shriram asset management co ltd Management discussions

Mutual Fund Industry Performance:

The Indian equities market had a challenging year in FY23. The Value and Contra Funds outperformed in the equity mutual fund category. After a lengthy period of inactivity, value investing regained traction in the face of geopolitical concerns, supply chain disruptions, inflation,interest rates hikes by central banks to manage inflation across the globe and kept the stock markets at edge. During the year, the Value Fund category had average returns of 2.2%, while the Contra Fund category produced average returns of 5.3%.

As on March 31, 2023, there were 14.57 crores of folios altogether, up from 12.95 crores at the end of March 31,

2022. Assets under management (AUM) for mutual funds reached 39.42 lakh crores on March 31, 2023, an increase of 4.93% from March 2022. For FY22-23, the Systematic Investment Plans (SIP) contribution was 1,55,972 crores.

Investor perception about the advantages of SIPs has been strengthened by increasing awareness of mutual funds through numerous initiatives and campaigns like "Mutual Funds Sahi Hai". The industry witnessed net inflows of 1,82,055 crores during FY23, compared to 181,688 crores of inflow during FY22.

Economic Overview: Overview of Global Economy:

Global economic recovery was affected as Advanced Economies (AEs), who were responsible for the majority of the global fiscal growth and monetary easing, saw inflation surpass record highs. Early in the second half of 2022, monetary tightening and rising inflation caused a decline in worldwide output. Since August 2022, the global PMI composite index has been in the contractionary range. We also witnessed the annual growth rates of international commerce, retail sales, and industrial production slow down dramatically. In its October 2022 update of the World Economic Outlook, the IMF revised its growth projections to reflect the resultant softening of the global economic outlook, which was also exacerbated by expectations of further increase in borrowing costs.

Overview of Indian Economy:

The Indian economy, on the contrary, appears to have recovered from the pandemic, staging a full recovery in FY22 ahead of many other countries and positioning itself to resume pre-pandemic growth in FY23. However, in the current year, India also faced the challenge of rising inflation, which has been exacerbated by the European crisis. Government and RBI actions, combined with a drop in global commodityprices,havefinallymanagedtobringretailinflationbelow the RBIs upper tolerance target in November 2022. However, the challenge of the depreciating rupee continues to remain, with the possibility of further policy rate increases by the US Fed. The CAD may continue to widen as global commodity prices remain higher and the Indian economys growth momentum remains strong. Export stimulus may be lost further as global growth and trade may get impacted from overall global slowdown. Meanwhile, many international agencies have revised their growth forecasts for the Indian economy downward. Amidst global geopolitical tensions and tighter domestic monetary policy, India is expected to grow at a rate of 6.5-7%. According to the Economic Survey

2022-23 presented by Ms. Nirmala Sitharaman in the Union Parliament on January 31, 2023, GDP for FY24 is expected to be in the range of 6-6.8%.

In January 2022, retail inflation in the nation surged above the RBIs tolerance level. Prior to slipping back to below the upper end of the target range of 6% in November 2022, it stayed above the target range for eleven months. To control inflation,the government reduced excise and customs taxes and limited exports, while the RBI, like other central banks, increased repo rates and reduced excessive liquidity.

The FY23 saw substantial volatility in most major currencies as a result of geopolitical issues, increase in oil import bill due to the on-going Russia Ukraine War, the US Federal Reserves rapid hike in interest rates and domestic inflation. The rupee was not spared and fell 8.02% against USD, and depreciated against GBP by 2.89%, EURO by 8.36% and YEN by 2.03% in FY23, Yet, it has outperformed numerous other currencies, including the Chinese -Yuan, South Korean -Won, Malaysian -Ringgit, and Philippine -Peso.

The GST collections remained robust throughout FY23, as economic activity gradually picked up, and it hit an all-time high of 1.6 lakh crores in March 2023, a rise of 12.36% over the same month of the previous year. It is encouraging to note that the gross GST collection crossed the 1.5 lakh crores mark in March 2023 for the fourth time in the current fiscal and became the second-highest collection since the introduction of the GST.

Meanwhile, the budget deficit of the Union government between the months of April 2022 and February 2023 increased to 82.8% of the whole fiscal years target. The government pegged fiscal deficit target of 6.4% of GDP for FY23 while for FY24, it is expected to come down to 5.9%.

Equity Market Performance:

The benchmark indices ended FY23 almost flat, Nifty 50 down by 0.6% to 17,359 while BSE Sensex gained a mere 0.72% to 58,991. A rather disappointing performance after almost a 19% and 17% gain by Nifty and Sensex, respectively, during the previous fiscal. However, the domestic market performance is much better when compared to several other international markets Dow Jones (-4.05%), FTSE 100 (+1.34%), Hang Seng (-7.26%), Kospi Composite

(-10.18%), Shanghai Composite (+0.43%) and Bovespa (-15.10%). The stance of all Central Banks during the year was fiscaltighteningto . controltheriseininflation

The US Fed raised interest rate for nine times continuously as a result of which rates have risen to 4.75%-5%, the highest since 2007. The rate was almost zero a year ago. The same situation is across the globe. Indias RBI also raised repo rates by 250 bps since May 2022 to bring it to 6.5% level. However, in a surprising move, RBI took a pause for the time being in the April MPC meeting, and has decided to assess the impact of rate hikes taken so far.

