Khandwala Securities Ltd Management Discussions

GLOBAL ECONOMIC REVIEW

The beginning of FY25 was marked by persistent global uncertainties stemming from unresolved geopolitical conflicts - notably the Russia-Ukraine war and rising hostilities between Israel and Iran. Despite these headwinds, the United States economy stood out with strong performance. Robust labour market conditions, alongside a moderation in inflation, underpinned resilient consumption, which remained the key driver of growth. This divergence gave rise to the narrative of "US exceptionalism," while most other major economies continued to struggle with sub dued momentum.

The global economic landscape underwent a sharp shift following the emphatic victory of Republican candidate Donald Trump in the U.S. Presidential elections of January 2025, against the incumbent Democrat Joe Biden. The incoming administration signalled a decisive departure from conventional diplomatic and trade policies. Proposals to eliminate income tax and transform the U.S. into a manufacturing hub, coupled with aggressive tariff measures against trading partners with significant surpluses, altered market sentiment dramatically. The imposition of steep tariffs invited retaliatory measures from major economies, including China, Canada, Mexico, and the European Union. The subsequent move to enforce reciprocal tariffs across all trade partners marked a clear deviation from long-standing WTO norms, reinforcing a more fragmented, multipolar trade environment.

Financial markets reacted swiftly to this uncertainty. Risk-off behaviour dominated, with gold significantly outperforming as investors sought safety. Interestingly, even the U.S. dollar lost strength, reversing traditional safe-haven flows, as the implications of protectionist trade measures were viewed as potentially inflationary and detrimental to U.S. consumption demand. This sparked louder concerns around a possible recession.

In anticipation of evolving risks, the U.S. Federal Reserve reduced policy rates by 100 bps between September and December 2024, bringing them down to 4.5%. Chair Jerome Powell acknowledged that while the precise impact of tariffs on inflation remained uncertain, he expected any price pressures to be temporary.

INDIAN ECONOMIC REVIEW

FY25 was a year of transition for the Indian economy, marked by both political and economic developments. The general elections delivered a mandate weaker than anticipated for the incumbent BJP, creating temporary uncertainty in financial markets. Equity indices declined on results day but quickly recovered once the formation of the NDA government was confirmed. However, in the months leading up to the elections, the Model Code of Conduct restricted government decision-making and slowed public capital expenditure, weighing on overall economic activity. Although capex momentum picked up in the second half of the year, it fell short of expectations, closing the fiscal year at Rs.10.2 trillion, below earlier projections.

Economic growth moderated during this period, with GDP slipping to 5.4% in Q2 FY25 (later revised to 5.6%), among the lowest in recent years. Indian equities peaked in September 2024 but ended the year 10.3% lower, reflecting subdued investor sentiment. Persistent foreign institutional investor (FII) outflows of USD 15.6 billion pressured markets, though strong domestic participation through systematic investment plans (SIPs) averaging Rs.241 billion per month provided a stabilising cushion.

Monetary policy remained tight through most of the year, as the RBI maintained its focus on inflation management. A significant shift occurred following the appointment of Mr. Sanjay Malhotra as RBI Governor in December 2024, with policy emphasis rebalanced towards supporting growth while viewing inflation primarily as a supply-driven challenge. After holding the repo rate steady at 6.5% for five consecutive years, the RBI initiated its first 25 bps rate cut in February 2025.

Currency movements reflected these macro shifts. The rupee traded within a narrow band of 83-84 per USD until October 2024, before weakening sharply to 87.5 per USD in November. Markets interpreted this as a softer RBI stance on FX intervention. By March 2025, however, the rupee had regained strength, ending the year at 85.5 per USD.

On the fiscal side, the Union Budget for FY26 underscored the governments twin priorities of infrastructure creation and consumption support. Capital expenditure was budgeted at Rs.11.2 trillion, representing 3.1% of GDP and a 10% increase over the FY25 revised estimate. At the same time, personal tax exemptions of Rs.1 trillion were introduced to stimulate household demand. Importantly, these measures were framed within the governments fiscal consolidation roadmap, with a deficit target of 4.4% of GDP for FY26.

