (2020–2022), SEC Thailand has defined four major goals around sustainability, financial inclusion, the development of capital market infrastructure and increasing investors trust and confidence. Going forward, increasing retail participation, rising investor confidence, and increased asset diversity of funds owing to sustainable investing going mainstream in Thailand are expected to provide a stimulus to the mutual fund industry.

The mutual fund penetration in Indonesia is as low as 4%, which provides huge headroom for growth. Indonesia Stock Exchange ("IDX") launched multiple campaigns in the past few years to raise public awareness about the benefits of long-term investing in capital market products. The Indonesian government has also lowered the corporate tax for listed companies in the hope of encouraging private companies to go public, thereby increasing the number of companies listed on the stock exchange. The relevant authorities have also taken various efforts to expand the distribution of mutual funds to allow parties with an extensive customer network to participate as agents of mutual fund sales force. Going forward, rising and deepening of the mutual fund penetration is likely to provide a boost to the mutual fund industry in Indonesia.

The mutual fund market in Philippines is still at a nascent stage and just 3% of investment owners invest in stocks, bonds, unit investment trust funds, mutual funds and other managed investment schemes. Going forward, structural reforms and educational initiatives to strengthen financial literacy and deepen capital markets are expected to cause a shift towards managed investment schemes. Further, expanding the digital landscape in Philippines and encouraging financial empowerment through sachet investing are also expected to aid the growth of mutual funds in the country.

Source: CRISIL MIA report

Global AIF (Alternate Investment Funds) Overview

According to the Preqin report, global alternative AUM is projected to surpass USD 23.30 trillion by the end of CY2027, up from USD 13.70 trillion at the end of CY2021, registering a CAGR of 9.25%. Against a backdrop of global macroeconomic concerns, demand for private capital is expected to remain strong in the future. The growth in the global AIF industry is anticipated to be driven by private equitys ability to provide superior returns to investors despite shifting market realities and regulatory landscapes. The contributions of HNIs and wealth managers are also anticipated to rise as investor education and awareness increase. In addition, alternative assets are typically uncorrelated with public markets and provide the necessary portfolio diversification, thereby ensuring low volatility and strong performance throughout market cycles, making them an attractive proposition.

Global AIF AUM (USD Trillion)

Source: Preqin (https://www.preqin.com/insights/global-reports-2023)

Company Overview

Company Background

KFin Technologies Limited (hereafter referred to as "Our Company" or KFintech) is a leading technology-driven financial services platform that provides comprehensive services and solutions to the capital markets ecosystem including asset managers and corporate issuers across asset classes in India. Our Company provides several investor solutions to asset managers in Malaysia, the Philippines, Singapore, Hong Kong, and Canada. These investor solutions include registrar and transfer agency, fund administration, omni-channel transaction origination and processing, channel management, brokerage computation, digital onboarding solutions, reporting, compliance, analytics and other innovative digital solutions for asset managers across asset classes.

KFintech is the largest provider of investor solutions to asset management firms and the largest provider of issuer solutions to listed and unlisted corporations in India, based on the number of clients served. Additionally, our Company provides services to nearly two-fifths of alternative investment funds ("AIF") in India and is the second largest, of the three, central record-keeping agencies ("CRAs") for the National Pension System ("NPS") in India. General Atlantic Singapore Fund Pte. Ltd. ("GASF"), a prominent global private equity investor, is the promoter of KFintech.

• As of March 31, 2023, we were the only investor and issuer solutions provider in India that offered services to asset managers such as mutual funds, alternative investment funds ("AIFs"), wealth managers and pensions as well as to the corporate issuers in India, besides servicing overseas clients in South-East Asia, Hong Kong, Canada, and Gift City (India).

• As of March 31, 2023, we were Indias largest investor solutions provider to Indian mutual funds, based on the number of AMC clients we serviced. We have 26 out of the 45 AMCs in India as our clients and service 119 million investor folios, representing 58% of market share based on the number of AMC clients. We have also served six AMCs in India for fund accounting solutions, of which, three are our existing AMC clients in India for investor solutions.

• We have also been the largest issuer solutions provider in India based on the number of clients serviced and have 5,363 corporate clients and 110 million investor folios, as of March 31, 2023. As of March 31, 2023, we were one of the only two scale participants in Indias issuer solutions space, where our market share was 47% based on the market capitalization of NSE 500 companies and 38% based on the number of clients serviced within NSE 500 companies. A player of scale is an entity with a minimum of 25% market share (in terms of clients serviced) among the NSE 500 companies in the Indian issuer solutions space. (Source:_CRISIL Report). In FY 2022-23, we held a 57% market share based on the size of mainboard initial public offerings and a 26% market share based on the number of mainboard initial public offerings we serviced.

• We had 411 AIF funds across 245 asset managers in India as our clients, as of March 31, 2023, representing 37% market share based on the number of AIFs registered with SEBI.

• We have been one of the three operating central record keeping agencies ("CRAs") for the National Pension System ("NPS") in India, servicing 0.96 million pension subscribers and over 1,900 corporate clients as of March 31, 2023.

• As of March 31, 2023, we had 40 international clients spread across Malaysia, Singapore, Hong Kong, Canada and Gift City (India), which comprised 32 clients availing registrar and transfer agency solutions and 15 clients availing fund administration services, including fund accounting solutions.

• Within our global services business, we manage a global ‘center of excellence for a large global mortgage and issuer services provider, wherein we provide global business services such as mortgage services, legal services, transfer agency services, and finance and accounting services on a fully outsourced basis by leveraging our technology and execution skills as well as Indias low-cost advantage.

