Nuvama Wealth Management Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Indian Economy: An oasis of growth

Indian economy fared much better than its global peers on both macro-economic stability as well as growth. Inflation remained around RBIs target range. Further, Indias current account deficit reduced from 2% of GDP in FY 2022-23 to 1% of GDP in FY 2023-24. Government continued on the path of fiscal consolidation while focusing on infrastructure spending. The improved macro-stability was accompanied by robust growth. India has reported FY 2023-24 real GDP growth of 8.2% YoY - one of the highest in the world. GDP growth was much higher than what was predicted at the start of the year. Finally, the growth was driven by cyclical sectors in India - Government capex, real estate and autos. This was in sharp contrast to rest of the world. The sour point of the year was consumption, especially at the low end. This could be to some extent attributable to weak monsoon and lower government transfers. Eventually the cyclical tailwinds, if sustained should trickle down to all segments of the economy. In a nutshell, FY 2023-24 was an excellent year for the economy with high, consistent and quality growth.

Global Economy: Stabilisation at weak levels

FY 2023-24 panned out quite differently from what the consensus was, at the beginning of the year, with respect to forecast of US recession. One of the main reasons for the same was the normalisation of supply situation, especially oil after the disruption owing to Russia-Ukraine war in FY 2022-23. As a result, inflation fell amid strong US labour market (a historical anomaly), boosting US household real incomes and consumption. This also resulted in markets pivoting focus from rate hikes to rate cuts. However, the rate hikes done in FY 2022-23 did have a toll on the cyclical sectors of the western economy with their manufacturing PMIs being in contraction for most part of the year and also real estate remained weak. Meanwhile in Asia, China continued to witness slowdown that started with the Evergrande crisis in late 2021. The result of this was exports across the world (including India) remained weak.

Industry Overview

Indian Wealth Management Industry

Indias economic growth is at an inflection point and is poised to grow to USD 10 trillion, in next 6 to 8 years, by end of the decade. Confluence of mega trends like Financialisation, Digitisation and Demographics will propel Indias growth. Like Indias position today, US in 1980s-1990s had these favourable backdrops.

In India, total wealth to gross domestic product (GDP) ratio is ~4.5X compared to matured economies at ~6.5x. As GDP grows, wealth stock will grow at a higher multiple to GDP. Financial assets will continue to grow faster than real assets. In India, the share of financial assets is ~25% as compared to matured markets at ~70%. Investment asset class is expected to grow even faster as also seen over the past decade. Despite phenomenal growth, the penetration of these investment products in India is very low, as compared to matured markets, making room for long runway of growth in future. These tailwinds will drive continued momentum across financial services sectors, making wealth management a key beneficiary given its proximity to client relationships.

Organised players in India have ~15% penetration vis-avis developed nations at ~75%. Rising formal penetration will further multiply the opportunity for wealth managers in India.

Along with macro tailwinds, multiple forces are at play, driving a paradigm shift in ecosystem.

Rise in number of wealthy individuals Drivers such as, thriving start-up ecosystem, rising corporate profitability and robust capital markets are driving growth in number of high net-worth individuals (HNIs) and ultra high net-worth individuals (UHNIs). According to Knight Franks report, The Wealth Report 2024, India saw an annual rise of 6.1% in the number of UHNIs in 2023 over the previous year. India today ranks at 3rd position for number of billionaires (in USD) after the US and China. The number of ultra rich Indians will rise further by ~50% from 13,263 in 2023 to 19,908 in 2028, this being highest growth for any country for growth in number of UHNIs.

Growth beyond top 8 cities

In a significant shift, Indias economic vigour is increasingly evident in its Tier 2 - Tier 4 cities. The legacy wealth created and preserved over years in real assets is now being diversified across more sophisticated financial instruments. For instance, Mutual funds, whose AUM share of smaller cities has grown from a mere ~2.6 percent in 2014 to ~17.4 percent in 2023. Post-pandemic, this transition has been fuelled by better access and growing financial awareness and further accelerated by the intergenerational wealth transfer. In addition, these cities are also generating new wealth. Improved infrastructure, enhanced connectivity, and increased awareness have made them more business friendly. These wealth creators from new generation, who have built venture-backed enterprises, are financially aware and aspire to build a strategically diversified investment portfolio.

