Nexome Capital Markets Ltd Management Discussions

1. FINANCIAL STATEMENTS

Financial Statements are in compliance with the provisions of the Companies Act, 2013 and the Accounting Standards issued by ICAI. Readers are cautioned that this discussion may include “forward-looking statements” that are not historical in nature. Forward-looking statements may include statements relating to future results, financial condition, business prospects, plans and objectives. Statements are based on current beliefs, assumptions, expectations, estimates and projections on the business segment in which your company operates. The statements do not guarantee positive performance, and are exposed to known and unknown uncertainties, many of which are beyond the control of your Company. Uncertainty could cause results to differ from forward-looking statements, which should not be construed as representation of future performance.

2. MACRO-ECONOMIC OVERVIEW

The Financial Year 2025-26 began with tariff uncertainties and ended with severe geopolitical risk following the outbreak of the Middle East conflict in late February 2026. Irans move to halt traffic through the Strait of Hormuz, the worlds most critical energy chokepoint carrying 20% of global petroleum supply, has triggered a direct and massive shock to global energy supply chains. Consequently, global freight costs have risen sharply, and the Indian crude basket jumped dramatically from US$ 65 per barrel in February 2026 to hover above $119 per barrel by May 2026, with crude potentially remaining anchored above $100 per barrel.

In early 2025, the global trade environment was tested when the US signalled the implementation of its “America First Trade Policy,” proposing a 25% reciprocal tariff on Indian goods starting in April 2025. This tariff was subsequently increased to 50% as India was importing cheaper Russian oil causing a slowdown in exports to U.S.A. This continued for some time till trade negotiations were finalized between the two countries. Meanwhile U.S. Supreme Court struct down levy of such tariffs as illegal. Thereafter U.S.A. has imposed 10% tariff on all countries.

More critically, on February 28, 2026, the global geopolitical landscape was severely disrupted by the outbreak of the Iran war, following United States and Israeli strikes targeting Iranian military assets. The conflict escalated rapidly, resulting in the effective closure of the Strait of Hormuz. As this strategic maritime route handles approximately 20 million barrels of crude oil per day and 20% to 30% of global fertilizer exports, its closure triggered the largest supply disruption in the history of the global oil market. Consequently, Brent crude oil prices climbed above US$ 105 a barrel as stalled US-Iran negotiations kept supply disruption fears firmly alive, with the Indian crude basket jumping to hover above US$ 119 per barrel. The International Monetary Fund (IMF) subsequently downgraded its global economic outlook, warning of acute supply shortages, rising freight costs, and heightened risks of stagflation in Western economies.

Despite these severe global headwinds and near-recessionary conditions in several advanced nations, India maintained its position as the fastest-growing major economy in the world. Supported by highly resilient domestic demand, Indias real GDP grew by a robust 7.7% in 9MFY26 under the new base series (2022-23 base year) and is estimated to reach 7.6% for the full FY26. India is now the fourth-largest economy globally, with a nominal GDP approaching the $4.3 trillion mark, and is on a clear trajectory to become the third-largest.

Looking ahead to the Financial Year 2026-27, the Reserve Bank of India (RBI), in its April 2026 policy meeting, projected a solid GDP growth rate of 6.9%. This reflects a slight moderation directly attributed to the ongoing Middle East conflict and resultant supply chain disruptions. However, demand destruction from sustained high inflation is expected to compress GDP growth well below the RBIs projected 6.9%. The World Bank similarly updated its FY27 growth projection for India to 6.6%, confirming the underlying strength of the domestic economy. Meanwhile, broader market estimates expect real GDP to moderate to a range of 6.2% to 6.7% in FY27, alongside a nominal GDP acceleration to 12.0% driven by higher WPI inflation. Indias GDP growth is expected to have cooled to 7.0% in Q4 FY2026 from 7.8% in Q3 FY2026, as the onset of the West Asia crisis and the consequent surge in energy prices caused some disruption in economic activity towards the end of the quarter. The heightened uncertainty around the duration of the conflict casts a shadow on Indias near-term macroeconomic outlook amid elevated energy prices and high import dependency for items such as crude oil, natural gas and fertilisers. Besides, the expectations of sub-par monsoon rainfall would also weigh on the countrys growth outcomes in the ongoing fiscal. Overall, ICRA expects Indias GDP growth to moderate to 6.2% in FY2027 from the projected 7.5% in FY2026, with risks tilted to the downside.