We provide several critically important services to the global capital markets ecosystem. Our clients utilize our platforms for our different service offerings as a substantial part of their operational requirements. We have adopted a platform-driven product design and delivery approach to service the varied needs of our clients. We have an end-to-end transaction management platform across multiple asset classes, such as mutual funds, direct stock investments, alternate investment funds, wealth and pension across India and overseas locations. We provide our clients with data-driven technology solutions that combine our in-house platform technologies and several of our in-house value-added-services ("VAS") products across different asset classes, including white label technology to meet client requirements. For example, for our domestic mutual fund solutions, we offer several VAS products such as ‘Digix, a data analytics and reporting tool, white label tools such as Distributor Initiated Transaction ("DIT") and ‘Kbolt Go, a front-end application for AMC sales channels. Similarly, in issuer solutions, we offer several VAS digital tools such as a virtual online registry ‘KARISMA, an insider trading management platform, ‘Fintrak, an online e-voting software, ‘e-Voting, a mobile-based platform allowing shareholders to view their investments across equity and bonds, ‘KPrism, an initial public offer bidding platform, ‘Pushpak, a video conferencing and e-voting platform, ‘eAGM and a platform for data security, ‘eVault. For global alternative investment funds, wealth management and portfolio management clients, we offer VAS like Digix, digital onboarding, revenue assurance, compliance and regulatory reporting and performance analytics. We offer these services primarily as turnkey solutions by combining various digital products with the requisite solutions to ensure that our platform provides end-to-end operations support to our clients. We constantly enhance our platform by adding new products and solutions by investing in talent and innovation as well as through strategic acquisitions. We provide offerings such as platform as a service ("PAAS") and use technology to create products and platforms that eliminate manual intervention, improve the accuracy of transaction proceeding and reduce cost by eliminating the manpower needs in conducting day-today business. For example, Digix is a product that eliminates the need for manual intervention in relation to regulatory, statutory reports and MIS reports. It also has intelligent report builder functionality to cater to the needs of the sales, marketing and operations team to slice and analyze the data instantly.

We provide clients with an omni-channel experience by combining our platform with a physical pan India network of 182 service centers as of March 31, 2023, that aids in offline transaction origination and channel partner servicing. We have transformed our business into a financial technology-driven platform-as-a-service model. Our technology offering enables transaction lifecycle management combined with highly secure data collection, processing and storage. We processed 1.50 million average daily transactions, including approximately 1 million systematic transactions per day. We operate at such scale while maintaining the requisite thresholds around turnaround time and accuracy, in line with our agreements with clients and an accuracy rate of above 99%, while ensuring above 99% of all transactions are processed while adhering to the timelines as stipulated in our agreements with clients. We outsource our data center to a third-party service provider, and as a result, our platform is expandable based on our need for additional transaction processing capacity. Our client-centric technology combined with our strategy to develop technology ecosystems to address client requirements has enabled us to achieve economies of scale without incurring significant incremental costs.

We classify our products and services in the following manner:

Investor solutions
Domestic mutual fund International asset managers Pension services Global Alternatives, Wealth management, and Portfolio management solutions Issuer solutions Global business services
Front- End Account Setup, Transaction Origination, Channel Management, Customer Communication Management Account Setup, Transaction Origination Digital Onboarding Account Setup Transaction Origination Account Setup Digital Onboarding Folio Creation and Maintenance -
Middle Office Fund Administration Fund Accounting Transaction Processing Unit, Allocation KYC, Redemption Brokerage, Calculations Payment Processing, Fund Accounting Reconciliation Fund Administration Fund Accounting Transaction Processing Unit, Allocation KYC Redemption Brokerage Calculations Payment Processing Transaction Processing Unit, Allocation Redemption Reconciliation Fund Administration Fund Accounting Transaction Processing Unit Allocation Redemption Brokerage Calculations Reconciliation Transaction Processing for IPO, FPO, etc. Corporate Action Processing Folio updates Dividend / Interest Processing
Back End Compliance / Regulatory Reporting Recordkeeping MIS / Decision Support Compliance / Regulatory Reporting Recordkeeping MIS / Decision Support Compliance / Regulatory Reporting Recordkeeping Compliance / Regulatory Reporting Recordkeeping Compliance / Regulatory Reporting Recordkeeping MIS / Decision Support Mortgage Services Legal Services Transfer Agency Finance and Accounting
VAS Distributor Platform Investor Platform IT Infra and Web Hosting Data Analytics Datalake AML / PML Check Online Tx Platforms Website and Apps Other Platform Solutions Data Analytics Datalake AML / PML Check - Revenue Assurance Data Analytics Datalake AML / PML Check e-Voting, e-AGM, e-Vault Fintrack Insider Trading Platform AML / PML check Other Platform Solutions -

Key Business Strengths

Scaled platform with diversified business model, large addressable market across segments, strong track record of growth and market leadership

At KFintech, our focus is to grow as a diversified business model and reduce dependence on the domestic mutual fund segment. Over the years, our thrust to invest in fast growing new business segments and geographies has helped us reduce our dependence on the domestic mutual fund business. As a result, the proportion of revenue from non-domestic-mutual-fund segments has increased from 28% of the overall revenue in FY 2021-22 to 31% in FY 2022-23. Going forward, as new and younger businesses continue to grow at a faster pace, the proportion of domestic mutual funds in the overall revenue will reduce further.

Domestic MF and Non-Domestic MF Revenues and their Share in Total Revenue (_ million)

Source: Company

In the Domestic Mutual Fund segment, KFintech is Indias largest investor solutions provider and has 26 out of the 45 AMCs as its clients. Our client-focused approach, thrust on technology advancement, and investment in talent and innovation have helped to establish a strong track record of winning 15 of the last 22 new AMCs that were launched in India. On the client-managed AAUM side, our Company has been steadily increasing market share, rising from 26% in FY 2019-20 to 31% in FY 2022-23, and on the equity AAUM side, rising from 29% in FY 2019-20 to 35% in FY 2022-23. In terms of SIP inflows, a leading indicator of Equity AAUM market share, KFintechs clients funds grew

Overall AAUM (in _ trillion) & Market Share (%) at a 3-Yr CAGR of 48.06% to _ 652 billion in FY 2022-23 as against the industrys growth 3-Yr CAGR of 38.86% and inflows of _ 1,560 billion in FY 2022-23, leading to an improvement in market share from 34% in FY 2019-20 to 42% in FY 2022-23. Investor folios during this period grew at a CAGR of 14.76% from 78 million in FY 2019-20 to 119 million in FY 2022-23, and transaction volume grew at a CAGR of 23.62% from 160 million in FY 2019-20 to 303 million in FY 2022-23. Our revenue continues to grow faster than the industrys overall AAUM growth rate. Revenue during this phase grew at a 3-Yr CAGR of 19.43% to _ 4,972.25 million in FY 2022-23.