Fast evolving regulations

To make capital markets a safe investment destination, market regulator has unleashed many reforms. These initiatives such as, efficiently managing client money, stronger cybersecurity frameworks, tighter insider trading regulations and developments at gift city, have made capital markets a better place for investors. These reforms will also attract foreign investors and make India a preferred investment destination.

Digital innovation

Leveraging a variety of tools and technologies, digital innovation is acting as the catalyst to deliver impactful real-time and personalised elements within the customer journey. As Indian financial markets progressively integrate more deeply with global markets, wealth management players are enhancing their capabilities by introducing AI/ML into area like customer acquisition, portfolio recommendations, risk management, etc.

Redefined business operating models The above forces spanning around, growing wealth, new geographies, changing customer behaviours, increasing product complexity, enhanced regulatory focus and technology disruptions will give rise to redefined business models for wealth management. Businesses will gravitate towards platform led approach with complete solution capabilities. This will further drive consolidation and unorganised movement to organised.

Indian Asset Management Industry

The asset management industry has experienced exponential growth over the last two decades. This trend has been visible across investment vehicles such as mutual funds and alternatives investments, namely portfolio management services (PMS) and alternative investment funds (AIF)

Mutual fund assets surge 35% in fiscal 2024 to a new high. Fiscal 2024 turned out to be one of the best years for the domestic mutual funds industry as assets under management (AUM) spurted by nearly Rs 14 trillion to a record Rs 53 trillion as of March 2024 compared with Rs 39 trillion as of March 2023. The strong gain in industry assets was also replicated in the growth of investors in mutual funds, with the number of folios closing at record high of 17.78 crore, converting into an investor base of around 4.46 crore. Women comprised ~23% of the investors based on their share of the AUM and men ~77%, while individual investors comprised ~60% as against institutional investors ~40%. Individual investors dominated mutual fund categories such as equity, hybrid and solution-oriented schemes, and led the growth chart as households in the country increased their capital market participation through the mutual fund route. Further investors SIP adoption continues to rise; flows touch ~Rs 2 trillion in fiscal 2024.

Alternative assets classes also kept pace with growth in mutual fund AUM. Compared to MF AUM of Rs ~53 trillion, alternative vehicles have grown meaningfully as well with PMS assets (ex EPFO) of Rs ~6 trillion and AIF investments of Rs ~4 trillion (As on end of Dec 2023). With AIF commitments of Rs ~11 trillion, there is nearly Rs ~6 trillion of unutilised commitments, indicating large dry powder available to be deployed.

This growth in alternatives can be attributed to several key factors, which include:

Increasing income levels, investor awareness and affinity for alternative investments There has been a noticeable increase in investor awareness and a growing appetite for alternative investments. Historically, information pertaining to alternative investments remained confined and accessible primarily to institutional investors. However, recent years have witnessed a proliferation of alternative investment information, primarily owing to the Internet and social media. In terms of reach, over 72 cities have investments in excess of Rs 500 million each, while 50 cities have raised over Rs 1 billion each, indicating adoption beyond the metros. The share of younger investors (<35 years) has also nearly doubled in past few years.

Assets like private equity, venture capital, and hedge funds offer the potential for higher returns and attraction of diversification, compared to traditional asset classes like stocks and bonds, albeit with greater risk

Robust growth of the Indian economy Indias economy stands as one of the fastest-growing major economies worldwide. This remarkable growth is spawning fresh investment opportunities that alternative investment funds are keen to explore and leverage.

Support from the regulatory environment The Securities and Exchange Board of India (SEBI) has played a pivotal role in fostering the alternative investment industrys growth. In 2012, SEBI implemented the AIF regulations, consolidating various alternative investment funds under a unified regulatory framework, thus providing a conducive environment for their development

Looking ahead, the alternative investments are anticipated to sustain its expansion in future years. The recent alterations in tax regulations concerning debt mutual funds (including the removal of the Long-Term Capital Gains indexation benefit) and insurance (entailing taxation of maturity proceeds for life insurance policies with premiums exceeding Rs 5 lakh) are likely to be pivotal in driving the growth of the alternative assets industry. Additionally, with HNI investors increasingly recognising the potential of alternative investments in terms of diversifying across asset classes and wealth accumulation, the demand for such financial products is projected to surge.