Despite election-related disruptions, the domestic economy demonstrated resilience across several macro indicators. Forex reserves remained healthy at USD 676 billion, inflation cooled to 3.3% in March 2025, and manufacturing PMI stayed strong at 58.1, outperforming regional peers. GDP growth for FY25 is expected at 6.5%, supported by strong services exports, which helped offset a merchandise trade deficit of USD 282 billion. Services surplus stood at USD 188 billion, providing a vital cushion in a year of global trade tensions. However, merchandise exports were flat (0.1% YoY) while imports rose by 6.2%. Looking ahead, the risk of rising protectionism and potential redirection of Chinese exports into Asian markets pose fresh challenges for Indias external trade balance.

CAPITAL MARKETS: DRIVING FINANCIAL INCLUSION

Over the past five years, Indias capital markets have undergone a remarkable transformation, reshaping the way households engage with financial assets. This shift has been fuelled by the steady rise of retail participation, supported by greater financial literacy, rapid digitisation, innovative FinTech solutions, and proactive regulatory safeguards. The structural deepening of markets is evident in the exponential growth of retail access: demat accounts expanded from 40.9 million in FY20 to 192.4 million by FY25 - a nearly fivefold increase. Similarly, active client participation on the NSE rose 4.6x to 49.2 million, while the number of unique mutual fund investors climbed 2.6x to 54.2 million. These milestones highlight the growing confidence of domestic investors and the strengthening foundation of Indias financial ecosystem.

Market Performance in FY25

The year under review proved both challenging and eventful for Indian equities. The early part of FY25 was dominated by caution ahead of the national elections. Markets corrected by about 2% until the results were declared in June 2024. The return of the NDA government provided clarity, triggering a strong rally through September 2024, during which multiple new highs were recorded. This rally reflected optimism around policy continuity, economic stability, and Indias long-term growth prospects.

From October 2024 onwards, however, equities entered a prolonged correction phase, lasting five months until February 2025. The downturn was influenced by global volatility, profit-taking at elevated valuations, regulatory changes, and subdued corporate earnings. The external environment also turned challenging, with Chinas fiscal stimulus and political shifts in the U.S. prompting risk reallocation and accelerating FII outflows from emerging markets. India saw foreign portfolio outflows of USD 36 billion during this period - the second largest withdrawal since the October 2021- June 2022 episode.

Despite these headwinds, domestic resilience stood out. Indian equities rebounded sharply in March 2025, closing the year with gains: the BSE Sensex rose 3,763.57 points (+5.1%) and the NSE Nifty advanced 1,192.45 points (+5.3%). Market capitalisation of NSE-listed companies expanded by Rs.26.7 trillion during FY25, ending the year at Rs.410.9 trillion - a testimony to sustained investor faith in Indias long-term fundamentals.

Retail Investors: The Anchor of Market Stability

A defining feature of FY25 was the unwavering support from retail investors. Systematic Investment Plans (SIPs) registered record inflows, with monthly contributions averaging Rs.241.1 billion - up 45.2% year-on-year. March 2025 alone witnessed Rs.259.3 billion in SIP flows, compared with Rs.192.7 billion in March 2024. For the full fiscal, SIP collections touched Rs.2.9 trillion versus Rs.2.0 trillion in FY24. In addition, direct retail participation in the cash market added another Rs.1.3 trillion of net investments. This steady flow of longterm retail capital has played a crucial role in cushioning volatility and reflects a maturing investor base increasingly committed to wealth creation through financial markets.

IPO Market: Scaling New Highs

Indias primary markets also scaled historic milestones in FY25, positioning the country as Asias most active IPO destination, surpassing China. According to NSE Market Pulse, IPO fundraising more than doubled to Rs.1.7 trillion from Rs.0.7 trillion in FY24. This surge was supported by sound corporate fundamentals, regulatory clarity, favourable macro conditions, and rising retail enthusiasm. The trend underscores a clear reallocation of household savings from traditional avenues toward market-linked opportunities. Digital platforms have been instrumental in enabling this shift by simplifying access and broadening investor reach.

Outlook

With Indias economy formalising at scale, rising per capita incomes, and an expanding investor base, the capital markets are poised to play an even greater role in mobilising domestic savings for productive use. While global uncertainties and policy shifts may periodically trigger volatility, the structural drivers of financial democratisation, retail participation, and regulatory robustness position Indias markets firmly on a long-term growth trajectory.