Our economy is expanding at a rapid pace, as evidenced by record-breaking tax collections. For the full 2025-26 fiscal year, gross GST collections grew 8.3% year-on-year to over Rs. 22.27 lakh crore. In March 2026, baseline GST collections crossed the Rs. 2 lakh crore milestone for the first time to stand at Rs. 2,00,064 crore, representing an 8.8% year-on-year growth. Building on this momentum, April 2026 recorded a new historic milestone with gross GST collections reaching an all-time high of Rs. 2,42,702 crore. This represents an 8.7% year-on-year growth, driven primarily by a surge in import-linked collections and steady underlying domestic consumption. However, while some urban consumption has been cushioned by recent GST rationalisation, even that tailwind is moderating and risks getting nullified by emerging headwinds.

Indias fiscal consolidation remains firmly on track. The government successfully contained the fiscal deficit for FY 2025-26 at 4.4% of GDP. Continuing this highly credible approach to managing public finances, the Union Budget has set the fiscal deficit target for FY 2026-27 at 4.3%. Overall state and centre fiscal deficit are estimated at 8.0% of GDP for FY26E.

On the monetary front, Indias retail inflation continues to be effectively managed, though the recent energy shock has altered the trajectory. In its April 2026 Monetary Policy Committee (MPC) assessment, the RBI maintained a neutral stance, keeping the repo rate unchanged at 5.25%. Acknowledging the upside risks stemming from elevated energy prices and global freight costs, the central bank revised its CPI inflation projection for FY27 where retail inflation accelerated to a 14-month high of 3.48% in April, up from 3.40% in March, with core inflation contained at 3.3%. The earlier Rs. 3.90 per litre fuel price hike was swiftly followed by additional increases; state-run oil companies have now raised rates four times in just 11 days, resulting in a cumulative hike of approximately Rs. 7.50 per litre for both petrol and diesel. With petrol now costing Rs. 113.51 in Kolkata and Rs. 102.12 in Delhi, this is almost certainly the beginning of a series of hikes. By our estimates, this initial adjustment covers only 7-8% of the cumulative under-recoveries, a burden estimated at Rs. 1.7-1.8 trillion, meaning several more rounds of hikes will be needed simply to recover past losses.

Consequently, official CPI forecasts will soon align with a more realistic 6-7% range for 2HFY27. The finance ministrys revised assessment of 5.5-6% CPI inflation for FY27 now exceeds the RBIs own forecast of 4.6%. Simultaneously, wholesale (WPI) inflation hit a 42-month high of 8.3% in April. The fuel and power segment contributed substantially to soaring global crude oil prices, recording 24.71% y-o-y inflation in April (a sharp jump from 1.05% in March) and crude petroleum inflation surging 88.06%.

On the trade front, Indias external sector has shown remarkable momentum. Total exports reached a record USD 825.3 billion in FY25 and maintained strength in FY26. However, the external sector adds another layer of fragility. The spike in global crude oil prices poses a severe risk to our external balances. If prices sustain at or above the $100 per barrel mark, Indias annual oil import bill is projected to surge by an additional $40 billion to $50 billion, pushing the total oil import burden well past $180 billion.

Sectoral performance in the face of US tariff threats has been mixed but largely resilient, though export-heavy sectors remain vigilant. Indias pharma exports stood at USD 28.29 billion during the April-February period of FY26, reflecting steady growth of 5.6%, and currently remain exempt from the new US tariffs. Semiconductor devices have also been exempted, acknowledging their critical role in global supply chains. The US remains a primary market for the Indian textile industry, accounting for a 29% share of overall exports in the first nine months of FY26.

In spite of geopolitical developments affecting global energy prices, India has managed its crude imports well through strategic negotiations. Amidst global volatility, the Indian banking and non-banking financial service sectors remain fundamentally healthy, boasting strong capital and liquidity positions, improving asset quality, and robust profitability. Bank credit growth accelerated to 15.4% y-o-y by February 2026. However, credit growth is being partly driven by distress-linked working capital demand from firms facing weakening cash flows and ECB exposure, not by robust underlying activity. While NPA levels remain low because of significantly accommodative policies, vigilance is warranted as stagflationary spillovers invariably translate into rising default risk.

The Indian Rupee sank to a record low, depreciating from approximately Rs. 90.00 against the US Dollar at the beginning of the calendar year to hover around the Rs. 96 mark by late May 2026, severely impacted by a freefall driven by surging crude oil prices and relentless selling by foreign portfolio investors, who have offloaded Indian equities worth over Rs. 2.2 lakh crore in the calendar year to date. The mix of stagflation and BoP pressure makes defending the rupee at Rs. 100/$ extremely challenging.