AAUM represent average assets under management of the last quarter of the period Market share represent average for the period

Equity AAUM (in _ trillion) & Market Share (%)

AAUM represent average assets under management of the last quarter of the period Market share represent average for the period

SIP Inflows (in _ billion) and its Market Share (%)

Equity Mix in Overall AAUM (%)

AAUM represent average assets under management of the last quarter of the period KFintech is the largest provider of issuer solutions in terms of number of clients, providing services to 5,363 listed and unlisted corporate clients. We are growing and further strengthening our leadership position by adding clients and investor folios. We grew at a 3-Yr CAGR of 9.83% and added 1,315 clients to reach 5,363 clients by the end of FY 2022-23. In terms of folios, we grew at a 3-YR CAGR of 23.63% and added 52 million investor folios to reach a total count of 110 million folios. Between domestic mutual fund and issuer solutions, KFintech manages one of the worlds largest investor folios count of 229 million. KFintech has been entrusted with the mandate to act as a registrar and transfer agent for nearly two-fifths of the NSE 500 companies. Within NSE 500 category, KFintech held 38% market share in terms of number of clients, 42% market share in terms of number of folios, and 47% market share in terms of market capitalization, as of March 31, 2023. Revenue during this phase grew at a 3-Yr CAGR of 7.98% to 1,132.96 million in FY 2022-23.

Number of Clients and Number of Folios – Issuer Solutions

In the International Investor Solutions segment, with we made a humble start seven years ago, with eight clients across Malaysia and Philippines and approximately __ 40 million in revenue to provide registrar and transfer agency solutions to the global asset managers. By the end of FY 2022-23, we had grown to 23 clients across Malaysia, Singapore, Philippines, Hong Kong and the Middle East and approximately _ 300.08 million revenue to offer a full suite of end-to-end investor solutions to asset managers across asset classes, ranging from registrar and transfer agency solutions to fund administration services to other allied digital value-added services. Besides, we have 10 global alternative asset managers as clients in Gift City (India) and Canada to whom we offer investor solutions including fund administration services. Through our recent acquisition of Hexagram Fintech Private Limited (Hexagram), we also have seven clients in Malaysia to whom we offer fund administration solutions.

Overall AAUM (in _ billion)

AAUM represent assets under management at the end of period

No. of Transactions (in million)

In the Alternative Funds, Wealth Management and Portfolio Management Solutions segment (AIF, PWM, PMS), we are the largest investor solutions provider in India in terms of the number of alternative funds serviced and offer investor solutions to 411 funds across 245 alternative asset managers, commanding over 37% market share based on the number of alternative funds registered with SEBI as of March 31, 2023. We are continuously onboarding new funds and have been gaining market share, which has improved from 14% in FY 2019-20 to 37% by FY 2022-23. Revenue during this phase grew at a 3-Yr CAGR of 23.77% to _ 182.04 million in FY 2022-23.

In the National Pension Services segment, we are the second largest of the three CRAs in India and have 0.96 million subscribers as on March 31, 2023. Our market share on the overall subscriber base improved from 2% in FY 2019-20 to 7% in FY 2022-23. In terms of new subscribers addition, KFintech had 15% market share during FY 2022-23. Revenue during this phase grew at a 3-Yr CAGR of 70.49% to 66.92 million in FY 2022-23.

Unique platform-as-a-service (PaaS) business model offering end-to-end solutions facilitated by in-house developed technology solutions.

KFintechs "platform-as-a-service" business model provides its clients with comprehensive end-to-end solutions. Our technology offering enables transaction lifecycle management combined with highly secure data collection, processing and storage. We work with a data center that houses over 350 servers and has a data storage handling capacity of over 250 TB. We provide the flexibility to address all major asset classes for global asset managers and corporate clients through our platform. We have implemented a platform-based cross-sell approach across a deep product stack. Our core service offerings provide end-to-end support across the front office, middle office and back end combined with a suite of VAS. Our approach to developing our platform, products and services is to address our clients requirements, treating them as partners, thereby enabling us to understand their requirements, develop suitable solutions, and cross-sell products and VAS to the client. Our VAS such as ‘white labelled digital platforms such as clients websites, mobile applications, distributor platforms, platforms for clients employees for assisted sales, platforms for institutional investments, digital onboarding solutions, datalake, complex analytics, electronic AGM, electronic voting, and compliance platform, have helped us increase wallet share with our existing clients. We have launched over 20 new products and solutions and several more are in the pipeline. This client-centric approach and the development of solutions that are easily extendable to other clients provide us with economies of scale without incurring incremental development costs. Our platform is therefore modular and adaptable for clients across geographies. Further, we can onboard a client and customize our platform for their requirements and enable them to launch their business with quick turnaround times.

Our revenues from such VAS increased from _ 177.48 million in FY 2019-20 to _ 380.70 million in FY 2022-23, which represents a 3-Yr CAGR of 28.97%. For FY 2022-23, revenue from VAS constitutes 5.29% of the overall revenue, up from 3.95% in FY 2019-20. As we continue to support our clients across geographies in their growth by investing in technology and innovation, our ability to cross-sell and up-sell will further improve and increase the proportion of VAS revenue in the overall revenue from operations.

Our SaaS platform is focused on customer experience, cost reduction and operational efficiency. Our aim is to use technology to create products and platforms that eliminate manual intervention, improve the accuracy of transaction proceedings, and reduce costs by eliminating the manpower needed to conduct day-to-day business. We have the latest modern technology stack and cloud ready products and platforms and we have continuously adopted newer technologies to drive automation across our platform. This has resulted in a reduction of operating costs from 64.74% of the overall revenue in FY 2019-20 to 58.61% of the overall revenue in FY 2022-23.

