Modex International Securities Ltd Management Discussions.

The Board of Directors of the Company have pleasure in presenting the Management Discussion and Analysis Report in adherence to the spirit enunciated in the Securities and Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended from to time.

GLOBAL ECONOMIC OVERVIEW

Global economic growth in 2018 at 3.6% was slightly slower than that in 2017 at 3.8%. The slight deceleration in growth is attributable to demand slowdown in the second half of the year coupled with trade tensions mounting between US and China, weak manufacturing, poor financial market conditions, subdued business confidence and policy paralysis across many economies.

As per the World Economic Outlook Report - April 2019, world economic growth is expected to further decelerate to 3.3% in 2019, before recovering again to 3.6% in 2020. Advanced economies are expected to register slower growth in 2019 at 1.8% which is expected to further slow down to 1.7% in 2020. Emerging markets growth is expected to slow down to 4.4% in 2019, and pick up pace in 2020 to 4.8%. Slowing external demand, rising borrowing costs, and persistent policy uncertainties are the primary reasons for slowing growth.

Indias economic growth is expected to pick up in 2019, benefiting from lower oil prices and a slower pace of monetary tightening, as inflation pressures ease.

INDIAN ECONOMIC OVERVIEW

As per the Central Statistics Offices (CSO) provisional estimates, Indias Gross Domestic Product (GDP) is estimated to grow by 6.8% in 2018-19, a tad slower than 7.2% growth of 2017-18. However, consumer demand picked pace and the economy is coming back on track after the temporary disruptions caused by demonetization and GST implementation. Demand revival is well reflected in 7.4% growth in financial, real estate and professional services industry and 6.9% growth in manufacturing in 2018-19.

The Indian economy maintains the fast growth route, emerging as the fastest growing major economy in the world. India witnessed a 23-notch jump to record 77th position in the World Banks 2019 report on the ease of doing business. IMF has projected growth to pick up to 7.3% in 2019-20 and 7.5% in 2020-21, supported by the continued implementation of structural reforms, easing of infrastructure bottlenecks and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy.

INDUSTRY OVERVIEW

The financial year 2018-2019 was a volatile year for equity markets. During the financial year under review, Nifty was up 15% (vs. 10% in financial year 2017-2018), despite the turbulence seen in the middle of the year.

India continues to be one of the fastest growing major economies in the world and is expected to be among the worlds top three economic powers in the next 10-15 years. The Indian economy is expected to improve and close the year 2019 with a GDP growth of 7.3%.

Major stock markets around the world ended in losses in 2018 as compared to a year ago, except the Indian markets.

Capital Market

Capital markets play an important role in mobilizing financial resources and their allocation towards productive projects and channels. The size of the capital market in India continued to expand during 2018-19, with the market capitalization rising by 6.3% to Rs. 151 Lakh Crores. In 2018-19, the Indian capital market outperformed several major global markets, including US, UK, China and Brazil, with double-digit returns despite numerous global and domestic headwinds.

Capital markets help mobilize savings, accelerate capital formation and offer investment opportunities for the public, acting as an effective economic barometer.

Equity Market

The Indian market benchmark indices showed remarkable performance in 2018-19, with BSEs Sensex growing 17.3% and NSEs Nifty growing at 14.9%. This is much better than the equity market returns recorded in the US at 7.6%, UK at 3.2%, China at negative 2.5%, Brazil at 11.8%, Japan at negative 1.2%, South Korea at negative 12.5% and Hong Kong at negative 3.5%. Indias equity market turnover (including F&O) for 2018-19 stood at Rs. 22,581,720 Crores, increasing by 25% over the previous financial year.

OPPORTUNITIES AND THREATS

The Company closely monitors the potential opportunities and threats that arise from political, economic and regulatory environment, exchange rate fluctuations, technology changes and competition.

Indias household savings rate stands at around 20% of the GDP, which translates to about Rs. 30 Lakh Crores. With regulatory tightening, investors are moving away from physical assets such as gold and real estate to financial assets. Indians are increasingly becoming tech savvy and this trend will further lead to more growth in the digital financial services.

Indias per capita national income is set to grow at 8.19% in 2019-20. Increased income is expected to boost investments in capital market.

As macro headwinds of 2018 appear to be turning into tailwinds, the outlook for fixed income in 2019 appears bright. Corporate earnings are also expected to stabilize in 2019 with demonetization and GST turbulence having settled.

Though, the Company is optimistic about its future in the financial services industry but also understands and perceives certain threats as well.

The intensity of competition in capital market has increased and the fluctuations in the equity markets have made investors think twice before put in their hard earned money. Cyber insecurity continues to be a threat to growth in the digital financial services. Further, uncertainty in the capital markets, owing to slow implementation of regulatory reforms and lack of consensus on important legislations can delay growth.

COMPANY PERFORMANCE

The Company has over two decades of rich experience in the Indian Equity Market and in past few years has made substantial investments in people and technology and continues to focus on delivering steady performance. The Company is cognizant of the changes in the financial services sector and has always been well-prepared to overcome challenges and sustain its performance.

The Company seeks to further strengthen its position as a stock broking company by successfully differentiating service offerings and increasing the scale of operations. To achieve these goals, it seeks to increase business from existing and new clients. The aim is to build enduring relationships with both existing and new clients.

SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE

The Company is primarily engaged in the business of stock and share brokerage and its allied matters and as such there are no separate reportable segments.

FINANCIAL PERFORMANCE

Over the last 25 years, the Company has experienced various phases in its journey.

Net Worth:

Net Worth on consolidated basis for the financial year under review was Rs. 150,488,660 as compared to Rs. 141,074,964 for the previous financial year resulting in a growth of 6.67%.

Net Worth on standalone basis for the financial year under review was Rs. 130,892,248 as compared to Rs. 128,731,316 for the previous financial year resulting in a growth of 1.67%.

Income:

Total Income on consolidated basis for the financial year under review was Rs. 248,216,076 as compared to Rs. 256,089,194 for the previous financial year resulting in a decline of 3.17%.

Total Income on standalone basis for the financial year under review was Rs. 211,482,613 as compared to Rs. 245,896,154 for the previous financial year resulting in a growth of 16.27%.

Expenditure:

Total expenses on consolidated basis for the financial year under review was Rs. 233,353,146 as compared to Rs. 249,975,395 for the previous financial year resulting in a positive decline of 6.64%.

Total expenses on standalone basis for the financial year under review was Rs. 206,423,219 as compared to Rs. 239,332,176 for the previous financial year resulting in a positive decline of 15.94%.

Profit after taxes:

Profit after taxes on consolidated basis for the financial year under review was Rs. 12,791,625 as compared to Rs. 6,944,418 for the previous financial year resulting in a growth of 84.20%.

Profit after taxes on standalone basis for the financial year under review was Rs. 5,538,860 as compared to Rs. 7,435,672 for the previous financial year resulting in a decline of 34.24%.

RISKS AND CONCERNS

Since the Company operates in the financial service sector, it is governed by several rules and regulations by various governing bodies. Non-compliance or misinterpretation may lead to inadequate observance. Also, the Company needs to be prepared to follow any new rules introduced or modifications brought about in existing laws. The Company prioritizes compliance with any new guidelines, circulars and notifications.

The financial services of the Company are exposed to various risks that are either inherent to the business or exposed to the changes in external environment.

Operational risks may result from inadequate control of internal processes, people and systems. External factors also pose a threat to business operations. Changes in consumer preference may pose risk to financial earnings.

Redundancy in technology used or lack of proper technological support may pose risk to business growth. The Company keeps itself sufficiently invested in latest hardware and software to meet the requirements of diversified teams. Continuous efforts to upgrade Information Technology (IT) systems help the Company to avoid any technology-related risk.

The Company is exposed to risk arising out of its major strategic moves and the likelihood of replication by competitors. High growth prospects of the industry make it lucrative for new entrants both from domestic as well as international players.

The Company has a robust risk management framework to identify, monitor and minimize risk and also identify business opportunities.

INTERNAL CONTROLS

The internal control systems are designed to safeguard the Companys assets and ensure efficient productivity at all levels. The systems are adequate for the size of business and industry in which it operates. Well-defined processes, guidelines and procedures and adequate internal information systems enable the Company to enhance the internal controls. Decision-making is made easier due to proper information flow. Periodic and frequent audits ensure strict adherence to the set procedures and processes. Internal controls also ensure strict adherence to applicable laws and regulations.

The Audit Committee of the Board keeps a close eye on business operations and functioning of the internal audit function. The internal controls facilitate prompt detection and redressal of deviation(s), if any, in the business operations. The Company believes that these systems provide reasonable assurance that the Companys internal financial controls are designed effectively and are operating as intended.

HUMAN RESOURCES

The Company considers human capital to be a key pillar of growth. Its skilled and professional management team is a strong driving force. The Company ensures a safe, conducive and productive work environment. The aim is to minimize attrition of technologically driven and high performers, especially amidst the rapidly-evolving business environment.

Over a period it has developed a strong culture of transparency through constant employee communication and has developed strong performance management practices, wherein, best in class reward and recognition systems are deployed. The Company has also set up a scalable recruitment and human resources management process which enables us to attract and retain high caliber employees. The Company has invested into training and learning and development of employees on a regular basis through Management Development Programs, online exams and certification courses.

RETURN ON NETWORTH

Return on Networth (RONW) or Return on Equity (ROE) is computed on the basis of Net Income and the Shareholders Equity.

Net Income i.e. Profit after taxes on consolidated basis for the financial year under review was Rs. 12,791,625 as compared to Rs. 6,944,418 for the previous financial year. Shareholders Equity on consolidated basis for the financial year under review was Rs. 150,488,660 as compared to Rs. 141,074,964 for the previous financial year resulting in the increase of 4% in RONW/ROE.

Net Income i.e. Profit after taxes on standalone basis for the financial year under review was Rs. 5,538,860 as compared to Rs. 7,435,672 for the previous financial year. Shareholders Equity on standalone basis for the financial year under review was Rs. 130,892,248 as compared to Rs. 128,731,316 for the previous financial year resulting in the decline of 2% in RONW/ROE.

CAUTIONARY STATEMENT

Statements in this report describe the Companys objectives, projections, estimates, expectations and predictions, which are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause assumptions, actual future results and events to differ materially from those expressed in the forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, on the basis of any subsequent development, information or events or otherwise. These statements dont guarantee future performance and are subject to known and unknown risks, uncertainties and other factors such as change in the government regulations, tax laws, economic conditions and other incidental factors.