nahar capital & financial services ltd share price Management discussions

Economic Overview

The Indian economy continues to remain a bright spot in the world economy despite geopolitical tensions and inflationary pressures. As per interview given by MD of IMF in February, 2023, India will alone contribute ~15% of the global growth in 2023 driven by its demographic dividend, pent-up demand growth, digital infrastructure and commitment to fiscal consolidation. Overall, India is estimated to achieve real GDP growth of *7.2% in FY 2022-23, which is quite high amongst all the major economies. Economic Survey 2022-23 and Reserve Bank of India (RBI) projects a GDP growth of 6.5 Per Cent in real terms in FY24 due to vigorous credit disbursal and capital investment cycle is expected to unfold in India with the strengthening of the balance sheets of the corporate and banking sectors. Further support to economic growth will come from the expansion of public digital platforms and path-breaking measures such as PM GatiShakti, the National Logistics Policy and the Production-Linked Incentive schemes etc.

*Ministry of Statistics & Programme Implementation in Provisional Estimates of National Income 2022-23 dated 31st May, 2023 Indian economy and financial sector stand strong and resilient amidst unprecedented global headwinds. Indian economy have moved on after its encounter with the pandemic, staging a full recovery in FY22 ahead of many nations and positioning itself to ascend to the pre-pandemic growth path in FY23. Yet in the current year, India has also faced the challenge of reining in inflation that the European strife/ Ukrain War accentuated. Inflation remained high, averaging around 6.7 percent in FY22/23 but the current-account deficit narrowed in Q3 on the back of reasonable growth in exports and easing global commodity prices. Measures taken by the Government of India and RBI, coupled with the easing of global commodity prices are bringing the retail inflation under control. Further, higher domestic demand and a pick-up in capital investment are facilitating to accelerate the growth rate of Indian economy.

Industry Structure and Developments

NBFCs are one of major contributors in driving Indias economy and remains major focused areas of the Government. Non-Banking Financial Companies (NBFCs) play a decisive role in accelerating economic growth with a superior reach and understanding of the Unbanked and Underserved Small and Medium Enterprises, Small Road Transport Operators etc. The size of the NBFC sector is rising driven by rising demand for niche financial services provided by non-bank lenders, such as micro lending and small business financing.

The Government of India has introduced various new rules and regulations for the NBFC sector in FY 202223. Also the Securities and Exchange Board of India (SEBI) introduced several policy changes to regulate capital markets including mutual funds, Portfolio Management Services (PMS) and AIFs which inter alia includes improved disclosure standards, restriction on fund management charges, introduction of prudential norms and simplification of issue procedures. The new regulatory framework, which was primarily introduced to create a level playing field for the MFI segment and help the RBI derisk the sector, has been very beneficial. One of the major benefits of this new framework is its assessment of household income and debt obligations as a means to better underwriting and the flexibility of responsible risk pricing approved by the board of the NBFCs, which helped build a stronger lending ecosystem and ensure the smooth functioning of the sector. NBFCs are a crucial part of the banking ecosystem in India. By providing lending services to low-income and high-risk individuals, the NBFC sector is helping strengthen the MSME sector in India. Furthermore, RBI increased the common household limit earlier this year to Rs 300,000 for loans to qualify as microfinance and the cap on NBFCs was increased to 25% of assets as opposed to 10%. This helped the NBFC sector grow strongly. With the role of NBFCs in supporting and augmenting the economic growth of India, we are hopeful that the government will continue to introduce initiatives that will ensure liquidity within the sector, helping its growth and expansion.

Pursuant to RBIs regulatory framework, your Company continue to be categorized as "Systemically Important Non-deposit taking NBFCs (NBFCs-ND-SI) having asset size above Rs. 500 Cores". Your Company is mainly doing investment activities with long term perspective as well as doing trading and Lending activities. Further, the Company is also doing real estate activities for higher yields.

Opportunities and Threats

Indian financial sector remained largely unaffected amidst the recent turbulence in the US and European banking sectors which is attributable to adequate capitalisation & liquidity, healthy asset quality and proactive monitoring & timely interventions by the Regulator. The Government of India has taken numerous measures to usher in financial and regulatory reforms in the primary and secondary markets. The RBI undertook several rate hikes by a total of 190 basis points since May 2022 in order to curb inflation and its effects and also to respond to other geopolitical events. The Indian financial markets have been witnessing increasing growth and are becoming more mature and modernized. At the same time, markets are also getting increasingly multifaceted due to the emergence of new products, technology enabled processes and rising global integration.