An_ asset-light business model_ with recurring revenue, strong operating leverage, profitability, and cash generation

KFintech operates an attractive business model with a history of consistent profitability and returns, while operating an asset-light model that has historically generated a significant amount of free cash flow. Our asset turnover improved to 3.52x in FY 2022-23 against 3.20x in FY 2021-22 and net profit margins improved to 27.18% in FY 2022-23 from 23.23% in FY 2021-22. During FY 2022-23, about 50% of the earnings before interest, taxes, depreciation and amortization (EBITDA) was converted into free cash flows. Cash and cash equivalents (including investments) as of March 31, 2023 was _3,090.89 million, up by 123.5% over FY 2021-22. Our return on equity during FY 2022-23 was 25.85% and 29.99% in FY 2021-22.

KFintechs revenue model

Business Revenue Model
Mutual Fund Solutions (Domestic Mutual Fund Solutions and International Investor Solutions) • % of AUM
• Transaction-Based
• Fixed fee for number of AMC branches serviced
• Fee for information technology products and services such as Digix, datalake, Kbolt-Go, website, mobility solutions, CRM tools, Insta Brokerage and other value-added products and services
Issuer Solutions • No. of Folios
• Number of corporate actions
• Hybrid model for value-added products and services
Alternatives and wealth management • % of AUM for TA and FA
• Platform fee
• Fee for digital solutions such as digital onboarding, Digix, datalake, and other such value-added products and services
Pension Services • Fixed account opening charges
• Annual maintenance fees
• Fee per transaction
Global business services • Per full-time employee (FTE)

A diverse multi-asset servicing infrastructure is well-positioned to capitalize on the robust growth and development of India, South-East Asia and other global markets.

At KFintech, we strive to build a globally diversified business on a large scale. We operate across multiple financial asset classes in multiple large markets in India, Canada, Hong Kong, Malaysia, and the Philippines, along with a presence in the Middle East and soon to start in Singapore and Thailand. This has allowed our Company to expand beyond its India-centric roots and emerge as a global business. The share of revenue from the domestic mutual fund business segment in overall revenue declined to 69.06% in FY 2022-23 as compared to 71.94% in FY 2021-22 and with faster growth across non-domestic mutual fund segments, we expect the latters share in overall revenue to grow further. KFintech_ is well-positioned to capitalize on the anticipated growth of the Indian economy due to_ our_ market dominance in India, our_ profoundly rooted and long-standing client relationships, and our_ robust business development efforts.

South-East Asia and Hong Kong account for large portfolio of assets under management (AUM), equivalent to more than two times the size of Indias asset management industry, which would_ allow KFintech to continue to expand its international investor solutions across these markets. In addition, the strong growth in the global alternative segment would allow us to expand our fund administration solutions to global asset managers by exploring newer geographies as well. The combination of macro factors in the markets in which KFintech operates, such as a relevant government push, an increased investor pool and client engagement, a broadening distribution channel, digital disruption, sustainable finance, and a change in investor attitude, provides us with a significant growth opportunity in these markets.

Long-standing, deeply rooted client relationships with a diverse and growing client base_

We serve our clients to support their customers needs across the lifecycle of a relationship in an increasingly complex compliance landscape. Due to the exhaustive nature of our platforms and our clients reliance on them for end-to-end services, KFintech is integral to its clients businesses and operations, resulting in long-term client relationships with low client attrition.

We provide complex solutions and services across asset classes for multiple geographies with significant expertise that has been honed over the years presence. We have a strong presence in the industry, and a rich experience working with clients, of which, some are the largest companies operating in their respective segments. We are regulated by multiple regulators in India and other jurisdictions and our services require high technology intensity and a track record of delivery at scale, and are subject to stringent compliance and regulations, resulting in high proportion of all our clients across our businesses. Our market leadership and long-term integrated client relationships across our platform put us in a favorable position to increase our share of business from existing clients.

Recurring Revenue (As a % of Overall Revenue)

Net Revenue Retention (%)

We intend to further strengthen our client relationships by providing multiple platform solutions across RTA and FA services, including digital onboarding, digital platforms for intermediaries, synchronized transfer agency and fund administration services including fund accounting platforms, scalable and secure technology and infrastructure with cyber-security-as-a-service, data analytics-as-a-service (DAAS), and a customer data platform.

Experienced management team, backed by a strong board, along with strong culture of compliance

KFintech has a seasoned professional leadership team, supported by experienced senior managers who have extensive industry knowledge and have been associated with us as well as with leading multinational companies in India and outside India for a long period of time. Our management team has demonstrated its ability to develop and execute a focused strategy to grow our business and optimize costs through strong business development efforts and technology initiatives, enabling us to strengthen our market position and deliver consistent financial performance.

We believe that the industry knowledge and extensive experience of our management team provide us with a competitive advantage and are essential to attracting top-tier talent, implementing our strategy, and achieving our long-term goal of delivering sustainable growth across our businesses. Our Companys Board is comprized of Directors with substantial experience in managing, advising and investing in technology companies. Our culture of compliance, focus on systems, processes and technology have allowed us to become a trusted provider of services to our clients and other stakeholders. We actively track our compliance status on a quarterly basis by deploying compliance measurement tool. We have implemented a cyber security and cyber resilience policy, and our processes are ISO 27001:2013 certified.

