Morarka Finance Ltd Management Discussions

A) Global Economy

The global economic environment entering 2026, is expected to remain in a phase of gradual stabilization, following a period of persistent uncertainty and structural adjustments. While global growth is projected to continue, it is likely to remain moderate, reflecting ongoing geopolitical tensions, evolving trade relationships, and tight financial conditions in several economies. However, the evolving conflict in the Middle East weighs on growth and generates significant uncertainty around global demand.

The International Monetary Fund (IMF) earlier projected Global growth at 3.3 percent for 2026 and 3.2 percent for 2027, supported by technology investments and resilient private consumption. However, recent developments—including geopolitical tensions and energy shocks—have led to downside risks, with 2026 growth potentially falling toward ~2.5% in adverse scenarios. Global inflation for 2026 would top 6 per cent in the severe scenario, compared with 4.4 per cent in the most-optimistic reference scenario, which is the assumption for the IMFs country and regional growth forecasts. Deeper, longer conflict would push global economy to brink of recession, IMF says.

The strong trade growth of 2025 appears to have carried into early 2026. However, this positive trend remains fragile. Global trade growth is expected to slow later in 2026, weighed down by persistent trade tensions and rising trade costs. The ongoing conflict in the Middle East are expected to intensify inflationary pressures on an already strained global economy facing geopolitical tensions, policy shifts and limited fiscal space. On the upside, strong global demand for AI- related goods, digital technologies and some green-industry products should remain strong and could help sustain trades overall performance.

The global economy entered the new fiscal year under the continued shadow of a geopolitical shock that has now moved beyond an event to a condition. The IMF has revised global growth for 2026 down to 3.1%, alongside an increase in headline inflation to 4.4%, with downside risks pointing to scenarios closer to 2% growth and 6% inflation.

Financial markets over FY26 reflected this evolving interplay between resilience and disruption. For much of the year, global equities remained supported by steady earnings, disinflation and continued strength in technology-led investment. Developed markets anchored performance, with the MSCI World Index returning 17.4%, while emerging markets outperformed for a large part of the year, delivering 26.9%, led by North Asia. This constructive backdrop reversed sharply in March. The escalation in West Asia, a spike in crude prices and renewed inflation concerns triggered a broad risk-off correction, with emerging markets falling 13.3% in the month—nearly double the decline in developed markets.

The macroeconomic backdrop over FY26 can be characterised by pervasive uncertainty alongside surprising resilience. Global growth held up through much of the year despite elevated trade and policy uncertainty, supported by disinflation, accommodative financial conditions and technology-led investment. Monetary policy globally has correspondingly shifted to a more cautious stance, with easing cycles slowing as central banks navigate the trade-off between supporting growth and containing inflation.

Over the past three decades, global markets have undergone a marked shift in sectoral composition. US markets have seen a pronounced rise in technology dominance, while China has moved away from a real estate-led structure towards a more balanced mix of technology and financials. Japans market structure has remained relatively stable, with gradual diversification.

With slowing global demand, rising trade frictions, and a delicate domestic consumption environment, India deployed a carefully sequenced set of fiscal, monetary, and trade reforms in 2025, that not only cushioned the economy but also laid the foundation for future growth. For India, 2026 will be the year of resilience in domestic demand, decisive reforms in fiscal, monetary, and labour policies, and recalibrations in trade policies.

The International Monetary Fund (IMF) in its World Economic Outlook, April, 2026 Edition, has stated that India is now the worlds sixth-largest economy in nominal GDP terms. The IMF projects Indias growth at 6.5% in 2026 and 2027, ahead of all major economies, while inflation is expected to ease and then stabilise. But the same set of reports also point to a widening current account deficit and mounting external risks tied to the Middle East conflict.

India remains the fastest-growing major economy in the world with an estimated growth of 7.6% in FY26 and is expected to expand by 6.9% in FY27, as per the Reserve Bank of India (RBI), and by 6.5%, according to the IMF. But a combination of two factors—the fast-depreciating currency and the new base year—has changed the size of the nominal GDP, which has impacted its global ranking. Indias macroeconomic performance through this period has remained relatively resilient. Real GDP growth is estimated at 7.6% in FY26, supported by strong private consumption, improving investment and continued strength in services and manufacturing. Policy support was broad-based, including tax rationalisation, monetary easing and liquidity measures, which together helped cushion the economy through both trade-related uncertainty and the later geopolitical shock. A prolonged geopolitical shock, coupled with a below-normal monsoon forecast, could place pressure on both inflation and growth, making the evolution of the growth-inflation balance central to policy. However, RBIs rate cuts in 2025 combined with the expected GST slab rationalisation has effectively reduced tax on goods and services, and this will be pivotal in improving domestic demand, especially in urban areas.