Indian Capital Market: Equities rule the roost

Indian economies goldilocks was reflected in asset prices as well in stock indexs. Nifty delivered 29% and midcaps delivered more than 55% returns in FY 2023-24. The Indian midcap returns were highest in the world. Globally midcaps have been weak and have stabilised at low levels. Indian equity returns were backed by strong earnings growth of 16% for Nifty and more than 20% for midcaps. These resulted in healthy domestic flows, with nearly Rs 2 trillion of inflows (+25% yoy) into equity/growth schemes with most of the flows coming in through less volatile medium of monthly SIPs.

The trend in domestic flows has been on the rise for a decade now. The current macro backdrop of strong reforms, controlled inflation, strong domestic growth, opening up of capital markets and young demography has large similarities with the US of 1980s and 1990s. In US these reforms spurred an equity cult resulting in equity AUMs rising 100x in 20 years. In India, the AUMs are up 10-12x in last decade. Thus, if US template is to go by, then there is still a huge growth runway for Indian equities.

The buoyancy in equity markets paved the way for fund raising. A record amount of Rs 1.5 trillion was raised via primary markets during the year. This is quite encouraging as the fund raising should help kickstart a virtuous cycle in the economy.

In FY 2023-24, the market demonstrated exceptional performance as benchmark indices reached record highs, with the Nifty and Sensex achieving milestones of 22,526 and 74,245 points respectively. Furthermore, India surpassed Hong Kong to become the fourth-largest stock market, boasting a market capitalisation of USD 4.6 trillion in March 2024. Indian stocks reached new highs in FY 2023-24 due to optimistic investors and increased domestic participation. With foreign institutional investors (FIIs) consistently increasing their stakes, analysts foresee promising prospects for the Indian market in the future. Moreover, the anticipated rate reductions by global central banks in 2024 are anticipated to boost investor confidence, further fueling the Indian market rally.

Institutional Equities

In recent years, the net purchases/sales of domestic institutional investors in the cash segment have surged by more than three-fold. This strengthening hold of domestic institutional investors makes the Indian capital market less vulnerable to external influences. Furthermore, foreign investors made a strong comeback by infusing over Rs 2 trillion into equities in FY 2023-24, primarily due to optimism regarding Indias robust economic outlook. This marked the highest FPI inflow since FY 2020-21 when FPI investment totalled Rs 2.9 trillion. The renewed enthusiasm from foreign investors augurs well for the Indian market, underscoring increasing confidence in its potential for growth and returns. Inflows from foreign institutional investors (FIIs) are likely to stay strong in FY 2024-25 on the back of robust economic growth and momentum in earnings growth.

Domestic institutional investors are expected to experience sustained growth as they progress towards achieving self-reliance in the Indian capital markets. Additionally, Indian equity markets are poised for further growth, driven by improving macroeconomic conditions and anticipated decrease in interest rates.

Investment Banking

FY 2023-24 was a good year for IPO and QIP activity displaying noticeable trends. In total, 75 mainboard public issues were launched this year, raising Rs 619 billion, compared to 37 IPOs launched in FY 2022-23, which raised Rs 512 billion. The focus of IPOs was more on securing funding for growth capital in companies with a proven track record of profitability. Similarly fundraising through the QIP route reached Rs 781 billion in 2023-24 which was way higher than Rs 102 billion mopped up in the preceding financial year. This included fund mobilisation by REITs and infrastructure investment trusts through the QIP mode.

On the private side, however, M&A and PE activity witnessed some slowdown. The decline in M&A deal value was more significant compared to the previous year, which saw multiple large deals valued over USD 10 billion. Inbound activity however witnessed substantial growth, showcasing increased interest from foreign investors. After the low in 2023 in value terms, M&A activity did make a strong comeback in January-March 2024.