Key Shifts Shaping Indian Equities

From Saving to Investing

Indian households are undergoing a profound behavioural shift - from a preference for traditional savings to active participation in capital markets. Over the last five years, net inflows by individual investors into the cash segment have crossed Rs.4.5 trillion, with FY25 alone contributing nearly 27.5% of that figure. This transition has been instrumental in wealth creation, with household financial wealth expanding by over Rs.40 trillion (US$459 billion) during the same period (Economic Survey 2025).

As a result, the equity market has become more broad-based and inclusive. By December 2024, individual investors - directly and through mutual funds - held 18.2% ownership in NSE-listed companies, surpassing Foreign Portfolio Investors (FPIs) for the first time (SEBI, 2024). This marks a turning point in the Indian capital markets, underscoring the growing power of domestic capital.

Indias IPO Leadership

FY25 also stood out as a record year for capital mobilisation, with Rs.4.3 trillion raised through equities. Of this, the primary markets accounted for Rs.4.0 trillion, while secondary offerings added Rs.291 billion. A historic 242 companies listed on the NSE - 79 on the mainboard and 163 on the SME platform - raising Rs.1.7 trillion through IPOs, the highest ever in a single year.

The buoyancy of the IPO market was evident in both volumes and deal sizes, which expanded significantly (32.1% growth in listings and 150% rise in average deal size; NSE, 2025). On the global stage too, India strengthened its position, accounting for 30% of all IPOs in 2024, up from 17% in 2023 (EY Global IPO Trends). This stellar performance reaffirmed Indias capital markets as a preferred platform for both domestic and international capital raising.

Reinforcing Stability Through Regulation

The democratisation of markets, powered by technology and younger investors, has created a deeper and more vibrant ecosystem. At the same time, it has introduced new challenges in investor behaviour and risk management. In response, the Securities and Exchange Board of India (SEBI) continued to strengthen its regulatory framework in FY25, with an emphasis on investor protection, market discipline, and financial literacy. These measures are critical to building a stable, transparent, and resilient marketplace as Indias investor base expands.

Investor Base Expands at Record Pace

FY25 witnessed an extraordinary surge in new investors. A record 41.1 million demat accounts were opened during the year - representing 27% of the March 2024 base. The number of unique investors on the NSE (linked to PAN) reached 112.8 million by March 2025, with 21.2 million new entrants in a single year, the highest ever. Active client participation also rose strongly, with 8.4 million net additions, taking the total to 49.2 million.

Technology adoption, user-friendly digital platforms, and widespread internet penetration have enabled millions of first-time investors to access equities. What was once the preserve of a select few is now a mainstream path to wealth creation across urban, semi-urban, and rural India.

Market Capitalisation and Wealth Creation

Indias market capitalisation has seen a multi-fold rise over the past decade, increasing from Rs.99.3 trillion in 2015 to more than Rs.410.9 trillion in 2025. This fourfold increase reflects not just corporate expansion but also the deepening role of equity ownership in household wealth creation. Retail participation through SIPs, growing interest in IPOs, and easier digital access have expanded the equity culture to smaller towns and cities. The shift of household savings into financial assets is positioning equities as a central pillar of long-term financial security for Indias growing middle class.

Domestic Capital Takes Centre Stage

By December 2024, the collective share of Indian households in listed companies had caught up with, and in some cases exceeded, FPI holdings. This transition underscores a structural resilience in Indian equities: even as global investors reassess allocations, steady domestic inflows provide stability and reduce vulnerability to external shocks.

Looking Ahead: The Future of Investing

The surge in participation during FY25 is not a short-term trend but part of a structural evolution. Rising per capita income, higher financial literacy, and technology-led innovation are expanding access to markets. FinTech platforms are reshaping the investing experience, making equity markets accessible to millions of firsttime investors.

This shift is positioning India uniquely in the global financial system. With a broad and resilient investor base, strong regulatory guardrails, and an expanding economy, Indias capital markets are well placed to drive inclusive wealth creation and strengthen the countrys financial leadership in the years ahead.