However, the challenge of the depreciating rupee, although better performing than most other currencies, persists with the increased policy rates by the US Fed. The Economic Survey states that the widening of the Current Account Deficit (CAD) may continue as global commodity prices remain elevated and the growth momentum of the Indian economy remains strong. The loss of export stimulus is further possible as the slowing world growth and trade shrinks the global market size in the second half of the current year. With inflation persisting in the advanced economies and the central banks hinting at further rate hikes, downside risks to the global economic outlook appear elevated.

Although significant challenges remain in the global environment, the Indian economy continues to show strong resilience to external shocks due to continued buying by foreign institutional investors (FIIs), monsoon progress and expectations of healthy corporate earnings.

Your Company identifies profitable investment opportunities in the entire financial market segments and also in real estate segment, diversify its revenue stream and scale up its operations in a prudent manner, while maintaining adequate risk management systems and profitability. Due to the recent amendment in Income Tax Act regarding taxation of debt mutual fund relinquishing the indexation benefit, your Company is exploring other investment options including investing directly in debt securities, GSEC, SDL etc. for better profitablity. Your Company foresees and is cautious of all the economic and financial threats globally as well as domestically, while making new investments and also aware of the fact that change in Government policies and rate of interest revisions will affect the valuation of investments made by Company. Your company is more cautious in investing i.e. by increasing fund allocations to safer and high rated securities, REITS, INVITS, AIFs, Next Generation PE and VC funds, Digital Disruptive Technology Funds etc and also focus on new business/Startup Investment opportunities. In current volatile global scenario and fast changing consumer behaviours, your Company is investing in longer duration investment opportunities compatible with new technologies like Electric Vehicles (EVs), Artificial Intelligence (AI), 56G Networking, Cloud Computing etc. Your Company has built a strong diversified investment base and continues to mitigate any adverse impact of any uncertainty in the short term but is well- positioned to benefit from the economic rebound expected over the next few years.

Future Outlook

Spillovers from recent developments in financial markets in the US and Europe pose a risk to shortterm investment flows to emerging markets, including India. The frailties of the Chinese economy further contributed to weakening the growth forecasts. These developments may pose significant challenge to the growth of the Indian economy for the short to medium run. The rate hike and persistent inflation also led to a lowering of the global growth forecasts by IMF for 2023-24 to 5.9 per cent from 6.1 per cent. Despite a significant drop India continues to be a high growth economy in the world, as stated by IMF in the World Economic Outlook. To sustain growth of Indian economy, policies measures are being undertaken for boosting the Indias share of global manufacturing, expanding credit availability, creating new businesses, improving quality of life and spurring a boom in consumer spending.

The Company will strive to do the financial business, focused on delivering consistent and superior returns to the companys shareholders and at the same time maintaining the high levels of safety. On real estate front, the Company is looking for opportunities and will further explore and invest in new projects to upsurge its lease/rental income in the coming periods. We have created an organization, keeping our aspirations and business model to keep pace with fast changing global scenarios, consumer behaviour and new technologies. Your Company has recognized its role as a corporate citizen and continuously endeavors to adopt the best practices and the highest standards of corporate governance. We look forward to the future with renewed optimism as your Company will continuously focus on its resources, strengths and strategies to achieve its vision keeping the above strategic intent in mind.

Risks and Concerns

The Company recognizes that risk is an integral and unavoidable component of business and it is committed to manage the risk in a proactive and effective manner. Being an investment company, the business of the Company is exposed to several risks viz; market risk, global risk, regulatory risk, credit risk, liquidity risk, competition risk, interest rate risk, cyber security risk etc. which can affect the returns on Companys investments and financial business in unexpected way. Presently, different and next generation investment opportunities are prevalent, which are highly remunerative if we utilize expertise and experience of professional and specialized fund managers.

