A) GLOBAL ECONOMY
In recent years, the world has faced waves of challenges, from the pandemic to the
invasion of Ukraine, to the unfolding bank liquidity challenges amidst skittish
depositors. The impact of such a lengthy period of uncertainty is being felt by everyone.
How we get back to sustainable, long-term growth is the big question facing board rooms
and political chambers around the world right now. The actions taken over the coming
months are likely to play a significant role in the pace and nature of the worlds
economic recovery.
The World Economic Situation and Prospects 2023 presents a gloomy and uncertain
economic outlook for the near term. A series of severe and mutually reinforcing shocks
— the COVID-19 pandemic, the war in Ukraine and resulting food and energy crises,
surging inflation, debt tightening, as well as the climate emergency battered the world
economy in 2022.
The IMF said in its latest World Economic Outlook report that banking system contagion
risks were contained by strong policy actions after the failures of two U.S. regional
banks and the forced merger of Credit Suisse. But the turmoil added another layer of
uncertainty on top of stubbornly high inflation and spill overs from Russias war in
Ukraine. With the recent increase in financial market volatility, the fog around the world
economic outlook has thickened. Uncertainty is high and the balance of risks has shifted
firmly to the downside
As per the report of OECD Interim Economic Outlook, March 2023, Global growth is
projected to remain at below trend rates in 2023 and 2024, at 2.6% and 2.9% respectively,
with policy tightening continuing to take effect. Nonetheless, a gradual improvement is
projected through 2023-24 as the drag on incomes from high inflation recedes.
B) GLOBAL OUTLOOK
Already, the global economy was grappling with the consequences of high and persistent
inflation, the rapid rise in interest rates to fight it, elevated debt levels and Russias
war in Ukraine. But a crisis in the banking sector that emerged early this year has
changed the calculus of the financial sector. Financial stability risks have increased
rapidly as the resilience of the global financial system has faced a number of tests.
Recent turmoil in the banking sector is a powerful reminder of the challenges posed by the
interaction between tightermonetaryandfinancialconditions and the buildup in
vulnerabilities since the global financial crisis.
The report on World Economic Outlook, April, 2023, forecast for Global growth is to
fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in
2024. Advanced economies are expected to see an especially pronounced growth slowdown,
from 2.7 percent in 2022 to 1.3 percent in 2023. In a plausible alternative scenario with
further financial sector stress, global growth declines to about 2.5 percent in 2023 with
advanced economy growth falling below 1 percent. Global headline inflation in the baseline
is set to fall from 8.7 percent in 2022 to 7.0 percent in 2023 on the back of lower
commodity prices but underlying (core) inflation is likely to decline more slowly.
Inflations return to target is unlikely before 2025 in most cases.
C) DOMESTIC OUTLOOK
Despite the global slowdown, Indias economic growth rate is stronger than in many peer
economies and reflects relatively robust domestic consumption and lesser dependence on
global demand. The Asian Development Outlook
(ADO) published on April, 2023 projects growth in Indias gross domestic product (GDP)
to moderate to 6.4% in fiscal year (FY) 2023 and rise to 6.7% in FY2024.
The World Bank has revised its FY23/24 GDP forecast to 6.3 percent from 6.6 percent in
December, 2022. Rising borrowing costs and slower income growth will weigh on private
consumption growth. Although headline inflation is elevated, it is projected to decline to
an average of 5.2 percent in FY23/24, amid easing global commodity prices and some
moderation in domestic demand.
(https://www.worldbank.org/en/news/press-release/2023/04/04/indian-economy-continues-to-show-resilience-amid-global-uncertainties)
The Reserve Bank of India has withdrawn accommodative measures to rein in inflation by
hiking the policy interest rate. Indias financial sector also remains strong, buoyed by
improvements in asset quality and robust private-sector growth. The RBIs Monetary Policy
Statement for 2023-24 has projected Real GDP growth for 2023-24 is projected at 6.5%, with
Q1 at 7.8%, Q2 at 6.2%, Q3 at 6.1%, and Q4 at 5.9%. The risks are also evenly balanced.
Factors such as a good rabi crop, buoyancy in contact-intensive services, capital
expenditure, and credit growth are expected to support growth.
D) FINANCE & CAPITAL MARKET
In 2023, NBFCs will play a larger role in supporting the socioeconomic construct of the
Indian economy. The opportunity for credit penetration still remains very high in India.
CRISIL recently reported that riding on macroeconomic tailwinds,
NBFCs are expected to see their AUM grow 11-12% a four-year high to Rs. 13 lakh crore
by the end of this fiscal.
Also, it is heartening to see that the RBI and policymakers recognise the contribution
of NBFCs in supporting real economic activity and meeting the credit demand, especially
reaching the unbanked.
According to ICRAs recent report, in 2023 non-bank lenders will focus on reviving
growth by improving asset quality supported by increasing retail demand and liquidity.