Gross FDI flows to India have demonstrated remarkable resilience, accelerating to US$90.8 billion (2.3% of GDP) on a 12-month trailing basis in January 2026, reflecting a healthy 13% YoY growth. This momentum has improved Indias market share in global FDI to a three-year high of 2.4%. Conversely, Net FDI has plummeted to near all-time lows, tracking at just US$ 3.0 billion for 9MFY26. This contraction is primarily driven by elevated repatriation, which has remained above US$50 billion for the second consecutive year, and outward FDI, which surged to US$35.8 billion, rising 2.6 times over two years.

The domestic capital markets delivered a stellar performance in FY 2025-26. The BSE Sensex moved up from 77,415 on 28th March 2025 (the last trading day of the previous financial year) to close at approximately 85,250 on 31st March 2026, reflecting a robust appreciation of over 10%. Retail participation has surged, with the number of demat accounts growing from 192.4 million to over 235 million by the end of March 2026, supported by average monthly SIP inflows reaching Rs. 679 billion in March 2026.

Shifting focus to the broader macroeconomic foundations, Capital expenditure has emerged as the primary growth driver for the nation. The governments effective capital expenditure has increased to about 4.4% of GDP, and the FY27 budget raised the capex target to Rs. 12.2 lakh crore·an 11.5% increase over the FY26 revised estimates. With capacity utilization remaining high and Production Linked Incentive (PLI) schemes across 14 sectors catalysing over Rs. 2.0 lakh crore of actual investments, the private sector investment cycle is actively catching up, setting a strong foundation for domestic economic expansion.

3. OPPORTUNITIES

a. Surge in reliance on Domestic Capital Market: The “higher for longer” interest rate environment in advanced economies (with the US Federal Reserve now expected to remain on hold until December 2026 with one rate hike possible) and volatile foreign capital flows are prompting Indian corporations to look inward. This reliance on the deep and resilient domestic capital markets presents expansive growth opportunities for domestic financial intermediaries in debt syndication, IPOs, and equity placements.

b. Robust Capital Expenditure Cycle: The governments continued focus on infrastructure is reflected in the FY27 budget, which raised the capital expenditure target to Rs. 12.2 lakh crore (about 4.4% of GDP). Coupled with high-capacity utilization, private sector investment is actively catching up, creating a strong pipeline of corporate fundraising needs. However, a slowdown in the private capital expenditure revival is a real risk if cash flows remain under pressure for an extended period.

c. Policy-Driven Manufacturing Growth: Production Linked Incentive (PLI) schemes across 14 sectors have catalyzed over Rs. 2.0 lakh crore in actual investments and generated substantial employment, boosting the manufacturing sector and driving the need for corporate advisory and capital restructuring.

d. Strategic M&A Activity: Global supply chain realignments and domestic corporate restructuring are actively driving mergers and acquisitions, providing a significant tailwind for the companys advisory verticals.

e. Emerging Data Centre Infrastructure: India stands to gain from a large and growing digital market, reinforced by policy support. As of late 2025, India featured in the top 10 (rank 7) in data centre-related investments globally, presenting a massive avenue for structural project finance and syndication.

f. Formalization of Family Offices and Outward FDI: The establishment of a regulatory framework in GIFT City (IFSC) allows large domestic wealth holders to set up Family Investment Funds (FIFs). With outward FDI accelerating sharply to US$35.8 billion, there is a substantial opportunity to provide corporate advisory and wealth management services to these newly structured global capital pools.

4. THREATS

a. Geopolitical Escalations & The Energy Shock: The ongoing Iran war and the closure of the Strait of Hormuz represent the largest supply disruption in the history of the global oil market. For India, which relies heavily on imported crude oil, this threatens to inflate the import bill and cause widespread economic strain. This has already caused visible output disruptions, with core industry output contracting by 0.4% in March 2026, dragged down by energy-intensive sectors like fertilizers (24.6% year-on-year) and crude oil (-5.7% year-on-year).

b. International Trade Disruptions: The Middle East conflict has led to acute supply shortages, rising freight and insurance costs, and severe shipping delays, which directly threaten export-heavy sectors. Consequently, actual oil imports dropped sharply by 35.9% YoY to $12.2 billion in March 2026, a decline directly attributable to the West Asia conflict.

c. Protectionist Trade Policies: While currently paused, the looming threat of the US implementing a 26% reciprocal tariff under its “America First Trade Policy” remains a significant risk for key Indian export sectors like pharma, textiles, and auto parts.

