PS IT Infrastructure & Services Ltd Management Discussions

ECONOMIC OUTLOOK

In 2024, India continued to demonstrate strong economic performance, maintaining its position as one of the worlds fastest-growing major economies. The International Monetary Fund (IMF) maintained Indias GDP growth forecast at 6.5% for both FY2026 and FY2027, reflecting confidence in the nations economic trajectory. This stable outlook is supported by strong private consumption, particularly in rural areas, and substantial public infrastructure investments. Despite global economic challenges, including geopolitical tensions and inflationary pressures, Indias economic outlook remains positive. India is poised to sustain its growth trajectory, supported by structural reforms and advancements in technology. While certain sectors face hurdles such as high inflation and slowing consumption, these challenges create opportunities for policy interventions to stimulate demand and ensure inclusive growth. The governments proactive measures in fiscal policy and infrastructure development are expected to mitigate these issues, fostering a resilient and dynamic economic environment.

INDUSTRY OVERVIEW

VC and growth funding in software and SaaS, including generative artificial intelligence (AI), rose ~1.2x to $1.7 billion from 2023 to 2024 as international plays matured and more high-quality scaled assets entered the market. Generative AI funding grew ~1.5x during this period, both for generative AI-native start-ups and deployment earmarked for generative AI capability development. Applications and platforms attracted most of the interest, compared to a global focus on more capital-intensive foundational models. Meanwhile, traditional sectors such as banking, financial services, and insurance (BFSI) and consumer/retail experienced sharp funding growth driven by their underlying strengths, including large addressable markets, untapped demand, and favorable socioeconomic tailwinds.

A diverse mix of investors beyond the leading VCs stepped up in 2024, reflecting a return to the varied investor archetypes seen in 2021 and 2022. Private equity (PE) funds continued to reflect confidence in growth investments (e.g., KKR in Rebel Foods). Family offices and corporate VC firms also stepped up activity, with deal volumes increasing ~1.8x from 2023 to 2024. Fund-raising activity declined by ~35% to $2.7 billion, the lowest since 2020, as accumulated dry powder continued to loom and deployment remained cautious. Against this backdrop, maiden funds rose in prominence, comprising nearly one-third of the VC/growth capital raised (vs. ~25% in 2023). Some funds targeted specific themes, such as sustainability, agriculture, defense, sports, and gaming. Exit activity remained steady in 2024, edging up to $6.8 billion. Importantly, public market exits rose from ~55% to ~76% of total exit value over 2023 24. A 7x surge in IPO exit value powered this change, fueled by rising liquidity, recovery in key tech stock valuations, regulatory reforms, and a pent-up IPO backlog.

Overall, in 2024, Indias start-up ecosystem showcased a growing emphasis on profitability, innovation, and regulatory alignment. Policy reforms such as eliminating the angel tax, reducing long-term capital gains (LTCG) tax rates, removing the National Company Law Tribunal (NCLT) process, and simplifying foreign venture capital investor (FVCI) registrations signaled positive momentum for the Indian start-up ecosystem and funding. Looking ahead to 2025, investors remain confident and have available capital, suggesting potential robust deal activity. Growth-stage investments are set to rise, and emergent sectors such as semiconductors, energy transition, and deep tech will likely garner greater interest as the ecosystem evolves and institutional support deepens. In the longer term, Indias VC ecosystem is poised for sustained growth. Strong consumption tailwinds, regulatory advancements, and a rapidly expanding digital backbone will drive this development.

OPPORTUNITIES & THREATS

Indias economic landscape in FY25 is undergoing a profound transformation, driven by steady growth and investor participation. According to the Economic Survey 2024-25, the countrys financial markets have demonstrated resilience amidst global uncertainties, with Indias stock markets remaining among the best-performing globally. But, as we look ahead, the real question is: how will Indias capital markets evolve to not only sustain this growth but also drive wealth creation for millions. Despite current volatility, Indias financial ecosystem has seen remarkable progress, delivering sustained growth as compared to its global counterparts. By the end of December 2024, India had outpaced its peers in emerging markets. The Nifty 50 index, despite global uncertainties, delivered positive returns, and the BSE market capitalization reached a staggering 445.2 lakh crore.

These figures are reflective of the countrys ability to attract capital and foster investor confidence. What stands out in this growth story is the sharp increase in investor participation. The pandemic served as a catalyst for individuals and households to enter the market, and the momentum has only continued to grow. Demat accounts have surged by 33% to 18.5 crore as of December 2024, while the number of unique investors in mutual funds has reached 5.6 crore. The Indian household is transitioning from a culture of saving to a culture of investing. Net investments in the NSEs cash market segment have reached 4.4 lakh crore in the past five years, with record inflows in 2024 alone.

This surge in investment has translated into substantial wealth creation, with household wealth increasing by 40 lakh crore over the same period. This shift in investor behavior more individual investors, greater frequency of trades, and substantial net inflows has turned the Indian market into a more inclusive and diverse platform. In fact, for the first time, individual investors ownership in NSE-listed companies (17.6%) has surpassed that of Foreign Portfolio Investors (FPIs), underscoring the growing importance of domestic capital. Indias primary markets are buzzing with activity. Resource mobilization has reached 11.1 lakh crore in just the first nine months of FY25, exceeding the total raised in FY24. The IPO market is particularly vibrant, with a 32.1% jump in listings and a 150% surge in average deal size - reflecting a growing appetite for equity-based financing. Moreover, Indias growing global clout is undeniable, accounting for a remarkable 30% of global IPO listings in 2024, up from 17% the previous year. While this surge in participation is encouraging, it does come with challenges.

The increase in consumer credit and unsecured lending signals a potential risk to financial stability. With so many young investors entering the market, its imperative that the regulatory framework evolves to support this growth while ensuring the stability of the market. The role of the Securities and Exchange Board of India (SEBI) will be pivotal. The regulators recent efforts to temper market excesses and promote sustainable growth are steps in the right direction. However, the rapid rise in retail investor participation calls for enhanced financial literacy and investor protection measures.

The US equity markets had a solid run for the second year in a row, outperforming the broader developed market pack. The S&P 500 Index is well on course to generate strong returns in the coming year. This outperformance came on the back of economic resilience, robust corporate earnings that have surged to record-high levels (~USD 4 trillion as of the quarter ending September 2024), strengthening rate cut expectations early in the year, and all-time high investor confidence. For Indian investors, this also presents a compelling case for global diversification in US stocks. As we see increasing individual participation, the role of the retail investor will only become more important. The growing domestic investor base provides a layer of resilience to the market, reducing its dependence on Foreign Portfolio Investors (FPIs). This shift in market dynamics should not be underestimated it positions India as a unique player in the global market, less susceptible to external shocks.

RISKS AND CONCERNS

PS IT Infrastructure & Services Ltd. (PIISL) has exposures in various line of business. PIISL 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. PIISL 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 2024-25, 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 except as per remark and observations stated in the Form MR-3 issued and submitted by Secretarial Auditors and is forming of the Annual Report.