Key Business Strategies and Developments

Maintaining our leadership in current businesses by enhancing our value proposition and further deepening our relationship with existing clients

Our clients operate in a complex and fast-changing environment with evolving end customer-needs, regulatory updates, competition and technological innovation. This requires our clients to adapt to such a dynamic environment through continuous technology-driven innovation across their operations, without neglecting their core businesses around investments and marketing. We have strong multi-year relationships with clients across our platform and our clients utilize a range of services from our platform. We have been increasing our efforts to up-sell and cross-sell other products and services including value added software-as-a-service and data analytics products to our clients.

o Domestic mutual fund solutions: As of March 31, 2023, we had 23 operating clients in our domestic mutual fund solutions business and three new AMCs that are yet to launch operations. While we expect to continue our winning streak as well as increase our revenue from these clients in line with overall market growth and growth in the businesses of our clients, we also seek to increase revenue from these clients by increasing the share of our VAS from these clients. Our data analytics platform ‘Digix is live for 23 clients, ‘Datalake platform was implemented for one client, ‘DIT platform has seven clients, a virtual branch platform ‘Kbolt Go is live for three clients, ‘API integration with Fintechs had three clients, fund accounting platform ‘mPower had six clients.

o Issuer solutions: As of March 31, 2023, we had 5,363 clients and serviced 110 million investor folios. We continue to add new clients and investor folios as well as increase our wallet share of revenue from existing clients by marketing our platform-as-a-service VAS offerings. Our platform offerings include ‘Fintrak that had 196 clients, ‘eVaults that had 135 clients, ‘eVoting / Instapoll that had 547 clients, ‘eAGM that had 276 clients.

o International investor solutions: We are rapidly growing in the international markets and have presence in Malaysia, Philippines, Hong Kong, Middle East, Canada, Gift City (India) and soon to start in Singapore and Thailand. As of March 31, 2023, we had 40 clients in international markets to whom we offer our RTA, FA and other digital solutions. As we continue to invest in business development, technology, new product development and delivery excellence, we expect to penetrate faster in these markets.

o AIF, PWM, PMS and NPS solutions: We have a strong pipeline of products under development such as "AIF in a Box", a comprehensive platform for global AIFs, "NPS Agent Platform", for assisted NPS Sales and others. In addition, we leverage our relationships to cross-sell and up-sell several of our existing VAS offerings to existing AIF clients including Digix, digital onboarding and others. Hexagram offers its fund accounting platform ‘mPower to 27 clients including insurance companies, pensions, trusts and others in India (20 clients) and outside India (7 clients). We also bundled ‘mPower platform offering along with fund administration solutions for several other AIF clients in India, GIFT City and other global jurisdictions. These will help us position ourselves as a one-stop solution provider for all the needs of global asset managers.

o Global business services: Our primary client for this business is Computershare and its various business lines across multiple regions. We operate an asset-light model due to high utilization of technology, robust infrastructure and strong employee headcount and low client acquisition costs.

Expand client base and market share through active sales and marketing

In addition to the expansion of our existing client base, KFintech actively endeavors to acquire new clients across all of its service offerings and businesses. Our Company engages in business development initiatives across its segments by investing in dedicated talent to attract new customers and new geographies. We have undertaken investments in our sales capabilities in the past including building separate sales capabilities within key businesses as well as internationally. Our Company takes a client-centric approach by offering customized solutions to meet the needs of specific customers. As a result, we have witnessed significant success in new client acquisition across our businesses. During FY 2022-23, in domestic mutual fund business, we won a new AMC client as an RTA marking our 8th new win of the last 12 new AMCs launched in India. In issuer solutions, we added 593 new clients and 7.49 million investor folios, managed Indias largest public issue offer of Life Insurance Corporation of India, and also won the Asia-Pacific Stevie Award (Gold) for Innovation in Digital Transformation - Financial Services Industries for "Digitally transforming the IPO subscription model". In case of AIF, PWM and PMS segment, we added 143 new funds. Within Hexagram, we added four new clients on the fund accounting platform. In international investor solutions, our overall count increased to 40 clients with 32 clients on the RTA solutions offerings and 15 clients on the FA solutions offerings. In the case of NPS, we added 209,247 new pension subscribers and 512 corporate clients.

We plan to continue onboarding new clients across our various businesses and investing in our sales efforts so as to enhance our market share across businesses. We intend to deepen our presence in global alternative markets and have expanded our international sales team by adding additional country sales heads in South East Asia. We intend to augment our sales efforts with high levels of cross-referrals from within our existing customer base since several of the asset managers served by us have global operations and often operate across countries in the geographies served by us. AIF and wealth management investor solutions, pension services, international investor solutions, and global business services are relatively recent additions to the platforms solution offerings. KFintech intends to expand the size and operations of these businesses by capitalizing on existing relationships with clients in other industries and by increasing the value-added offerings and digitization of its offerings. While our sales strategy differs across businesses, we typically look to commence our relationship with a new client with our core offerings and gradually increase our relationship with the client to cover all aspects of our platform.

Investing in innovative technology solutions and product development

We believe that we have developed a future-ready-scalable platform with tech-enabled infrastructure to meet the requirements of our clients. We have comprehensive product platform solutions built on technology. As of March 31, 2023, we had a dedicated team of about 769 employees focused on developing technology and innovative solutions. Our team is constantly evaluating our technology solutions and our client requirements to increase the levels of digitization, create new products, improve operational efficiency for our clients and ourselves and enhance the levels of automation of processes. In FY 2020-21, FY 2021-22 and FY 2022-23, our total technology expenses, which include capital expenditure incurred towards computers and accessories, software and license fees, software expenses and employee costs constituted 15.90%, 20.50%, and 22.28% of our revenue from operations, respectively.

We intend to continue to invest in technological innovations in line with the growth of our business and to meet client requirements. For example, in FY 2021-22, we added a fund accounting and reconciliation product to our platform, which we will invest in building an end-to-end fund administration and reconciliation solution for our clients across asset classes. We have developed several of these products and services in-house or acquired them through acquisitions, based on client requirements. Further, the increase in automation and digitization in our internal operations gives us an advantage in terms of operating leverage, as technology improvement enables us to control our operational costs including employee costs. Our revenue per employee has increased to 1.37 million in FY 2022-23 from 0.83 million in FY 2019-20. Our focus is to develop products and platforms with sector-agnostic capabilities that will further allow us to diversify our client base. For example, our data analytics product like Digix and our fraud analytics product like Fintrak are products that are sector-agnostic and can be marketed to different customers.