Looking forward, India remains a comparative bright spot. As India continues to position itself as a key player in the global economy, the strategic opportunities for investors are vast and diverse. Factors such as supportive policies, the emergence of large-scale assets across various subsegments and global supply chain diversification will help continue the deal momentum.

Asset Services

The Indian custody services market has witnessed significant growth. From FY 2016 to FY 2023, the Assets Under Custody (AUC) in India increased at a CAGR of 16%. With the ongoing development of Indias capital market and increasing foreign investment, it is expected that Indias share of the global custody industry will expand. The three primary customer segments for custody services include Foreign Portfolio Investors (FPIs) at 28%, mutual funds at 19%, and insurance companies at 17%, collectively representing over 65% of the total AUC in India.

The custodial services sector in India has undergone significant transformation in recent years, driven by changes in technology adoption, geographic expansion, and business model innovation, etc. Furthermore, the Indian custody market smoothly transitioned to the T+1 trade settlement cycle in January 2023, setting a benchmark for shorter settlement cycles. This move from the previous T+2 cycle aimed to enhance market efficiency and expedite trade settlement. The markets assets under custody have witnessed substantial growth, propelled by its expanding size and market capitalisation surpassing USD 4.5 trillion. As the Indian markets adapt to the T+1 implementation and continue to expand, custodians strive to stay abreast of all developments to effectively manage their responsibilities.

Among the 17 registered custodians, 4 are non-bank custodians, illustrating the diverse landscape of custody service providers in the Indian market. Due to the evolving custody service market, custodians have numerous avenues for growth, enabling them to enhance productivity, mitigate risk, and deliver superior services to clients.

FY 2024-25 Outlook: Growth momentum to continue

Global outlook for coming year remains uncertain at this point given that excess savings of US households is largely exhausted, while growth in other parts is still subdued. However central banks are likely to start lowering rates which should cushion the impact to an extent.

Indian economy is likely to continue its growth momentum. Combination of normal monsoon, continued government capex, strong private sector balance sheets and ending exports drag should continue to support growth going ahead. Expect RBI rate cuts to occur in the later part of the year.

These structural tailwinds and strong fundamentals will continue the growth momentum across financial services sectors. Wealth Management, Asset Management and Capital Markets will be the key beneficiaries of this trend.

Opportunities and Threats

Growth in income and changing preference towards non-traditional investments

Income and wealth levels in India will continue to grow with growth in overall economy. Further, financialisation of savings and changing preferences of investors to access asset classes like, MF, PMS, AIF, ReITs and InvITs will further accelerate the growth of investments. Robust returns from capital markets over long term period will further aid the growth of overall wealth.

Formal wealth penetration expected to rise In India, the wealth managed by professional managers is highly underpenetrated at ~15% market share. As the economy advances, and wealth management scales the share of professional wealth managers will continue to rise as seen in developed markets.

Growing middle-class population

Indias burgeoning middle-class segment, characterised by rising disposable incomes and aspirations, presents a significant growth opportunity for the wealth and asset management industry.

Change in customer preferences towards holistic wealth management services:

The need for personalisation (vs standard products) increases as one moves up the wealth ladder. Given these needs, the complexity of products also increases and so does the need for professional wealth managers. At this stage, the model moves from being a product led one to a relationship-led one giving holistic wealth management services.

Technological advancements

Technological advancements like AI and analytics offer unlimited opportunities. Effective use of analytics empowers the industry to harness the power of data, extracting valuable insights into customer behaviour and facilitating the design of tailored products. AI and automation also play a pivotal role in reducing operational costs, enhancing efficiency and bolstering profitability.

Threats

Dynamic Regulatory changes

Like any other evolving industry which manage public money, namely banks, asset managers, insurance companies and wealth management outfits, the regulatory supervision is always heightened and rightfully so. The frequent changes in the regulatory framework may lead to temporary disruptions, but in the long run these will be beneficial to investors as well as all the market participants.