ASSET MANAGEMENT & WEALTH MANAGEMENT INDUSTRY

Strong Industry Momentum

FY25 was a defining year for Indias asset and wealth management industry, supported by favourable macroeconomic conditions, rising financialization of household savings, and rapid digital adoption. As investors increasingly shift from physical assets like real estate and gold towards financial instruments, the demand for professional wealth and asset management solutions is growing at an unprecedented pace.

The expansion of Indias economy has catalysed wealth creation across multiple strata of society. New segments of affluent millennials, first-generation entrepreneurs, and rising professionals are actively engaging with modern investment products, reshaping the traditional investment landscape. Wealth transfer between generations, greater risk appetite, and a preference for diversified portfolios are driving adoption of equities, mutual funds, portfolio management services, and alternative investment avenues.

At the same time, regulatory initiatives such as the accredited investor framework are enabling broader participation and fostering innovation, creating a more inclusive and resilient financial ecosystem.

Wealth Management: Scale, Strategy and Digital Reach

According to Deloitte India, the organised wealth management industry managed ~US$0.7 trillion in assets as of FY25, while nearly US$0.4 trillion continued to remain self-directed, highlighting significant scope for formal players to scale. The overall wealth management industry in India is projected to more than double, reaching US$2.3 trillion by FY29 from US$1.1 trillion in FY24.

This growth is underpinned by three powerful forces:

• Rising Affluence - The HNI and UHNI population is growing at a 12% CAGR, driven by equity market buoyancy and income growth.

• Household Financialisation - Household financial assets are expected to touch US$6 trillion by 2028, with managed investments projected to form nearly three-quarters of GDP by FY27.

• Technology Integration - WealthTech platforms, AI-driven advisory tools, and robo-advisors are expanding access beyond metros into underpenetrated regions.

Multi-product wealth managers continue to cater to the sophisticated needs of HNIs and UHNIs with PMS, AIFs, succession planning, and global investment opportunities. Meanwhile, digital platforms are enabling retail and mass-affluent investors in Tier 2 and Tier 3 cities to access world-class advisory and investment products. Firms that combine product depth with seamless digital experiences are likely to emerge as long-term market leaders.

Asset Management: Mutual Funds as a Growth Engine

The Indian mutual fund industry has emerged as a key pillar of wealth creation. Industry AAUM grew from Rs.22.3 trillion in March 2020 to Rs.66.7 trillion by March 2025, recording a robust CAGR of 24.5%. Systematic Investment Plans (SIPs) have become the preferred channel for retail investors, with monthly inflows rising to Rs.259.3 billion in March 2025, up from Rs.91.8 billion in March 2021.

Despite this rapid expansion, penetration remains low — with only ~54 million unique mutual fund investors, covering less than 4% of the population, compared to more than 50% participation in developed markets such as the US. This underlines the significant untapped potential for future growth.

Key trends shaping the asset management industry include:

• Shift towards passive investing - Share of passive funds rose from 9.6% of industry AAUM in 2021 to 16.3% in 2025.

• Rising adoption of direct plans - Direct plans accounted for 47% of AAUM in March 2025, up from 45.4% in 2021, reflecting investor focus on cost efficiency.

• Geographic diversification - Increased inflows from B30 (beyond top 30) cities, signalling a deeper penetration of financial products in smaller towns.

• Digital transformation - Nearly 60% of mutual fund transactions are now executed digitally, compared to 45% in FY13, highlighting the structural shift in investor behaviour.

The industrys future growth will be shaped by its ability to deliver frictionless onboarding, hyperlocal investor engagement, and tailored products across segments. Affordable, transparent, and technology-enabled solutions will be pivotal in expanding financial inclusion and empowering investors.

The New Drivers of Indias Wealth Landscape

Rise of HNIs and UHNIs

A growing pool of high-net-worth and ultra-high-net-worth individuals is reshaping investment strategies. Increasingly, these investors are moving away from traditional asset classes and demanding sophisticated, global, and diversified portfolio management services. Their growing influence is catalysing the evolution of Indias wealth management sector into one that is more customised, globalised, and innovation-led.

Tier 2 & Tier 3 Cities as New Wealth Hubs

Beyond metros, smaller cities are rapidly emerging as vibrant centres of wealth creation. The growth of MSMEs, robust entrepreneurial ecosystems, improving infrastructure, and rising disposable incomes are creating new pockets of affluence. These regions are not only contributing to consumption growth but also becoming critical markets for financial services penetration.