Focused and selective global expansion

As of March 31, 2023, KFintech had 40 clients across Malaysia, Hong Kong, Philippines, Singapore, Canada, and Gift City (India). Our clients range from AMCs, alternative funds, unit trusts, and pensions. KFintech aspires to become the market leader for third-party investor solutions across these markets. Our Company intends to expand internationally beyond the current geographies by enhancing the global delivery model, in which it will seek to become delivery partners for RTA, FA and other digital solutions to global asset managers in order to penetrate the existing markets and enter newer jurisdictions. We intend to do so with a focused product approach which will be led by alternative investment products as well as other products that leverage the low-cost advantage in India.

Pursue strategic acquisitions

We believe that our market access, brand recognition, track record of business acquisition and integration and management depth position us well to target inorganic growth opportunities. We aim to continue to execute acquisitions to expand our platform and service offerings and acquire new clients to drive accelerated growth by leveraging our market access. We also aim to focus our efforts on the following types of businesses: o Established businesses in our key markets and businesses so as to add more clients across our business. For example, we acquired the RTA business of Sundaram BNP Paribas Fund Services, which helped us acquire two AMCs and 20 alternative funds as clients for our existing investor solutions platform in India;

o Existing businesses in new geographies as a tool for market entry. For example, we took over the investor solutions business that was started in South East Asia by the erstwhile entities consisting of eight clients in Malaysia and Philippines. This business marked our entry into South East Asia; and

o Broadening our product portfolio to deepen our client relationships. For example, we acquired Hexagram in FY 2021-22 which enabled us to add fund accounting and reconciliation products to our platform and start positioning ourselves as a global fund administrator. In FY 2022-23, we made an investment of 25.63% into Fintech Products and Solutions India Private Limited ("FPSIPL") to enter the novel account aggregator business. FPSIPL, through its wholly-owned subsidiary, owns Indias first account aggregator license and is also the market leader with over 40% market share. In April 2023, KFintech also acquired 100% stake in WebileApps India Private Limited, which specializes in UI/UX, artificial intelligence, machine learning, mobility solutions and other product development. We intend to leverage its competencies to accelerate our technology and product development.

We intend to assess acquisition and investment opportunities and have an active pipeline of opportunities that we monitor on a regular basis. For instance, we are evaluating the acquisition of a global fund administrator.

Attract and retain talent especially in technology and business development functions

We consider people to be our greatest asset. We are committed to our employees professional development and have instituted a results-driven, rewarding and transparent compenzation structure combined with training programs and opportunities to participate in diverse and international projects to incentivize, retain our employees and attract new talent. We believe that these measures drive operational efficiency and productivity gains. Our employee split across functions is as below:

Function As on March 31, 2021 As on March 31, 2022 As on March 31, 2023
Operations 4,280 4,350 4,133
IT 690 746 769
Support functions 318 310 296
Malaysia and Bahrain – operations 31 34 31
Total 5,319 5,440 5,229

FINANCIAL PERFORMANCE

(_ in million)

Particulars Year Ended
March 31, 2023 March 31, 2022
Audited Audited
Revenues 7,200.27 6,395.07
EBITDA 2,980.36 2,878.51
EBITDA margin % 41.39% 45.01%
Profit After Tax 1,957.36 1,485.49
Profit after tax % 27.18% 23.23%
Diluted EPS 11.52 9.36

 

Revenue Break-up FY 2022-23 FY 2021-22 % Y-o-Y
A. Domestic Mutual Fund Investor Solutions 4,972.25 4,600.45 8.08%
B. Issuer Solutions 1,132.96 884.14 28.14%
C. International and Other Investor Solutions 657.35 488.05 34.69%
(i) Global Fund Solutions 300.08 305.37 -1.73%
(ii) Alternative, Wealth and Portfolio Management Solutions 182.04 125.75 44.76%
(iii) National Pension Solutions 66.92 36.45 83.57%
(iv) Hexagram 108.31 20.48 428.96%
D. Global Business Services 437.71 422.43 3.62%
Total (A+B+C+D) 7,200.27 6,395.07 12.59%

Financial Highlights

FY 2022-23 Revenue from operations stood at _ 7,200.27 million, an increase of 12.59% year-over-year (Y-o-Y) as compared to _ 6,395.07 recorded in FY 2021-22. KFintechs revenue continues to grow faster than the domestic mutual fund AAUM growth driven by a diversified business model. Our non-domestic mutual fund revenue continues to grow at a faster rate and was _ 2,228.02 million in FY 2022-23, an increase of 24.15% year-on-year (Y-o-Y) as compared to __ 1,794.62 million recorded in FY 2021-22. The proportion of non-domestic mutual fund business in the overall revenue increased to 31% in FY 2022-23 as compared to 28% in FY 2021-22. EBITDA stood at _ 2,980.36 million, up 3.54% Y-o-Y, with an EBITDA margin of 41.39%. Profit after tax was recorded at _ 1,957.36 million as compared to _ 1,485.49 million, up by 31.77% Y-o-Y; the PAT margin stood at 27.18%. EPS increased by 23.08% Y-o-Y, to reach _ 11.52. As of March 31, 2023, cash and cash equivalents (including investments) totaled _ 3,,090.89 million.

Business Highlights

For FY 2022-23, in domestic mutual fund segment, overall AAUM1 growth was recorded at 6.96% Y-o-Y compared to industry growth of 5.55% Y-o-Y. Equity AAUM1 growth was recorded at 8.65% Y-o-Y compared to industry growth of 10.46% Y-o-Y. Overall AAUM1 market share improved from 31% in FY 2021-22 to 32% in FY 2022-23; Equity AAUM1

market share was stable at 35%. SIP inflows of _ 652.30 billion are at all-time high, up by 23.39% Y-o-Y. SIP book AAUM1 of _ 2,117.67 billion, also grew by 19.47% Y-o-Y. Our market share in SIP inflows was 41% in March 2023.