Also, with the introduction of 5G services in the country more NBFCs will tap into
exploring Artificial Intelligence and Machine Learning for offering services or
full-fledged applications
To keep this momentum of growth going in 2023 as well, it is important to address the
key challenges faced by the NBFC sector. One such challenge is the recent revision of
securitisation norms by RBI which state that loans with residual maturity of less than 365
days cannot be securitised. NBFCs will need to concentrate even more on their pricing
power to sustain profitability and also focus on higher-yield categories for expansion in
a climate of rising interest rates and fierce competition from banks.
OPPORTUNITIES, THREATS AND STRATEGIES:
Non-banking finance companies (NBFCs) form an integral part of the Indian financial
ecosystem. By extending the line of secured and unsecured credit to millions of
underbanked and unbanked individuals and businesses across the country, these companies
provide them an opportunity to be a part of the financial mainstream.
Risk is synonym with NBFCs which is inherent part of their business. Your Company is
also subjected to various types of such risks. Your Company has identified these risks and
guarded to reduce the impact of such risks. Few risks listed are as follows:
1. Operational Risk
It arises when the flow of and controls over the operations the continuity of business,
reputation and profitability of the company. The Company has placed internal controls to
mitigate these risks.
2. Credit Risk
It is a risk of default or non-repayment of loan by a borrower which involves monetary
loss to the company, both in terms of principal and interest. The Company does not have
any loans so this is not applicable to our Company.
3. Business Risk
Morarka Finance being a NBFC is exposed to various external risks which have direct
bearing on the sustainability and profitability of the Company. Foremost amongst them are
Industry Risk and Competition Risk.
4. Regulatory Risk
It is the risk of change in laws and regulations materially impacting the business. The
Company takes compliance very seriously & is strict in adherence to various statutory
laws.
5. Human Capital Risk
Human capital risk is the gap between the goals of the organisation and the skills of
its workforce. To mitigate this our company regularly provides training & awareness
programmes to its employees.
6. Cybersecurity Risk
Cybersecurity risk is the probability of exposure or loss resulting from a cyber-attack
or data breach on your organization. To deal with this our Company uses Internal servers
& encryption so that data cannot be tampered with or accessed by any outsider.
Despite concerns surrounding the sector, we believe such NBFCs with robust business
models, strong liquidity mechanism, governance and risk management standards are well
positioned to take advantage of the market opportunity. Hence, it is even more critical
for incumbent and new-to-market NBFCs to define and implement a balanced strategy that
meets table-stakes across essential, core capabilities and differentiates across high
value-adding capabilities. The overall investment philosophy stems from our objective of
delivering superior risk adjusted returns to investors over an extended time frame. The
investment philosophy is rooted in a set of well-established but flexible principles that
relies extensively on fundamental research. It is our belief that over the time, stock
prices will reflect a business underlying intrinsic values and its long-term prospects.
As a result, our near strategy is to arrive at a comprehensive understanding of a
companys business including the nature of its interactions with customers, suppliers,
competitors and regulators. While doing so our strategy is to rely on various earnings
multiples besides analyzing private market value and appropriate regional and global
comparisons. The basic principles that serve as the foundation for the above investment
approach are managing risk, maintain a balanced outlook on the market and focus on the
long term.
BUSINESS & OPERATIONAL OVERVIEW
The company, in current fiscal has made profits of 468.05 lakhs as against profit of
369.25 lakhs for the Previous year. The revenue from the dividend, rental income and
management consultancy fees will be contributing regularly and steadily rather than
dependence on volatile capital market revenue generation.
RISK MANAGEMENT:
Company has formulated a internal risk management framework which lays the procedure
for risk assessment and mitigation. Company manages various risks like financial risk,
operational risk, marketing risk, external risk and regulatory risks associated with the
mortgage business. The critical risks which can significantly impact profitability and
strength are credit risk, interest rate risk and liquidity risk.
INTERNAL CONTROL:
Your company has proper and adequate system of internal control in place to monitor
persistently proper recording of the transactions as per the policies and procedures laid
down by the company. The company ensures that the regulatory guidelines are duly complied
with at all the levels. The internal audit reports are regularly monitored by the Audit
Committee.
SEGMENT REPORTING:
The company is a Non-Banking Finance Company, its core business is financial business.
Hence, there are no separate segments for reporting as per Accounting Standards issued by
the Institute of Chartered Accountants of India.
HUMAN RESOURCE AND INDUSTRIAL RELATIONS:
For enhanced performance of any organization, it is important that its human resources
are abreast of new developments and possess relevant skill sets. To realize this, the
emphasis on training and development activities has been increased. Executives were
nominated for various program and seminars at local and national levels by premier
institutes.
CAUTIONARY STATEMENT:
The statements in above analysis, describing the companys projections, estimates,
expectations and predictions may be ‘forward looking statements within the meaning
of applicable security laws and regulations. The actual results may differ from those
expressed or implied. The important factors that may impact the operations of the company
may consist of economic developments - globally and locally, government regulations, tax
regimes and other related factors.
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