Global economic slowdown

The global economic slowdown can adversely affect the macroeconomic landscape, potentially leading to reduced liquidity that could impede the growth trajectory of industries worldwide. This slowdown may exacerbate existing challenges, posing additional hurdles for economic expansion and investment opportunities in India.

Increased competition

There has been a notable surge in new players entering the equity and financial markets. This heightened competition is expected to exert pressure on the margins of existing players as they contend with the increased market saturation.

Market-related risks in investment products:

Various market-related risks, including investment risk, credit risk, liquidity risk, and governance and compliance risk, pose threats to investment schemes and other investment products in the industry.

Cybersecurity threats

Cybersecurity poses a significant threat with potential risks including data breaches, financial losses, service disruptions and regulatory consequences. Breaches may result in the compromise of confidential client information, disruption of trading activities, and erosion of market integrity.

Company Overview

Founded in 1993, Nuvama Wealth Management Limited (NWML) (formerly known as Edelweiss Securities Limited) is one of the leading integrated wealth management companies in India. We have established a solid foundation of trust and reputation in the Indian market in the last three decades. We offer an array of services to our clients through a comprehensive suite of wealth management, asset management & capital markets services. This exhaustive suite of offerings differentiates our platform, empowering us to provide tailored solutions to our clients. We structure our operations according to client segments, enabling us to specialise & enhance our value proposition.

As a well-established wealth management firm, our clientele spans across various diversified segments, including affluent and HNIs, UHNIs, affluent families, family offices, as well as corporate and institutional clients. We oversee Rs ~3.5 trillion of client assets and cater to a diverse set of clients which includes ~1.2 million affluent and HNIs, ~3,600+ UHNI families, and 1,000+ corporates and institutions in India.

We provide comprehensive wealth management solutions, encompassing investment management, advisory, estate planning, exchange-traded products, lending and broking services, family office solutions, corporate advisory, and treasury services. Additionally, we offer a wide bouquet of asset management products in both private and public markets as well as commercial real estate. We are also a leading player in capital markets.

Key Strengths and our Strategic Advantage

Experienced Promoters with strong management team Nuvama benefits from the unparalleled expertise and financial strength of PAG, a leading investment firm with over USD 55 billion in AUM. This strategic partnership is further bolstered by our experienced management team with a visionary approach and proven track record across diverse market cycles.

Integrated and differentiated platform Over the years, we have built a scalable and integrated platform that provides a diverse range of services tailored to meet the varied needs of our clients. This comprehensive approach sets us apart, attracting top relationship managers who seek more than traditional investment product distribution roles. Our integrated platform enables us to innovate and offer unique solutions, leveraging our in-depth understanding of our clients wealth and specific requirements. Organised in a client-centric manner, we prioritise the client as the core unit, ensuring efficient and seamless delivery of these bespoke solutions.

Scaled & multi-client segments with reach across India

Nuvama is the preeminent pure-play wealth manager for the affluent, HNI and UHNI client segments. We cover segments that constitutes majority (80%) of the wealth. Our deep client relationships, cultivated over a decade and extensive reach across 450 locations enable us to deliver solutions tailored to unique client needs. With client assets of Rs ~3.5 trillion, we serve 1.2 million HNI/ Affluent individuals, 3,600+ UHNI families and 1,000+ corporates and institutions.

Proven execution with diversified revenue streams and strong capital base

Our revenue for all the three segments has consistently grown over last four years. These diversified revenue streams help in driving secular business growth and provides reasonable cushion to absorb any systematic risk.

Robust Technology Platform

We harness the power of technology to deliver a superior client experience. Our full-stack platform spans the entire value chain, offering capabilities including digital onboarding, straight-through transaction processing, efficient servicing, robust engagement tools, and comprehensive transaction and portfolio reporting. Our investments in the above technology platforms over years have helped enhance our process efficiency and achieve operational excellence.