Technology as a Catalyst

Digital platforms, AI-driven advisory tools, and robo-investing solutions are revolutionising the way Indians access and manage wealth. These platforms are breaking down traditional entry barriers, enabling participation from investors across geographies, while offering hyper-personalised solutions and real-time portfolio tracking.

Outlook

Indias wealth and asset management industry is entering a transformative era. Rising affluence, expanding financial literacy, deeper penetration in smaller cities, and technology-driven democratisation of access are expected to drive the next wave of growth. As India transitions from financial inclusion to financial empowerment, the industry will play a central role in shaping longterm wealth creation, inclusive growth, and global competitiveness.

AN OVERVIEW OF KHANDWALA SECURITIES LIMITED

Khandwala Securities Limiteds equity shares are listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The way to understand the activities of the Company is to analyse the business it carries out. It may be noted that the Company is focused on financial services as its core business area. Various businesses in the Company are divided in four segments. These are: Investment banking business comprising Capital Raising, M&A Advisory, Domestic IPOs, Private Equity placements, Corporate finance advisory, Restructuring, FCCBs and GDRs; Institutional Equities business comprising institutional equity sales, execution, research; Broking and Distribution business comprising non-institutional equity sales, trading, research, broking and distribution, depository participant ship; Investment Advisory business comprising private and corporate wealth management, portfolio management.

Various operating businesses are carried out by having independent teams and regulatory licenses. Our Company wide clients include public and private sector corporations, multinational corporations, financial institutions, institutional investors -both domestic and global, high net-worth individuals and retail investors as well as market intermediaries.

Financial Highlights:

The salient features of the Companys performance:-

Total Revenues of Rs.1,512.96 Lakhs

Net Loss of Rs 79.92 Lakhs

Earnings Per Share (EPS) of Rs. (0.52)

Segment Highlights - FY25 over FY24 & FY23:

(INR In Lakhs)

Segment	FY25	FY24	FY23
Brokerage	435.52	465.11	304.47
Corporate Advisory Services	486.18	352.06	317.92
Income from Capital Market Operations	32.23	34.53	4.06
Others	559.03	18.39	22.19
Total Income	1,512.96	870.09	648.63

Broking Business:

The Brokerage services of your Company include equity and debt broking and are supported by a strong research platform.

Income received for brokerage services had accounted for approximately 28.79% of our total revenues at Rs.1,512.96 Lakhs for the year ended March 31,2025.

Private Client Broking business:

Our private client broking services are targeted at High Net worth Individuals (HNIs) who actively invest and trade in equity markets and seek priority service with Bloomberg research and advisory support. Our approach is to provide advisory-based brokerage services with a strong emphasis on research, and to offer our clients value-added services usually reserved for institutional clients.

KSL with its concentrated efforts in equity broking business, and as future strategy to build high volumes and revenues could successfully add a good number of Trading Accounts for various segments (Cash, Whole-sale Debt Market, Future & Option) during 1^st April 2024 to 31^st March 2025.

Institutional Equities business:

Equity and derivatives brokerage business of the Company contributed 28.79% of the consolidated revenue during this financial year. The Companys revenue of Rs. 1,512.96 lakhs for the year showed a increase of 73.89% over the previous year corresponding to a comparable increase in volume. However it is encouraging to note that we marginally increased our market share. The number of clients who traded and the number of transactions were also good.

The institutional equities business comprises institutional equity sales, sales- trading and research. We differentiate ourselves based on our cutting-edge research focus, which aids our execution capabilities across our sales and trading platforms. We provide equity and derivatives sales and trading services to a large and diversified base of institutional investors, including FIIs and domestic institutional investors. At present, we have more than over 10 institutional investors actively transacting with us on a continuous basis.

The category wise contribution from the Institutional Dealing Desk to our revenues has been mentioned in the table below which shows a decrease of 30.48% during the FY 2025 over previous FY 2024.

