Nagreeka Capital & Infrastructure Ltd Management Discussions

1. Economic Outlook

(a) Global Economy

The global economy is experiencing a moderate pace of growth. The OECD forecasts Global GDP growth is projected to moderate from 3.3% in 2024 to 2.9% in both 2025 and 2026. The growth picture is not uniform across all regions. While inflation is expected to decline, concerns remain about the impact of tighter monetary policies on housing and credit markets. The US is expected to see a slowdown, while the Eurozone is anticipated to experience a gradual rebound.

The slowdown is concentrated in the United States, Canada, Mexico and China, with other economies expected to see smaller downward adjustments. Growth through 2025 is expected to be especially weak, with global output rising by just 2.6% over the year to the fourth quarter, and by only 1.1% in the United States.

Efforts to prevent further trade fragmentation should be coupled with reforms that strengthen the resilience of supply chains, including by encouraging firms to diversify both suppliers and buyers. Diversification would be aided by common or shared regulatory standards on key intermediate production inputs between countries.

(b) Indian Economy

Indias economy carried forward the momentum it built in Financial Year 2024-2025 into Financial Year 2025- 2026 despite a gamut of external challenges. Real gross value added (GVA) is estimated to grow by 6.4 per cent. The agriculture sector is expected to rebound to a growth of 3.8 per cent in FY25. The industrial sector is estimated to grow by 6.2 per cent in FY25. Strong growth rates in construction activities and electricity, gas, water supply and other utility services are expected to support industrial expansion. Growth in the services sector is expected to remain robust at 7.2 per cent, driven by healthy activity in financial, real estate, professional services, public administration, defense, and other services. Survey expects the real GDP growth in FY26 to be between 6.3 and 6.8 per cent.

The fiscal balance of Indian Economy is expected to improve in FY2025-26 with a projected fiscal deficit of 4.4% of GDP, down from 4.8% in FY2024-25. Economic growth is estimated at 6.5% for both FY2024-25 and FY2025-26. Some organizations like the OECD have slightly revised down their growth projections for FY26 to 6.3% and the overall, India is expected to maintain its position as one of the fastest-growing major economies in the world.

Inflation has softened from 5.4 per cent in FY24 to 4.9 per cent in April December 2024. Indias consumer price inflation will gradually align with the target of around 4 per cent in FY26 as per RBI and IMF. Hence, your Company will continue to seek investment opportunities in businesses that demonstrate consistent growth potential and strong earnings quality. In the case of new-age companies, where valuations may be elevated and earnings are expected to materialize later in their lifecycle, the Company has made a measured allocation of capital.

2. Future Outlook

According to CRISIL the Indian economy expects moderate to 6.5% growth in the next financial year, with a need to monitor the impact of the Middle East conflict on energy and logistics costs. The Indian economy is anticipated to experience a consistent growth of 6.7 percent annually from 2024 to 2031. CRISIL attributes this growth trend to capital, highlighting the governments investment-driven approach during a period when the private sector hesitated to make substantial investments. The governments notable increase in capital expenditure, supporting infrastructure projects and offering interest-free loans to state.

The credit growth of the non-banking financial companies (NBFCs) is expected to ease to 13-15 per cent in financial year 2025 (FY25) and FY2026 from the 17 per cent in the previous two fiscals, rating agency ICRA. Global risks remain elevated amid geopolitical tensions in West Asia, volatility in global financial markets and lingering uncertainty around tariff policies, posing headwinds to domestic growth. However, favourable monsoon forecast and likely dip in food inflation, the CPI inflation is projected to cool to 3.5 per cent in FY2026 from 4.6 per cent in FY2025, lower than the Monetary Policy Committees (MPCs) forecast of 3.7 per cent. As per the report said that a USD 10/barrel increase in the average crude oil price would lead to a USD 13-14 billion rise in net oil imports, increasing the CAD (current account deficit) by 0.3 per cent of GDP

Indias annual CPI inflation rate is currently at 4.75% year-on-year. The rate is 5.28% in rural areas and 4.15% in urban areas. The Reserve Bank of India (RBI) projects inflation to be 4% in Q2FY25, 4.6% in Q3FY25, and 4.7% in Q4FY25. They also project a real GDP growth of 6.5% for the financial year.

The CPI factors depends on four factors as mentioned below:

1. If crude oil price averages more than $90 per barrel;

2. Pressure on core inflation from rising international prices of metals and minerals;

3. Pressure on food prices from elevated costs of edible oils and fertilisers; and

4. Imported inflation due to weak rupee.

3. Industry Structure and Developments

Non-Banking Financial Companies (NBFCs) are an integral part of Indian financial system. They are lender of first resort for the large group of niche segments which remains underserved by the mainstream banking sector such as financing of second-hand vehicles, construction equipment, working capital financing, customized loans to micro and small industries, etc. Moreover, they also provide basic financial services such as micro-insurance, loans, savings instruments etc. to the poor and marginalized sections which do not have access to mainstream banking.

