Prime Capital Market Ltd Management Discussions

ANNUAL OVERVIEW AND OUTLOOK

The global economy in FY24 grappled with slowdown in economic growth due to persistence of high interest rates, increasing geo-political conflicts, sluggish international trade, and climate related issues. Notwithstanding the uncertain global economic backdrop, the Indian economy continued on its strong growth trajectory in FY24 on the back of some of its key inherent strengths, viz. macro-financial stability (characterised by a steadfast inflation targeting regime, adherence to fiscal consolidation roadmap, manageable current account deficit and stable exchange rate along with an adequate buffer of forex reserves), strong twin balance sheets of banks and corporates, and frontloading of public capex in key sectors.

Throughout FY24, the Indian economy has maintained its stature as the fastest growing country in the world. The growth outlook was frequently revised upwards following better-than expected quarterly growth numbers during the year. As per the second advance estimate of the National Statistical Office, the Indian economy is estimated to have grown by 7.6% in FY24 compared to 7% in FY23. The strong growth performance is driven by strong momentum in the industrial sector and public capex thrust. The services sector too remained resilient in FY24. The agriculture and allied sector is estimated to have grown by 0.7% in FY24 compared to 4.7% in FY23 due to the presence of El Nino conditions.

However, relatively higher mandi prices for major agricultural crops and increased allocations under MNREGA acted as the income stabilizers for rural belts. The Consumer Price Index (CPI) based inflation moderated in FY24 albeit with heightened volatility due to food price shocks. Prices of cereals, pulses, vegetables, and spices surged to double-digit levels during FY24, and intermittent vegetable price shocks kept the overall food inflation levels highly volatile. On the positive side, the decline in core inflation persisted throughout FY24 and touched 3.25% in March 2024, its lowest level since January 2012. RBI has reiterated its policy imperative of bringing down headline inflation to 4% on a durable basis. Consequently, after hiking the policy repo rate by 250 bps in FY23, it stood firm on its policy repo rate (6.50%) and stance (withdrawal of accommodation) during FY24.

The Wholesale Price Index (WPI) based inflation collapsed in FY24 and averaged -0.70% during FY24 versus 9.41% during FY23, primarily due to deflation in manufactured product prices on the back of moderation in global commodity prices. The Central Government hastened its adherence to the fiscal consolidation roadmap in FY24 by containing fiscal deficit to GDP ratio at 5.8% (marginally better than the budgeted 5.9%), despite a lower nominal GDP growth of 8.9% compared to the projected growth rate of 10.5% for budget estimates of FY24.

Moreover, the quality of public expenditure continued to improve as the growth in capital expenditure (28.4%, Y-o-Y) significantly outweighed growth in revenue expenditure (2.5%, Y-o-Y) in FY24. India currently holds the fourth-largest foreign exchange reserves (US$ 646 Bn as of March 29, 2024) in the world, up from the sixth-largest since the Covid-19 pandemic. The Indian Rupee was stable and moved in a tight range of 81.65-83.40 during FY24, aided by RBIs both-side interventions in currency markets. In recent months, various multilateral agencies have upgraded their infrastructure and construction industry groups.

More importantly, the Central Government has budgeted lower market borrowings in FY25 than in FY24 which will reduce supply pressure on the markets which will have favorable influence on interest rates. As per India Ratings, the growth rate in AUM of NBFCs will moderate in FY25 compared to FY24. Following increase in risk weights by the RBI, costs of funds for NBFCs from banks have increased and are likely to remain elevated in FY25. The incremental funding requirement for the NBFC sector will be 4.5 Tn in FY25 and the volume of public NCDs might go up in FY25.

OPPORTUNITIES & THREATS Opportunities

The global economy is witnessing a transformative shift, marked by the increasing prominence of the finance shared services (FSS) industry. The global FSS market size was valued at USD 46.54 billion in 2022 and is expected to reach USD 75.69 billion by 2028, growing at a CAGR of 8.4%. This dynamic sector offers a plethora of promising career opportunities for finance professionals, providing a platform for professional growth, development, and international exposure. India, with its vast pool of qualified talent, cost advantages, and strategic positioning, has emerged as a preferred location for FSS operations, further expanding the career landscape in this field. India is a leading FSS destination globally, with approximately 40% market share in the Asia-Pacific region. The Indian FSS market is estimated at USD 25 billion in 2023 and is expected to reach USD 45 billion by 2028. Indias FSS industry started gaining momentum in the late 1990s due to its large English-speaking talent pool, cost advantages, and strong IT infrastructure. Numerous multinational companies established FSS centres in India to cater to their global operations. In the future, Indias FSS industry is expected to continue its robust growth, driven by factors like a skilled workforce, advanced digital technologies, and government initiatives promoting India as a preferred FSS destination.