Category	Brokerage Revenue during FY 24-25	Brokerage Revenue during FY 23-24	Brokerage Revenue during FY 22-23
MF	-	-	-
INS	-	-	2,33,765.02
BANKS	3,16,340.00	3,06,248.62	1,75,185.15
CORP (Including FPI)	11,29,426.00	1,07,71,790.03	30,61,492.68
Total	14,45,766.00	1,10,78,038.65	34,70,442.85

Investment banking business:

The equity capital markets team focuses on structuring and executing diverse equity capital raising transactions in the public and private markets for our clients. Products in this segment include IPOs, follow-on offerings, rights offerings, private placement, ADR offerings, GDR offerings, QIP transactions and convertible offerings, etc. for both listed and unlisted entities.

As an Investment Banking firm, it has always been our endeavor to structure and put together transaction structures that build long term, sustainable value for both the borrower and lender of funds in the equity markets. This approach, though having proved its importance during the stages of market tightness, has been somewhat considered as a weakness by industry participants, resulting in us not being able to successfully convince Bloomberg on its benefits. This has led to situations wherein KSL has had to either withdraw from certain mandates or had to face resistance from Indian Corporates in awarding their fund raising mandates to us from the secondary markets. This is despite the management of these corporate houses acknowledging the deep knowledge and understanding of the micro and macro economy factors including the future growth prospects in specific industry, and the sustainable long term valuation parameters.

We always believe that in order for market to value and reward its participants, it is important for both the Promoter Groups and the Merchant Bankers to design appropriate and sustainable valuation models such that it remains consistent with the overall corporate performance and at the same point in time is able to ride both the good and the bad times.

Investment Baking and Advisory Group is putting their best endeavors on reviving some of the lost or delayed transactions, and are confident that in improved market sentiment same can be executed efficiently.

Portfolio Management Services:

The Portfolio Management Segment is bound to grow and offer immense business potential for financial advisory services. The NRI community is the key market segment. Successful NRI business owners and professionals are of great interest to Portfolio management institutions. KSL has identified this rapidly growing segments need for specific products and services and has created practice models and advisory teams that specialize in servicing NRIs. Our service offerings include providing HNIs with investment advisory, planning and asset deployment advice, asset allocation and the distribution of a wide range of products. Our primary focus is on understanding each clients financial profile, including tolerance for risk, capital growth expectations, and current financial position and income requirements in order to create comprehensive and tailored investment strategies. Our Portfolio Management services have increased our clients access to and use of our financial products and services

Your Company is confident of garnering much larger assets under management through the PMS division compared to last year and would be able to clearly demonstrate its core expertise to maximize the value under PMS, even during adverse market situation.

Market Research:

Our institutional equities business is supported by an experienced and dedicated team of analysts in fundamental, technical and alternative investment research. Our research initiatives are driven by committed professionals, management graduates, Chartered Accountants and Engineers having combined experience of several decades.

Besides conventional tools, including quantitative analytical techniques and models to identify short and medium-term investment opportunities; Our research team maintains an updated database on, and tracks regularly, various factors impacting economy, industry and companies. The trends are analyzed using data both on macro and micro level.

Various research products such as Market Today, Market Weekly, Market Technicals, India Strategy, Model Portfolio, Eco Update, In Sight, Company/Sector reports/updates and others are sent to esteemed clients on a regular basis. These reports are supplemented by day-to-day market information by way of market alerts and impact analysis. Strength of our research capability lies in our ability to identify emerging investment themes and spot winners ahead of time.

Our research reports, widely acknowledged by domestic and international print and electronic media, are rated among the leading domestic brokerage houses and have earned royalties from international data services providers in foreign exchange.

Our Intelligent Research Reports are accessible on globally acknowledged and marquee websites such as Bloomberg. net, thomsonreuters.com, 1call.com, moneycontrol.com, securities. com, valuenotes.com, capitaliq.com

Our research reports are highly recognized by international investors community including leading Foreign Institutional Investors, global central banks, multi- lateral development agencies and independent multi-strategy funds. Some of the research reports, apart from being widely acclaimed, have been ranked among the best by international financial information providers such as Thomson- Reuters and Bloomberg.

OPPORTUNITIES AND THREATS

The following factors present specific opportunities across our businesses:

• Expected GDP growth coupled with reforms push by the government relating to project approvals, land acquisition, mining, and infrastructure will lead to huge investments by both the public and private sector companies. There will be large capital requirement to fund these investments which will present opportunities for investment banking and advisory business;

• Fall in global commodity prices will reinvigorate private consumption demand and lead to capacity expansion by the industry;

• Corporates are looking at expanding in domestic as well as overseas markets through mergers & acquisitions which offer opportunities for the corporate advisory business.