Performance Highlights- FY 2024

1. Revenues grew by 31% from Rs 15,754 million in FY 2022-23 to Rs 20,627 million in FY 2023-24.

2. Operating Profit After Tax (PAT) grew by 62% from Rs 3,682 million in FY 2022-23 to Rs 5,970 million in FY 2023-24.

3. Cost to income ratio has improved from 69% in FY 2022-23 to 62% in FY 2023-24.

4. Return on Equity (RoE) increased from 17.8% in FY 2022-23 to 23.6% in FY 2023-24.

Financial Highlights FY 2023-24

			(Rs in million)
Particulars	FY 2023-24	FY 2022-23	YoY %
Net Revenue	20,627	15,754	31%
Total Cost	12,791	10,865	18%
Operating Profit Before Tax (PBT)	7,836	4,889	60%
Operating Profit After Tax (PAT)	5,970	3,682	62%
RoE	23.6%	17.8%
Cost to income ratio	62%	69%
Net Worth	28,948	22,542	28%
Net Debt	46,396	32,967	41%

Key Operating Parameters

Particulars	As on March 31, 2024	As on March 31, 2023
Client assets (in Rs billions)	3,460	2,311
No. of clients - affluent and HNI	~ 1.2 million	~ 1.1 million
No. of families - UHNI	3,600+	3,100+
RM count	1,222	992

Closing Client Assets- by Segment

		(Rs in billion)
Particulars	FY 2023-24	FY 2022-23
Wealth Management	2,478	1,820
Asset Management	70	56
Capital Markets (Asset Services)	912	435

Segment-wise Performance

		(Rs in million)
Segment	FY 2023-24	FY 2022-23
	Revenue	Revenue
Wealth Management	11,881	10,159
Asset Management	626	682
Capital Markets	8,050	4,894

Excludes minor amount towards corporate and eliminations

Wealth Management

In Wealth Management, our platform continues to attract talent. Currently, our relationship manager count stands at ~1,200. We have deepened our presence in existing markets while also adding offices in new cities. We have also initiated on launch of our offshore proposition.

• Revenues grew by 17% from Rs 10,159 million in FY 2022-23 to Rs 11,881 million in FY 2023-24.

• Operating PBT grew by 24% from Rs 3,360 million in FY 2022-23 to Rs 4,158 million in FY 2023-24.

• Client Assets grew 36% from Rs 1,820 billion as at end of FY 2022-23 to Rs 2,478 billion in FY 2023-24

• Added ~230 new RMs this fiscal, taking our RM count to 1,200+.

• Nuvama Wealth: Revenues and net flows from Managed Products & Investment Solutions (MPIS) remains robust. In FY 2023-24, MPIS contributed 86% of the total new flows.

• Nuvama Private: Revenue and net flows from Annual Recurring Revenue (ARR) earning assets continues to grow at a faster rate. ARR revenues were 57% of total

Asset Management

In Asset Management, our focus has been on completing our product suite and broadening distribution channels. We announced the launch of our new Commercial Real Estate (CRE) fund of Rs 3,000 crore in January 2024. It is a 50:50 joint venture with Cushman and Wakefield, a leading global commercial real estate services firm, managing over 5.1 billion square feet of commercial real estate space globally.

• Revenues (ex-carry) grew by 34% from Rs 368 million in FY 2022-23 to Rs 494 million in FY 2023-24.

• AUM: Rs 70 billion as at end of FY 2023-24, grew by 25% YoY, of which Public Markets AUM stood at Rs 21 billion, grew by 155% YoY.

Capital Markets

In Capital Markets, we retained one of the leading positions in respective segments, capitalising on the favourable market environment. Robust primary & secondary capital markets and increased market share led to the growth in business revenue and profitability.

• Revenues grew 64% from 4,894 million in FY 2022-23 to Rs 8,050 million in FY 2023-24.

• Operating PBT grew by 180% from 1,344 million in FY 2022-23 to Rs 3,763 million in FY 2023-24.

• Client Assets for Asset Services grew 109% to Rs 912 billion in FY 2023-24

Business Outlook

The Company is well-positioned in the evolving wealth management landscape, leveraging its scale and comprehensive platform capabilities. We anticipate sustained growth momentum in FY 2024-25, buoyed by Indias ongoing reforms and the governments focus on business stability, industrialisation, infrastructure development, employment creation, and an expanding digital economy. We expect wealth creation to outpace economic growth, driven by financialisation and the growing penetration of organised wealth management. With our strong fundamentals, our business is strategically positioned to capitalise on favourable market trends for continued success.