During FY 2022-23, we won a new AMC client mandate for RTA solutions – Old Bridge Capital Management. We completed the implementation of our flagship VAS product "Datalake" for one of the largest AMC clients in India. In the issuer solutions segment, we acquired 593 corporate clients. The investor folios serviced by us increased to 110 million in FY 2022-23, up by 7.49% Y-o-Y. We secured our first contract for Datalake solutions with one of Indias largest wealth managers. During the year, we launched our digital onboarding solutions for AIF and PWM clients.

We managed Indias largest public issue offer of Life Insurance Corporation of India and won the prestigious Asia-Pacific Stevie Award (Gold) for Innovation in Digital Transformation- Financial Services Industries for "Digitally transforming the IPO subscription model". Our market share, in NSE 500 companies, improved to 38% in March 2023 (37% in March 2022), based on the number of clients, 42% in March 2023 (40% in March 2022), based on the number of investor folios, and 47% in March 2023 (45% in March 2022) based on the market capitalization.

1AAUM represent average assets under management of the last quarter of the period

In the case of international investor solutions, we grew our client base to 40 clients as of March 31, 2023 compared to 32 clients in March 2022. During the year, we won our maiden client in Canada to provide fund administration services. We won our maiden fund administration services contract in Singapore in April 2023 as well. Moreover, we launched our Gift City operations and have acquired eight AIF clients with 13 AIF funds to offer RTA, FA and other digital solutions. We received in-principle clearance from Thailands Securities & Exchange Commission for setting-up operations and are in the process of securing approval from the Indian regulator before starting operations.

In the AIF, PWM and PMS segment, we acquired 67 new clients with 143 new alternative funds. AAUM in March 2023 was at _ 614.69 billion, up by 21.80% Y-o-Y. Our market share, as of March 31, 2023, improved to 37% compared to 30% in March 2022 (based on the number of AIFs registered with SEBI).

Through Hexagram, we acquired four new clients to offer fund accounting platform solutions. Besides, Hexagrams ‘mPower fund accounting platform has been a huge success for KFintech empowering our offerings to offer fund administration solutions including the fund accounting platform to global AIF clients. The mPower competence has been pivotal in winning mandates in Canada and Singapore.

In case of the NPS segment, we acquired 209,247 new subscribers and 512 new corporate clients. Overall subscriber base was at 0.96 million, up by 27.99% Y-o-Y. As of March 31, 2023, our market share had improved to 7%, based on our overall subscribers base. In terms of new subscribers additions, our market share was at 15%. We launched a new product ‘Futur for our corporate clients. It has also been an eventful year for the NPS segment, as we completed the phase 1 transition of subscribers from the Madhya Pradesh State Government to our platform.

During the year, we made an investment of 25.63% in Indias first account aggregator player, FPSIPL (‘OneMoney), which had more than 40% market share as on March 31, 2023. In April 2023, we also acquired 100% stake in WebileApps to enhance our technology competence for solutions around UI/ UX, artificial intelligence, machine learning and other product developments.

Business Outlook

Increased penetration, awareness, and financial literacy are anticipated to propel the growth of the financial asset market in the coming years. KFintech is well positioned to capitalize on the expanding industry opportunity, resulting in a sustainable growth trajectory. Our business model relies heavily on the retention and expansion of our existing clientele. KFintech intends to continue retaining clients in the future by providing outstanding services and a great user experience. Additionally, we intend to execute acquisitions to expand our platform and services_ and accelerate our development by capitalizing on our market access. We are a technology-driven financial services Company_ that offers comprehensive services and solutions to the capital markets ecosystem. Our comprehensive policy framework consists of a risk management policy, business continuity plan, a wind-down plan, and data access and data protection policies. We intend to continue making substantial investments in technology to automate processes, improve our systems, and expand our risk management capabilities in order to enhance contractual and regulatory compliance.

Internal Controls

Our Company is responsible for establishing and maintaining adequate internal control measures that are commensurate with the size and complexity of our operations. Our internal audit functions evaluate the adequacy and efficacy of internal systems on a continuous basis to ensure that business units comply with our policies, compliance requirements, and internal guidelines. Our Company has designed an effective internal financial reporting and control system to record financial and operational data in accordance with all applicable internal controls and other regulatory compliance requirements. Internal and Statutory Auditors of our Company conduct periodic reviews of the internal control systems to ensure that day-to-day operations are conducted with minimal risk of fraud or other discrepancies.

The Audit Committee is responsible for reviewing the conclusions of both the Internal Auditor and the Statutory Auditor. It guarantees the continued adequacy and effectiveness of internal controls. In addition, the Board supervises the Audit Committees investigation and ensures that prompt and proactive steps are being taken to limit the risk and rectify the situation.

Risk and Mitigation Strategies

Our Company recognizes that risk is inherent to all business activities and that effective risk management is crucial to its immediate and long-term success. Our Company has_ outlined_ key duties to identify, assess, manage, monitor, and report on key risk areas throughout the organization. We have established a comprehensive risk management policy in order to maintain procedures and systems that enable us to effectively identify, monitor, control, and respond to these risks. However, if our risk management efforts are ineffective, we may incur losses that have a negative impact on our operating results and financial position. Any future expansion and diversification of our services will necessitate the ongoing improvement of our risk management policy and internal controls. Our Companys recognized risks are as follows:

Technology Risk: Our success depends on the development of technology platforms and applications in order to conduct our business. If we are unable to meet the needs of our clients or adapt to technological advancements, our business may suffer.

Mitigation Strategy: Our Company is taking measures to ensure the adoption of cutting-edge technology and to meet the needs of its customers. Our Companys_existing technological infrastructure for asset managers across mutual funds, alternatives, wealth management, and pensions, as well as issuers, enables them to offer curated solutions to clients in multiple domains. To ensure the continuity of its business plans, our Company uses third-party service providers for its data center in Hyderabad and disaster recovery center in Bengaluru. In addition, since the majority of value-added products and services are customized based on the industry in which the client operates, offering curated solutions can assist them in expanding our market.