Considering the Companys nature of its business, it is essentially exposed to the volatility associated with financial markets. However, with the investments being well-diversified among various financial market instruments like mutual funds (both debt and equity), bonds/debentures, REITS, AIFs, Invits, VC/PE funds and equity shares (both listed and unlisted), the risk is rather mitigated and managed. The Companys balanced approach to portfolio management and its continuous review has enabled it to get early warning signals because of corrective measures taken by company from time to time. The Company uses information technology extensively in its operations and hires professional advisors for ensuring effective controls besides economy. Sustained efforts to strengthen the risk framework and portfolio quality have yielded consistently better outcomes for the Company.

As part of the Risk Management framework, the Company has also constituted the Risk Management Committee comprising of three Non-Executive Directors to monitor risk tolerance limits, review and analyze risk exposure related to specific issues and provides oversight of risk across the organization. The Risk Management Committee met four times during the financial year under review. The Company is having Risk Management Policy and Fair Practice Code to strengthens the investment decisions and also for better risk management.

Internal Control Systems and Their Adequacy

The Company is maintaining an efficient and effective system of Internal Financial Control for the facilitation of speedy and accurate compilation of financial statements. The Companys internal control system is designed to ensure operational efficiency, protection and conservation of resources, accuracy and promptness in financial reporting and compliance with laws and regulations as well as procedures. Further, the statutory auditors of the Company have verified the systems and processes and confirmed that the internal financial controls system over financial reporting is operating effectively.

Pursuant to the provisions of Section 138 of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014, the Company has also appointed M/s. Piyush Singla & Associates, Chartered Accountant as Internal Auditor of the Company to test the adequacy and effectiveness of Internal Control Systems and Information Security Framework laid down by the management and to suggest improvement in the systems. They also identify and address technology and IT-related security issues commensurate with the nature and complexities of its operations. The Internal Audit Reports are discussed with the Management and are reviewed by the Audit Committee of the Board which also reviews the adequacy and effectiveness of the internal controls in the Company. During the year, Companys Internal Controls and Information Security Network were tested and no reportable weakness in the system was observed.

The companys Internal Financial Control System commensurate with the nature of its business and the size of its operations. In order to further strengthen the Internal control system and to automate the various processes of the business, company is making use of SAP S4 HANA application, which is based on SAP HANA database. It keeps all the data in memory which results in data processing that is magnitude faster than that of disk based system, allowing for advanced, real time analytics. The Asset Liability Management (ALM) Policy concerned with the effective risk management in various Portfolios is also framed by the Company.

Apart from this, an Audit Committee consisting of three Non-Executive Directors has been constituted. All the significant audit observations and follow up actions thereon are taken care of by the Audit Committee. The Committee oversees the adequacy of Internal Control. The Audit Committee met four times during the financial year under review. The Company has also established a Vigil Mechanism as per Section 177(9) of Companies Act, 2013 read with Rule 7 of the Companies (Meeting of Board and its Powers) Rules, 2014.

Segment wise Financial/Operational Performance

We would like to inform you that as per Ind-AS 108 Operating Segments, Companys activities can be classified under two segments namely; Investment/Financial Activities and Real Estate Segment. During the year, the Company achieved a total income of Rs. 4011.30 Lakhs with a net profit before tax of Rs. 3093.66 Lakhs. The segment wise detailed performance has already been discussed in the Directors Report under the column Financial Review.

Your Company continued to reward shareholders with regular dividends. The Board of Directors, considering the growth and profitability of the Company, has proposed a dividend of Rs. 1.50/- per equity share (i.e. 30%) for the year ending March 31, 2023.

Human Resources/Industrial Relations

The Company recognizes people as its most valuable asset and it has built an open, transparent and meritocratic culture to nurture this asset. The Company is of firm belief that the Human Resources are the driving force that propels a Company towards progress and success. The Company has a team of able and experienced professionals to look after the affairs of the Company. The total employees strength of the Company was 19 as on 31st March 2023.

Key Financial Ratios

The Company has identified the following ratios as applicable key financial ratios:-

Ratio 31.03.2023 31.03.2022
• Capital to Risk-Weighted Assets Ratio (C RAR) % 97.56 97.63
CRAR - Tier I Capital (%) 97.56 97.63
CRAR - Tier II Capital (%) 0.00 0.00

Cautionary Statement

Though the statement and views expressed in the above said report are on the basis of best judgment but the actual future results might differ from whatever is stated in the report.

For and on behalf of the Board of Directors
Place: Ludhiana Jawahar Lal Oswal
Date: 9th August, 2023 (Chairman) DIN: 00463866