PMC Fincorp Ltd Management Discussions

Macroeconomic Overview

Financial 2024-2025 was a major year with events that reshaped the economic landscape. With the middle east conflict at its peak, Russia-Ukraine war entering its third year, American presidential elections, and the consequent start of a unilateral trade war. The most significant event being Donald Trumps presidential election on November 5, 2024, setting off a chain of events that even altered the US Federal Reserves interest rate cutting projections. The disruptive initiation of the America First policy that seems to upend the American led globalisation that made China a manufacturing powerhouse and American businesses the major economic beneficiaries, has led to deep polarisation of world economies, with China leading the charge against the American reimposition of a new trade rulebook. On the Indian front, the market navigated the start of the financial year with the re-election bid of the Narendra Modi led BJP government, which was fought with the promise of securing 300 plus seats in the 543 seat Indian parliament. The significance of this promise was what made the markets nervous and the outlook uncertain, with statistical odds strongly against securing a third term let alone winning 300+ seats, the market volatility reflected the unease, with the India Vix staying consistently above average leading up to the election results, and peaking as they were announced on June 4, 2024. The Nifty opened at days high of 23,179.5 and moved sharply lower to 21,281.45, recording an 8.2% movement in a single day. This reflected the market unease with the new reality of a coalition government.

The June 4, 2024, although recorded a major downside move of 8.2%, was more a blip as the market moved to make new highs within four months on September 27, 2024 peaking at 26,277.35, delivering a staggering 23.5%. With this in our minds, the past financial year has played out in two halves for the Indian capital markets. As evident from Chart A, the two halves of financial 2024-25 were mirror images in terms of returns delivered.

The first half of FY2024-25 navigated through Indian political uncertainties and new realties, and the second half gave a reality check on the market valuations and more importantly, the eminent change in the global economic landscape setoff by the election of Donald Trump as the American president. During the year, India saw a strong IPO market, with USD 19.6 Billion mobilised through 336 IPOs, including established names such as Swiggy, Bajaj Housing, and Hyundai India looking to capitalise on the market surge powered by the retail frenzy, on what seemed like a never ending story. The IPO frenzy of 2024 propelled India to second largest fundraising market, behind only the United States for the first time. Although, by value, the National Stock Exchnage led the charge during year. However, this was not providing any comfort to foreign investors which turned the tides in October 2024 by pulling out a record USD 11 Billion, the largest exodus in a single month since the pandemic. This was on the back of weak corporate results and fears of a slowing economy. This led to worst monthly performance of the headline indices with the Nifty falling 6.2% and Sensex falling 5.8% in October. This setoff multiple chain reactions, with the Indian Rupee suffering the worst on the back weak GDP and foreign money being pulled out of the capital markets. This has also led to major demographic shift in the Indian capital markets, with foreign investor ownership of Indian stocks at a 12 year low of 18%, doemstic institutions stake has crossed 10.7% for the first time, backed strong SIP flows to mutual funds, which has led to retail investors direct and indirect (through mutual funds) shareholding to surge 10 times in 10 years to 17.6% of the total market capitalisation of only NSE listed companies. Furthermore, as the markets peaked in Saptember 2024, so did the total investor base, crossing 10 crores in August 2024 and reaching 10.9 crores in December 2024. While it is vital for the Indian economy to mobilise household funds, which have traditionally been diverted towards real estate, gold, and bank deposits, it is also important to note that the retail frenzy was nothing short a liquidity event for the instiutions and promoters at the peek of the market bull run. As the smart money focused on the data, the retail investors were caught in FOMO rally and chased the momentum to nowhere, which is evident from the second half of FY 2024-45, which nearly wiped the stellar returns of the first half. Analysing the market at a granular level, major sectors underperformed in the second half, with highly economically sensitive sectors such as realty, energy, autos, oil and gas doing the worst, as evident from chart B. The effects of the coalition government have also been evident on the economy, with slower release of governement tenders, and lack of government investment leading to slower economic growth. This has also led to fall in the PSU favourite stocks such as defence and railways, which were rallying on the back of strong gowth in governement order books. Overall, the slowing down of Indian growth, and corporate profitability on the back of weaker government spending and uncertain global outlook has led to a structural correction of the stock market, which faced both, a time wise and price wise correction from October 2024 to March 2025.

The way ahead does not seem all gloomy, with India still the fastest growing large economy. However, we expect slower recovery in the broader market, with blue chips recovering the fastest, followed by mid and small caps later. We also think that the recovery will be trend based, led by sectors which are poised to lead a domestic focused and digitally enabled economy. Some example are, of the paints space, which has seen major players such as the Aditya Birla and JSW group entering a oligopolistic market led by Asian Paint, and cement space, which has seen consolidation of smaller and struggling players being acquired by larger peers such as UltraTech and Adani led Ambuja and ACC, also the healthcare sectors is witnessing a structural growth spurt, evident from the resilient returns the sectors gave in 2024. These trends signify the positive momentum expected in Indian infrastructure and realty space. The new technology companies are also promising at reasonable valuations, with Zomatos entry into Nifty 50, we can expect more new- age companies to enter the leading indices to reflect the changing economic landscape in India. The IPO market is also expected to continue its momentum, with major IPOs in the pipeline for the Financial Year 2025-26, forecasting fundraising of USD 23Billion, up from USD 19.6Billion in the previous year, with the most notable IPO in the waiting of Reliance Jio expected in the second half. The most significant risks ahead arise from the trade negotiations between India and The United States, recovery in corporate profitability and outlook given by managements, government spending recovery, and the inflation and interest rate movements.

The company has been actively working towards its goal of increasing value for all its stakeholders. In view of the same, the board of directors recommended a final dividend of 1%. The company posted its all-time high profit for a second year in a row of INR 14.34 Crores for the FY 2024-25. During the year, the company raised INR 48 crores through equity shares offered through rights issue, we would like to express our gratitude to all our shareholders for the overwhelming response. In regards to the same, the company has been successful in deploying the fund raised into expanding the lending and investing operations. Despite significant volatility in the capital markets, the company was able to safeguard its positions as our strategy has been focused on avoiding leveraged positions, and identifying longer term trends. We also feel that the share price of our company does not justify the fundamental performance and value. Further, the companys lending operations are steady, further, company is gradually aligning and expanding its capital market operations. Going ahead, our company will continue to optimise and reposition its portfolios as per emerging trends in the markets. Our portfolio strategy is largely driven by fundamental developments and market sentiments. While market sentiments do not drive our investment decisions in any stock or sector, it can be a significant indicator for entry and exit opportunities.

The very nature of the companys business makes it subject to various kinds of risk. The company encounters credit risk and operational risks in its regular business operations. Further the performance of the company is dependent on the market conditions. Risk management does not imply risk elimination but prudent risk identification and assessment. To this effect, we recognise that due to underlying nature of volatility in the capital markets, our company also experiences volatility in its financial performance due to the accounting principle of recording the value of holdings based on the market value as on end of each quarter. Further, we are always striving to identify and manage unsystematic risks to our lending operations in addition to our capital market exposure, however, exposure to systematic risks is inherent to any business operation. We are always committed to keep analysing the dynamic economic conditions to identify and manage risks to our operations.