This is an enviable track record despite the business models of the NBFCs being severely tested by significant challenges stemming from both economic downturns and regulatory changes. These challenges also include liquidity issues, asset quality concerns, and increased competition from banks and FinTech companies. The COVID-19 pandemic further exacerbated these problems, leading to decreased economic activity and impacting NBFCs ability to manage repayments and maintain liquidity. The fact that many NBFCs have managed to overcome these stresses without significant impact on financial position is a testimony to their resilience and agility.

Given the systemic risks that the sector poses, the RBI issued ‘Scale Based Regulation (SBR): the Reserve Bank of India (RBI) introduced a Scale-Based Regulation (SBR) framework for Non-Banking Financial Companies (NBFCs) in FY 2025 to address systemic risks. This framework classifies NBFCs based on their size, activity, and perceived risk, with more stringent regulations for larger, systemically important ones,etc. The SBR aims to strengthen oversight and risk management within the NBFC sector.

The regulatory vigil over the NBFCs continues with focus on four key cornerstones of (i) responsible financial innovation, (ii) accountable conduct, (iii) responsible governance, and (iv) centrality of the customer. We believe that NBFCs with superior capital adequacy, better margins, frugal cost management, prudent risk management and those incorporating above four key cornerstones in their business models will continue to deliver sustainable growth in the foreseeable future.

4. Opportunities and Threats

The success of any organization depends on its ability to identify strengths and opportunism and leverage them while mitigating the risk that arise while conducting the business. Your Company has taken all these factors into account in drawing up its plan for the future without losing its sight for its core market segments.

The NBFC sector has been providing credit to customers in the underserved and unbanked areas. NBFC is integral to the Indian Financial system, augmenting competition and diversification in the financial sector and complementing the banking system. Channelings the savings in capital formation, necessary for Indias economic growth and development. There is vast opportunities for NBFC sector to grow.

In 2025, global factors are expected to significantly impact capital market volatility, with Non-Banking Financial Companies (NBFCs) also facing increased scrutiny. Key drivers include geopolitical tensions, changing monetary policies, and potential disruptions to supply chains, alongside shifting investor sentiment and evolving regulatory landscapes. These factors are likely to exacerbate volatility in both equity and debt markets, potentially leading to increased risk aversion and impacting NBFCs ability to secure funding and manage asset quality

In financial services business, effective risk management has become very crucial. Your Company is exposed to credit risk, liquidity risk and interest rate risks. All these risks are continuously analysed and reviewed at various levels of management through an effective information system. The Company is having excellent Board of Directors who are Experts in financial sector, and are helping the Company in making good Investment.

5. Risk & Concern

The Company is exposed to various risks such as pandemic risk, credit risk, economic risk, interest rate risk, liquidity risk, cash management risk, technology risks, etc.

Your Company manages its liquidity risk in accordance with its Board approved Liquidity Risk Management Framework which incorporates the stipulations laid down by the RBI. The Company follows a prudent approach for managing liquidity and ensures availability of adequate liquidity buffers to overcome mismatches in case of stressed market environment

To effectively manage market risk on its investment portfolio, Your Company follows a prudent investment approach which guide its investment decisions. The Company has invested its surplus funds mainly in liquid and arbitrage funds; and deposits with banks and highly rated financial institutions. The Company calibrates the duration of investment portfolio to balance the twin objectives of maintaining liquidity for business and minimum adverse fair value change on its investment portfolio.

6. Internal Control System

The Company has well defined and adequate internal control system to safeguard all assets and ensure operational excellence. These systems are being regularly reviewed and wherever necessary are modified or redesigned to ensure better efficiency and effectiveness. The systems are subjected to supervision by the Board of Directors and the Audit Committee, duly supported by Corporate Governance. Company complies with all applicable statutes, policies, procedures, listing requirements and management guidelines.

7. Human Resource / Industrial Relations

Human resource is considered as key to the future growth strategy of the Company and looks upon to focus its efforts to further align human resource policies and processes to meet its business needs. The Company aims to develop the potential of every individual associated with the Company as a part of its business goal. Respecting the experienced and mentoring the young talent has been the bedrock for the Companys growth. Human resources are the principal drivers of change. They push the levers that take futuristic businesses to the next level of excellence and achievement.

8. Cautionary Statement:

This report contains forward-looking statements extracted from reports of Government Authorities / Bodies, Industry Associations etc., available in the public domain, which may involve risks and uncertainties including, but not limited to, economic conditions, government policies, dependence on certain businesses, and other factors. Actual results, performance, or achievements could differ materially from those expressed or implied in such forward-looking statements. This report should be read in conjunction with the financial statements included herein and the notes thereto. The Company does not undertake to update these statements.