We are focussed on expanding our Wealth Management and Asset Management segments, recognising them as pivotal drivers of our growth strategy, while maintaining our leadership in capital markets. We are confident in the long-term growth prospects of the Wealth Management industry in India and are striving to expand our capacity and capabilities to maintain our leadership position. We aim to leverage operational efficiencies to achieve significant improvement in our cost-to-income ratio.

In Asset Management we will continue to scale existing strategies by strengthening distribution and add newer strategies as per our roadmap.

In Asset Services our focus is to grow clients, expand footprint and strengthen our product proposition.

Well defined trajectory for all businesses.

Wealth Management:

Risk Management

The Company has a robust Risk Management framework for the timely and effective identification, assessment, management, and mitigation of key risks. Our Risk Management Committee monitors and oversees the implementation of the risk management policy, including evaluating the adequacy of risk management controls and systems.

Each entity within the Company has implemented its own risk management policies tailored to its specific business scope and activities. The Companys risk management framework encompasses the primary foreseeable risks inherent in its operations, along with the corresponding mitigation strategies put in place to effectively manage and mitigate them. The key risks and their corresponding mitigation measures are mentioned below:

Risks	Description	Mitigation
Market Risk	We may face potential financial losses which may impair our daily operations due to fluctuations in market variables such as but not limited to equity prices, interest rates, commodity prices etc.	• Stringent risk limits on market exposures
		• Stress testing and scenarios analysis
		• Real-time risk monitoring
Credit Risk	We face credit risk, particularly in lending and investment activities and financial assets, which can impact our financial stability and profitability.	• Onboarding of customers through credit appraisal and AML process
		• Lending against high quality liquid collateral
		• Ongoing monitoring of collaterals & loans
Operational Risks	We face various operational risks that could significantly impair our business, financial health, cash flows, operational outcomes, and future prospects.	• SOPs devised for the process / activities
		• Sound internal control practices across all processes, units/functions
		• Periodic review of various processes
		• Strong Culture of reporting exceptions
Fraud Risk	We encounter fraud risk stemming from various sources, including internal misconduct and external scams, which can lead to financial losses, legal repercussions, and damage to customer trust if not effectively managed.	• Periodic fraud risk assessment for vulnerability and enhancing control environment
		• Strong Culture of reporting frauds
		• Whistle Blower and Vigil Mechanism policy to highlight fraudulent activities
Liquidity Risk	The possibility of insufficient financial resources and inadequate liquidity may hinder us from fulfilling our obligations.	• Cash Flow Planning and Monitoring
		• Diversification of borrowing sources
		• Ensuring optimum level of liquidity cushion and maintain positive ALM across buckets
Regulatory Risks	We are subject to extensive statutory and regulatory requirements and supervision by government bodies and various regulatory authorities, such as the SEBI, Stock Exchanges, and the RBI. Any changes in regulations or adverse actions by regulators can significantly impact our business operations.	• Dedicated Compliance team to interpret regulations, submit regulatory returns and interface with Regulators
		• Regulatory changes tracked and implementation ensured
		• Periodic review of various processes to ensure regulatory compliance
		• Audit team to identify regulatory gaps, if any
Technology Risks	The failure or disruption of our IT systems or cyber threats could have adverse effects on our business, financial condition, cash flows, results of operations, and prospects.	• Independent Audit of systems as per ISMS standard
		• Periodic Information Security review & strong governance for closure of observation
		• Well-defined BCP-DR framework & BCP setup is in place
People Risk	The Company faces challenges related to people risk, including talent turnover, skill gaps, and succession planning challenges, which can disrupt operations and pose obstacles to longterm growth.	• Efficient Talent Management strategies - acquisition, development, engagement & retention
		• Succession planning of critical people
		• Critical talent engagement/retention
Reputational Risks	If research disseminated or advice provided by us contains errors, it may lead to complaints from clients and cause reputational damage to our brand. We could be subject to claims by clients or actions by regulators or both for alleged misselling.	• Stringent quality checks and guardrails to prevent errors and mis-selling.
		• Prompt redressal of complaints in a fair manner
		• Escalation to senior management wherever required
		• Monitoring media coverage and proactively address any negative press or misinformation