• Growing mid-size segment of corporates where the need for customized solutions is particularly high will present opportunities for our advisory businesses;

• With increase in the income levels, change in attitude from wealth protection to wealth creation and risk taking abilities of the youth, there is also a huge market opportunity for wealth management service providers.

• Improved sentiments in the secondary markets will also enhance the participation of investors across segments thereby helping the prospects of equity brokerage business. We expect economic activity to pick up from grass root levels presenting opportunities in both lending and asset reconstruction business.

Despite the above opportunities, our performance could be affected by following perceived threats to our businesses:

• Impact of abnormal monsoon, rising fiscal deficit, sustained high interest rates and high inflation;

• Geopolitical tensions across the globe;

• Regulatory changes impacting the landscape of business;

• Increased intensity of competition from players across the segment/ industry;

• Attrition of employees caused by strong demand from ever increasing number of market participants;

• Continuous downward pressure on the fees, commissions and brokerages caused by heightened competition and willingness of most players to deliver services at very low fees;

• Entry of corporate heavy weights and global players in the lending business. Given their capital strength as well as access to cheaper source of capital will increase pressure on us to remain competitive and impact margins.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Our research reports are highly recognized by international investors community including leading foreign institutional investors, global central banks, multi- lateral development agencies and independent multi-strategy funds. Some of the research reports, apart from being widely acclaimed, have been ranked among the best by international financial information providers such as Thomson- Reuters and Bloomberg.

We maintain adequate internal control systems commensurate with the nature of business, size and complexity of its operations. We have well-established processes, guidelines and procedures to augment the internal controls. This, coupled with adequate internal information systems ensures proper information flow for the decision-making process. Adherence to these processes is ensured through frequent internal audits. The internal control system is designed to ensure maintenance of proper accounting controls, monitoring of operations, protection and conservation of assets and compliances with applicable laws and regulations.

These controls ensure that financial and other records are reliable for preparing financial statements and other information. An extensive programme of internal audit is conducted by an independent firm and reviewed by the Audit Committee. Internal audit also evaluates and suggests improvement in effectiveness of risk management, control and governance process. All our operating subsidiaries are subject to internal audits to assess and improve the effectiveness of risk management, control and governance process. These procedures ensure that all transactions are properly reported and classified in the financial records.

The Audit Committee of Board provides necessary oversight and directions to the internal audit function and periodically review the findings and ensures corrective measures are taken keeping in mind the organizations requirements, growth prospects and ever evolving business environment. This system enables us to capture a precise reflection of the organizations position at all times and also facilitates timely detection and plugging of anomalies by various business groups. We also address any issues identified by regulatory inspection teams very diligently and report the same to the Board of Directors and the regulators.

RISK CONCERNS AND RISK MANAGEMENT

The Risk Management Function is overseen by the Audit Committee. Risk Management Policies are designed after discussion with various constituents and experts. In a business where prices and realities change every instant, it is imperative for KSL to operate within a broadly de-risked business model that protects stakeholder interests on the one hand and facilitates growth on the other.

Therefore, the concept of real-time risk mitigation management is integrated within the Companys existing business strategy. It is integrated into the Companys strategic and operational decision making process; it is ingrained in the organizational mindset; it pervades all organizational tiers, roles and functions.

KSLs effective risk management is guided by an understanding of the various parameters that can have a bearing on its business and profitability:

• External: These comprise risks that the Company faces but cannot control - industry slowdown, competition, regulatory changes, brand perception etc.

• Internal: These comprise risks that the Company can directly control through prudent strategy - costs, liquidity, technology, operations, people etc.

KSL controls client risk through a prudent categorization of clients as per their financial depth. This helps circumscribe their trading limits, leading to effective risk management. KSL monitors a clients trading pattern in addition to keeping a continuous vigil on positions, balances and margins. This provides an understanding of a clients trading pattern in terms of nature of transactions, trading, investments, F&O types of scrips, etc. to detect any undesirable or prohibited practices. Based on this, remedial actions are initiated whenever required. This ensures strict regulatory compliance.