Threats

NBFCs have faced key challenges of funding, liquidity, asset quality and competition during the pandemic. As per India Ratings, the growth rate in AUM of NBFCs will moderate in FY25 compared to FY24. Following increase in risk weights by the RBI, costs of funds for NBFCs from banks have increased and are likely to remain elevated in FY25. The incremental funding requirement for the NBFC sector will be 4.5 Tn in FY25 and the volume of public NCDs might go up in FY25. If recurrent food price shocks prompt the Monetary Policy Committee (MPC) of RBI to keep interest rates higher for longer, then it will increase debt costs for consumers and businesses, likely leading to slower economic activity during FY25. Indias cumulative merchandise exports growth during FY24 was -3.1% (Y-o-Y) versus 6.7% (Y-o-Y) in FY23. Indias investment cycles are closely interlinked with the exports cycle. If the talk of a soft landing for the global economy proves wrong, given the risks from populism to protectionism, military conflict to the climate crisis, and China to Wall Street, there is a high likelihood that Indias exports and investments will weaken further and act as a drag on domestic growth during FY25.

RISKS AND CONCERNS

Prime Capital Market Ltd. (PCML) has exposures in various line of business. PCML are exposed to specific risks that are particular to their respective businesses and the environments within which they operate, including market risk, competition risk, credit risk, liquidity and interest rate risk, human resource risk, operational risk, information security risks, regulatory risk and macro-economic risks. The level and degree of each risk varies depending upon the nature of activity undertaken by them.

MARKET RISK

The Company has quoted investments which are exposed to fluctuations in stock prices. PCML continuously monitors market exposure in equity and, in appropriate cases, also uses various derivative instruments as a hedging mechanism to limit volatility.

LIQUIDITY AND INTEREST RATE RISK

The Company is exposed to liquidity risk principally, because of lending and investment for periods which may differ from those of its funding sources. Management team actively manages asset liability positions in accordance with the overall guidelines laid down by various regulators. The Company may be impacted by volatility in interest rates in India which could cause its margins to decline and profitability to shrink. The success of the Companys business depends significantly on interest income from its operations. It is exposed to interest rate risk, both as a result of lending at fixed interest rates and for reset periods which may differ from those of its funding sources. Interest rates are highly sensitive to many factors beyond the Companys control, including the monetary policies of the RBI, deregulation of the financial sector in India, domestic and international economic and political conditions and, inflation. As a result, interest rates in India have historically experienced a relatively high degree of volatility. The Company seeks to match its interest rate positions of assets and liabilities to minimize interest rate risk. However, there can be no assurance that significant interest rate movements will not have an adverse effect on its financial position.

HUMAN RESOURCE DEVELOPMENT

The Company recognizes that its success is deeply embedded in the success of its human capital. During 2023-24, the Company continued to strengthen its HR processes in line with its objective of creating an inspired workforce. The employee engagement initiatives included placing greater emphasis on learning and development, launching leadership development programme, introducing internal communication, providing opportunities to staff to seek inspirational roles through internal job postings, streamlining the Performance Management System, making the compensation structure more competitive and streamlining the performance-link rewards and incentives.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

The provision of the Companies Act, 2013 relating to CSR Initiatives are not applicable to the Company.

COMPLIANCE

The Compliance function of the Company is responsible for independently ensuring that operating and business units comply with regulatory and internal guidelines. The Compliance Department of the Company continues to play a pivotal role in ensuring implementation of compliance functions in accordance with the directives issued by regulators, the Companys Board of Directors and the Companys Compliance Policy. The Audit Committee of the Board reviews the performance of the Compliance Department and the status of compliance with regulatory/internal guidelines on a periodic basis. The Company has complied with all requirements of regulatory authorities during the current financial year. No penalties/strictures were imposed on the Company by stock exchanges or SEBI or any statutory authority on any matter related to capital market during the last three years, except as stated herein below - Demat account of the Company has been freezed by BSE due to non-compliance by M/s. Blue Circle Services Limited as well as M/s. Warner Multimedia Limited; wherein the Company has been designated as “Promoters” or “Promoter Group”. Both these Companies have failed to make payment of Listing Fees for last 3 financial years and also have not paid penalties for violation of several LODR Regulations. The Company has paid SOP Fines of Rs. 12.22 Lakh for delay in filing compliance documents under various LODR

Regulations, The Company has paid said amount.