Internal Control Systems and their Adequacy

The Company has implemented robust policies and procedures to ensure that its system of internal controls, including internal financial controls, is commensurate with the nature, size and complexities of the Companys business. The system of Internal Financial Controls is designed to ensure the effectiveness and efficiency of operations, providing financial and operational information, safeguarding assets, preventing and detecting fraud and errors, ensuring the accuracy and completeness of accounting records, and compliance with applicable laws and regulations.

The internal control system operates on the principle of three lines of defence. The first line of defence consists of the Business, Operations, and IT units, responsible for the proper and effective implementation of policies and controls. They are responsible for identifying and managing risks within their respective departments or business areas. The second line of defence comprises control functions such as Risk Management and Compliance, which establish necessary policies and controls. They provide oversight over the first line of defence to ensure compliance and effectiveness. The Internal Audit, serving as the third line of defence, operates independently from both business and risk functions. It conducts impartial evaluations and assessments of the first two lines of defence.

The internal control system is regularly tested and reviewed by the internal auditors, an independent external firm collaborating closely with the Internal Audit Department and reviewed by the Audit Committee of the Board. Internal audits comprehensively cover key business areas, including Operations, Risk Management, Compliance, information technology, finance and accounts, and other enterprise functions. Audit observations, including those pertaining to subsidiaries, along with subsequent action reports are reviewed by the Audit Committee on a quarterly basis.

The Company believes that these systems provide reasonable assurance regarding the adequacy and effective operation of its internal controls as intended.

Technology Adoption

Technology is vital for delivering services and superior client engagement. It is used across all business segments and enterprise functions, including client applications, middleware, and core applications. We continually invest in technology-driven innovations to enhance customer experience and digitisation for greater efficiency. Our inhouse information security team, supported by top-tier security tools, strengthens our defences. We have a "zero trust" security approach, ensuring thorough scrutiny of all access requests. We prioritise cloud security with robust access controls and encryption mechanisms. Key initiatives in FY 2023-24 include cybersecurity enhancements, regulatory compliance adherence, operational efficiency improvements, and the launch of a highly rated reporting app for private clients.

For further information on Technology, please visit page 32 of the Annual Report

Human Resources

Our employees are our backbone and most valuable assets in our growth journey. At Nuvama, they drive our success, and we nurture them with care and foresight.

We focus on attracting, nurturing, and retaining the best talent across diverse business groups. Our rigorous recruitment ensures each team member embodies Nuvamas values and vision. We have always believed in meritocracy led culture, recognising and rewarding excellence. We value performance, integrity, and innovation, fostering an entrepreneurial spirit and a dynamic environment for sustainable growth.

Our talent management framework adapts to emerging trends and challenges, equipping our team with essential skills and knowledge. We offer upskilling programmes, cross-functional exposure, and innovative learning platforms. In FY 2023-24, 950 employees received Functional and Behavioural Training, and 150 participated in Governance sessions.

As an equal opportunity employer, we promote fairness and inclusivity, with 25% women professionals and a diverse age demographic. Nuvama listens to employees, prioritising well-being through initiatives like annual health check-ups, mental well-being platforms, fitness partnerships, "Happiness Leave," and comprehensive maternity benefits.

As of March 31, 2024, Nuvamas total employee strength was 3,104.

For further information on Human Resources, please visit page 40 of the Annual Report

Cautionary Statement

The Management Discussion and Analysis may contain some statements describing the Companys objectives, plans, projections, estimates, and expectations which may be forward-looking statements within the meaning of applicable securities laws and regulations and are based on informed judgments and estimates. Actual results may differ materially from those expressed or implied due to external and internal factors, various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India, volatility in interest rates, new regulations and government policies that may impact the Companys business. The Company does not undertake any obligation to publicly amend, modify, or revise these forward-looking statements based on subsequent developments, information, or events.