Industry Risk

KSL is primarily engaged in the business of financial services. Any slowdown in the countrys economy or financial sector as well as any changes in interest rates, political climate or regulatory changes could affect the Companys prospects. Further the capital market is always exposed to the cyclical risk of upswing and downturns, which in turn depend on the overall economical growth of the country.

Management Perception

KSLs presence in multiple product segments also serves as a natural hedge against a downturn in any particular sector. For instance, the Companys presence in the relatively volatile equity segment is balanced by its presence in the relatively stable insurance, mutual funds and fixed interest- bearing debt instruments. Your Company has broadly three major revenue generation department viz. Broking division, Corporate Advisory Division and Capital Market Operation. The total revenue generated by the company during the year shows the overall performance of all the departments jointly and doesnt depend on any single segment of revenue.

Liquidity Risk

In the event of clients not honoring their financial commitments following an unexpected market movement, the Companys cash flow could be significantly affected.

KSL has exercised prudence in client selection and credit extension. For instance, the Companys internal audit team ascertains client credentials before they are permitted to trade.

Management Perception

As a corporate policy, it is endeavor to constantly monitor the margin payments and settlements of our customers on a continuous basis. Our ability to understand the financial track record of each of our customers provides us with a judgment and direction on the margin calls to be issued as also calling for pre- payments if need be in cases of exigencies. This approach we believe gives the Company the required flexibility in managing the liquidity risk across multiple categories and types of customer profiles. This assumes that at KSL we follow an independent and customer centric risk management exercise thereby ensuring timely interventions to significantly reduce potential liquidity risks.

Economic Risk

A slowdown in economic growth in India could cause the business of the Company to suffer. While the Indian economy has shown sustained growth over the last several years, the growth in industrial production has been variable. Any slowdown in the Indian economy, and in particular in the demand for housing and infrastructure, could adversely affect the Companys business. Similarly, any sustained volatility in global commodity prices, including a significant increase in the prices of oil and petroleum products, could once again spark off a new inflationary cycle, thereby curtailing the purchasing power of the consumers.

Management Perception

The Company manages these risks by maintaining a conservative financial profile and following prudent business and risk management practices.

Human Resource Risk

Human Resources represent the companys principal asset in a knowledge-led business, where any attrition or skill obsolescence could lead to a weaker industry position.

Management Perception

Your Company has consciously made the transition from a family based organization into a professionally managed one, accompanied by delegation of responsibilities for intellectual growth. Over the years, your company has invested in the human resource by providing timely training, various seminars on personal development etc. The free work environment provided by the Company has also resulted in to low attrition of manpower.

Client Risk

In the financial industry the company depends on a few bigger corporate and institutional clients from where majority of the revenue is generated.

Regulatory Risk

The Companys presence in a variety of financial segments warrants an ongoing compliance with the evolving requirements of their various regulators. Any violation or transgression could invite censure, affecting the Companys brand.

Management Perception

Your Company enjoys strong long term relationship with its clients. However, as a good Risk Management practice, the company has never relied upon particular client base and hence not exposed to such risk. During the year under review company has added new institutional client from where regular business is generated. It is your companys constant endeavor to search for new area of business and clients.

KSL takes its compliance commitment seriously, recognizing that the business must not only serve the interest of the customer but also function well within the established guidelines of the various regulatory authorities for responsible and profitable growth. At KSL, the compliance discipline extends across the entire transaction cycle, client identification, KYC process transaction execution, transaction settlement involving securities and funds transfer. The compliance requirements across the various service points have been communicated comprehensively to branch through compliance manuals, leading to uniformity, quality, priority and discipline

Human Resources

Your company considers its human resource as the most valuable asset and, recognizing this, devotes a considerable development of its employees in various traits, apart from job related skills:

• Employee satisfaction survey was carried out along with various seminars by the HR department of the Company to understand the employees and help them to perform in the most efficient manner. Feedbacks were received during such sessions and corrective actions have been initiated;

• Communication meeting is being organized once in a quarter to apprise all the employees on the major development on various fronts such as market, deals stroked etc;

• Your company had recruited Management Trainees during the year and they were given specific job assignments in the research department. This has helped your company to establish goodwill with local management schools and prepare future prospects for employment.