d. Widening FDI Dichotomy: While gross FDI remains strong, net FDI has plummeted to near all-time lows tracking at just US$ 3.0 billion for 9MFY26. A sustained weakening in net flows could increase the nations reliance on more volatile portfolio capital, especially as Foreign Portfolio Investors (FPIs) have been net sellers, offloading Indian equities worth over Rs. 2.2 lakh crore in the calendar year to date, stripping away a traditionally stable source of financing for the current account.

e. Margin Compression & Stagflationary Dynamics: The stagflationary dynamic is now unmistakable, and its transmission is uneven across sectors. Industry is absorbing the brunt of the supply shock: energy, logistics, and input costs are compressing margins across chemicals, packaging, textiles, consumer goods, aviation, and transport.

5. RISKS AND CONCERNS

a. Imported Inflation: Elevated global energy prices and freight costs pose upside risks to Indias inflation trajectory. Wholesale (WPI) inflation has already seen a massive jump to a 42-month high of 8.3% in April, heavily driven by the fuel and power segment skyrocketing to 24.71%, and crossing the 10% mark is a plausible base case. Persistent inflation and a weakening currency could soon force the RBI to reverse last years aggressive monetary accommodation, triggering higher rates and a painful policy unwind.

b. Capital Flow Volatility: Heightened global uncertainties and sustained high interest rates in developed markets can trigger sudden outflows of Foreign Portfolio Investments (FPIs) from emerging markets, leading to currency volatility. This mix of stagflation and BoP pressure, which has already driven the Rupee to hover around the Rs. 96 mark, makes defending the rupee extremely challenging.

c. Weather-Related Uncertainties: The 2026 monsoon is faced with El-Nino risks; notably, since 2000, 4 out of 5 El Nino conditions have resulted in below normal or deficient rainfall, which could be highly inflationary. Agriculture faces mounting risks from higher fertiliser prices, Gulf supply disruptions for urea, and the looming threat of a deficient monsoon. With rural inflation rising faster than urban inflation, rural demand is increasingly vulnerable.

d. External Balance Vulnerabilities: Surging repatriation of profits and dividends and sale of shares by multinational subsidiaries, combined with increasing outward FDI poses a structural risk to external balance metrics. If these outflows consistently outpace net inflows, it could create potential spillovers affecting currency stability and broader financial markets.

6. FUTURE OUTLOOK

Your company, Nexome Capital Markets Limited (Formerly SMIFS Capital Markets Limited), is registered as a Category I Merchant Banker and is executing assignments in mergers and acquisitions, project advisory services, debt syndication, and the placement of equity shares and debentures. The revival of the private capex cycle directly translates to a robust pipeline of corporate fundraising needs. With foreign capital remaining volatile, Indian enterprises are increasingly utilizing domestic debt syndication and equity placements to fund their expansion.

Your Company has a cautious view for the Financial Year 2026-27 in view of the prevailing macro headwinds due to geopolitical situation and as the mix of slowing growth, widening BoP stress, and sticky inflation will complicate the RBIs job, likely forcing a reversal of last years monetary accommodation and triggering a policy unwind. Sustained government capital expenditure, resilient domestic consumption, and proactive policy reforms are expected to maintain the buoyancy of the Indian capital markets, thereby presenting expansive growth opportunities for our advisory and syndication verticals, though markets will likely face pressure from rising rates and a weaker currency, particularly in rate-sensitive sectors like BFSI, real estate, and capital-intensive industries.

7. GREEN INITIATIVE

In continuation of the ‘Green Initiative in Corporate Governance and in compliance with the provisions of the Companies Act, 2013, read with the applicable rules framed thereunder and the recent circulars issued by the Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI), your Company has been sending the Annual Report, Notice of the Annual General Meeting, and other statutory communications primarily in electronic mode. These documents are emailed to all those members who have registered their email addresses with the Company or their respective Depository Participants (DPs) / the Registrar and Share Transfer Agent (RTA). This initiative represents a significant step towards achieving paperless statutory compliances and promoting environmental sustainability. Members who have not yet registered their email addresses are continuously encouraged to do so to support this green endeavor.

8. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

Internal control system adopted is aimed at promoting operational efficiencies and emphasizing adherence to the policies adopted by the Board of Directors.

9. CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis describing your Companys position and expectations may be “forward looking statements” within the meaning of the applicable securities laws and regulations. Results could differ materially from the statements expressed or implied.