Indias transition has been distinct: from a commodity-led market to one dominated by financials, alongside a declining share of materials and energy. Indias economy and markets have demonstrated an ability to absorb volatility, supported by domestic participation and policy flexibility, but remain exposed to global developments, particularly through energy and capital flows. Commodity-importing emerging market and developing economies are at risk of being hit harder, with a depreciation of their currencies exacerbating the impact of higher energy and food prices.

For India, the implication is clear:

• strong growth does not insulate markets;

• portfolio flows can still reverse quickly;

• the rupee remains sensitive to global risk cycles.

Easing monetary policy by the Reserve Bank of India (RBI) is expected to support discretionary consumption. Crisil Intelligence expects one more repo rate cut in Fiscal 2026, and a pause after that. The central banks easier regulations for nonbanking financial companies are expected to transmit the benefits from an easier monetary policy to the broader economy. The regulatory overhaul is poised to have a broad impact on the financial market. The easing of norms is expected to accelerate credit access in tier-2 and tier-3 cities, where NBFCs play a vital role. With projected NBFC loan growth of 15-17% over the next two fiscal years, the changes could empower smaller players to compete more effectively.

The Union Budget - 2026-27, has quietly delivered one of the most consequential structural signals for Indias financial system in years. In her annual Budget speech on February 1, Finance Minister Smt. Nirmala Sitharaman said that the government would sharpen its focus on NBFCs, widen credit access, accelerate technology adoption, and consolidate public sector NBFCs into larger entities on the lines of Power Finance Corporation (PFC) and Rural Electrification Corporation (REC). By explicitly naming this model, the government is signalling its intent to replicate this model across other segments, mainly MSME finance, housing finance, and rural and agricultural credit. It also aligns with Budget 2026- 27s focus on development finance, especially in infra- and energy sectors.

Such restructuring lowers the cost of capital, enables deeper tech investment, and improves risk absorption. Overall, these measures will strengthen credit access for MSMEs, infrastructure, and underserved markets, making NBFCs effective partners in Indias journey towards a developed and inclusive economy. It will help improve operational efficiency and capital utilisation, enabling them to support critical sectors like infrastructure, energy transition and rural electrification.

Despite the positive outlook, the NBFC sector faces challenges such as liquidity constraints and intense competition. Regulatory oversight, while essential, could pose compliance burdens for smaller players. Additionally, the risk of non- performing assets (NPAs) remains a concern, particularly in the wake of global economic uncertainties.

OPPORTUNITIES, THREATS AND STRATEGIES:

Non-Banking Financial Companies (NBFCs) continue to play a pivotal role in supporting Indias financial ecosystem, particularly in enhancing credit access to underserved segments and contributing to overall economic growth. With increasing financial inclusion, digital adoption, and policy support, the sector offers significant growth potential. At the same time, NBFCs are navigating a more complex environment shaped by tighter regulations, evolving technology, and macroeconomic uncertainties.

The ongoing digital transformation presents NBFCs with an opportunity to improve operational efficiency, strengthen governance, enhance customer experience, and reduce environmental impact through paperless and automated processes. However, these advancements also bring new challenges that require careful risk management.

Risk remains an inherent aspect of the NBFC business model. Your Company recognizes this and has implemented structured risk management frameworks and internal controls to mitigate potential adverse impacts. Key risks and corresponding mitigation approaches are outlined below:

It arises when the flow of and controls over the operations of the company are lacking, which has adverse impact on the continuity of business, reputation and profitability of the company. The Company has placed internal controls & periodic checks to mitigate these risks.

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.

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.

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.

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.

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.

In the current environment, NBFCs face a dynamic and evolving risk landscape characterized by regulatory changes, technological disruption, economic fluctuations, and global uncertainties. The Company is focused on strengthening resilience through proactive risk management, continuous monitoring, and strategic agility. This approach will enable it to effectively navigate emerging challenges and capitalize on growth opportunities.

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 core principles underpinning the Companys investment strategy include prudent risk management, maintaining a balanced and objective market outlook, and a strong emphasis on long-term value creation.

The company, in current fiscal has made profits of 143.04 lakhs as against profit of 279.84 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.

The Board formally accepted steps for framing, implementing and monitoring the risk management plan for the company. The main objective is to ensure sustainable business growth with stability and to promote a pro-active approach in reporting, evaluating and resolving risks associated with the business. In todays challenging and competitive environment, strategies for mitigating inherent risks in accomplishing the growth plans of the Company are imperative.

Your Company has identified these risks and guarded itself by adopting a range of strategies and measures to reduce the impact of such risks.

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.

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.

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.