Tax-related Risk: Any changes in tax regulations in India and other countries in which our Company has a significant presence could have a negative impact on our Companys effective tax rate.

Mitigation Strategy: Our Companys strategy for mitigating its tax risk is to adopt_ the most recent tax developments in various countries and implement appropriate tax planning strategies in response to changes in tax laws.

Regulatory Risk: Our Company operates in a growing number of countries and industry sectors, thereby increasing the risk of non-compliance with regulatory standards, which is vital to its operations.

Mitigation Strategy: The global regulatory compliance structure of our Company is intended to identify, evaluate, mitigate, and_ monitor_ regulatory_ risks_ affecting_ our_ Company. Regulatory assessments are conducted and exhaustive protocols are maintained to ensure compliance. If necessary, mitigation plans are implemented to address any discovered noncompliance.

Business Continuity Risks: In a complex and rapidly changing global risk landscape, our Companys reputation as a prominent technology business is determined by its threat resilience and capacity to effectively respond to disruptive events. If such risk adherence is not ensured, the continuity of our operations across clients, delivery sites, and facilitating functions might face a risk to business continuity.

Mitigation Strategy: Our Company is working to make resilience an intrinsic part of its business model, seeking to design resilience into its work, workforce, workspace, business operations, technology, supply chain, and leadership.

Foreign Exchange Risk: Approximately, 10.70% of our Companys revenue comes from clients located outside of India; as a consequence, our Companys revenue is realized in foreign currencies. Therefore, our Company is exposed to fluctuations in foreign exchange rates.

Mitigation Strategy: The goal of our Companys foreign risk management is to manage and limit exposures to market risk within acceptable limits while simultaneously maximizing returns.

Information Technology

Our information technology security program is tailored to the requirements of our clients, who entrust us with their sensitive information. Our information security program includes a dedicated information and cybersecurity team that provides oversight and guidance to our information security programs measures, tools, and processes, which are designed to prevent information and cyber-security issues and improve overall information and cybersecurity resilience. We take proactive measures to ensure that our systems are adequately protected against external threats, such as conducting regular security awareness training for our employees and providing them with guidelines for protecting and using private and sensitive information pertaining to our Company, its investors, and its clients. We also conduct periodic vulnerability assessments. In addition, a cyber-security and resilience policy has been implemented. As of March 31, 2023, our information technology team consisted of 769 engineers.

Human Resources

We have adopted a balance of people-centric policies, practices, and benefits such as Equal Employment Opportunity, PoSH (Prevention of Sexual Harassment), Leave Policy, Enhanced Mediclaim, Parental Mediclaim, Health and Well Being, Cr?che Facilities, Transgender Policy, Hybrid Working Model, Annual Appraisal System, LTIPs (Long-Term Incentive Plan), ESOPs (Employee Stock Ownership Plan), and Grievance Redressal Policy in order to create and maintain a collaborative and amicable workplace. We provide our employees with performance-based incentives and benefits, as well as conduct periodic employee engagement programs.

As of March 31, 2023, we had hired approximately 630 employees through a third-party vendor. As required, these skilled and semi-skilled contract workers are deployed across all of our enterprises. Our workforce is diverse and inclusive, as our employees come from various age groups and have worked in a variety of industries for organizations and multinational corporations. We had 5,229 employees as of March 31, 2023, with most of them headquartered in India.

ESG rating

ESG standards are gradually shaping the operational framework for businesses across the country. The importance of environmental awareness has been escalating as risks to health, lifestyle, and the economy are being more accurately measured. Social disparities, such as economic inequalities, gender biases, and social class divisions, have become contentious political issues. Governance practices have also received increased scrutiny, frequently due to their absence, and those who fail or are found to be falling short have decreasing chances of avoiding scrutiny. A Companys exposure to long-term environmental, social, and governance risks is measured by an ESG rating. These risks, which include energy efficiency, worker safety, Board independence and financial implications. Our Company received an ESG rating of A for the financial year ended 2021-22. The ESG rating for the financial year 2022-23 is under assessment.

Corporate Social Responsibility (CSR)

Our CSR initiatives are being focused on a variety of areas, including healthcare, the development of art and culture, the education of underprivileged children, charitable contributions and financial assistance, and the promotion of employment and improvement of vocational skills. During FY 2022-23, KFintech effectively integrated economically beneficial services and initiatives into its business model and corporate culture. Our Company ensured that all CSR activities contributed to the overall growth of society in terms of social, economic, and environmental aspects, thereby creating a positive impact. Our Companys CSR vision is centered on generating societal value in the communities where we operate. KFintech has been providing support to the younger generation in excelling in their school education, fostering innovation, developing technical skills, and promoting financial literacy. During FY 2022-23, our Company has undertaken various initiatives to make a positive impact. It included the following:

• Providing sports equipment to Jinnaram Boys School to promote physical activities for all children, improving their mental well-being, autonomy, and self-esteem, thereby enhancing the overall performance within the school premises.

• Equipping Fine Arts college students with the necessary materials for the BIO International conference, where they showcased their talent and skills and received multiple awards.

• Supplying hygiene needs to a girls school to promote dignity, safety, and protect students from infectious diseases while preventing disease transmission.

• Undertaking the TNC (The Nature Conservancy) project, which focuses on eco-restoration activities in the Satpura Tiger Reserve, enhancing conservation efforts and human-wildlife coexistence.

Cautionary Statement

Certain statements that may be made or discussed in this release may be forward-looking statements and/or based on managements current expectations and beliefs concerning future developments and their potential effects upon KFin Technologies Limited. The forward-looking statements are not a guarantee of future performance and involve risks and uncertainties and there are important factors that could cause actual results to differ, possibly materially, from expectations reflected in such forward-looking statements. KFin Technologies Limited does not intend, and is under no obligation, to update any forward-looking statement made in this release.