Performance of the Sectorial Indices were mixed during FY2023

Nifty	Nifty	Nifty	Nifty	Nifty	Nifty	Nifty IT	Nifty	Nifty	Nifty
Auto	Bank	Consumer	CPSE	FMCG	Pharma		Metal	Oil &	Reality
		Durable						Gas
16.03%	11.64%	-11.44%	16.62%	26.50%	-11.54%	-20.98%	-14.42%	-8.69%	-16.44%

Nifty IT fell due to fears of recession in the developed markets of US, UK and Europe. Moreover, fear of a global slowdown impacting discretionary spending also weighed on the sector. Good performance by Banks was driven by stable loan growth and better asset quality while FMCG gained being defensive amidst turmoil in the global economy. The Auto sector growth was bolstered on the back of domestic demand recovery across all segments and new product launches in EV space.

Outlook:

Indias conviction in its economic durability has been strengthened in FY23. Without losing impetus for growth, the economy overcame the problems of external imbalances arising from the Russia-Ukraine conflict, rise in commodity inflation, supply chain issues and volatile crude prices. Despite FIIs withdrawing 24,751 crores in FY23 from India equities due to weak global outlook and rising interest rate scenario, DIIs gave stability by pumping in 1,49,573 crores. Indias inflation rate remained under control due to Government and RBI measures. Turbulence in advance economies have put emerging countries especially India in a sweet spot for investors. The prospects for economic and social stability and long-term growth are further supported by a strong consumption rebound, strong revenue collections, sustained capex in both the public and private sectors, rising employment levels in urban and rural areas, and targeted social security measures.

Mutual Fund Industry as it was in FY 2022-2023:

Assets under Management (AUM) of Indian Mutual Fund Industry as on March 31, 2023 stood at 39.42 lakh crores.

The SIP contributions for FY22-23 stood at 155,972 crores.

The MF Industrys AUM has grown from 7.01 lakh crores as on March 31, 2013 to 39.42 lakh crores as on

March 31, 2023, around 5 fold increase in a decade.

The total number of accounts (or folios as per mutual fund parlance) as at March 31, 2023 stood at 14.57 crores.

Mutual Fund Industry- Steps taken by the Regulators in FY 2022-2023:

There were some important changes in the regulation pertaining to the mutual fund industry during FY 2022-2023; the highlights of some of the changes are as given below:

• Nomination for Mutual Fund Unit Holders

In order to bring uniformity in practices across all constituents in securities market, vide circular No. SEBI/ HO/IMD/IMD-II/DOF3/P/CIR/2022/82 dated June 15, 2022 read with circular no. SEBI/HO/IMD/IMD-I DOF1/P/CIR/2022/105 dated July 29, 2022 and circular no. SEBI/HO/IMD/IMD-I POD1/P/CIR/2023/47 dated

March 28, 2023, in case of nomination for eligible Mutual Fund Unit Holders, SEBI has decided as follows:

Investors subscribing to mutual fund units on or after October 01, 2022, shall have the choice of: a) Providing nomination in the format specified in fourth schedule of SEBI (Mutual Funds) Regulations, 1996; or b) Opting out of nomination through a signed Declaration form as provided in Annexure - A to the above circular.

All the AMCs had been advised to set deadline as September 30, 2023 for nomination /opting out of nomination for all the existing individual unit holder(s) holding mutual fund units either solely or jointly as mentioned at para 1 above, failing which the folios would be frozen for debits.

• Disclosure of usage of Pool Accounts for transactions in the units of Mutual Funds, Two Factor Authentication (‘2FA) For redemption and other related requirements

SEBI vide its circular no. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/635 dated October 04, 2021 announced the following changes: Pooling of funds and/ or units by stock brokers / clearing members in any form or manner to be discontinued for mutual fund transactions.

Similar to mechanisms for transactions in mutual fund units by MFDs and IAs, stock exchanges to put necessary mechanisms in place for stock brokers / clearing members also, to ensure that funds pay-in is directly received by the clearing corporation from the investor account and funds pay-out is directly made to the investor account. Pay-in / pay-out of funds not to be handled by the stock brokers / clearing members. In the same manner, for both demat and non-demat mode transactions, the units to be credited and debited directly to/ from the investors demat account/ folio account without routing it through the pool account of the stock brokers / clearing members. However, for redemption of units held in dematerialised mode, the practice of issuance of Delivery Instruction Slip (‘DIS) (physical or electronic) to the Depository Participant to debit the units for delivery to clearing corporation may continue.

The provisions of this Circular was to be applicable with effect from April 01, 2022. However, in the of the investors, SEBI, vide its another circular no. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2022/41 dated March 31, 2022 decided to extend the date of applicability of aforesaid circulars including the clauses relating to 2FA for redemption and source account verification to July 01, 2022.

Two-Factor Authentication for redemption of Mutual Fund units has been implemented with effect from June

01, 2022 for transactions outside stock exchange platforms and from July 01, 2022 for transactions on stock exchange platforms.

• Two-factor authentication for transactions in units of mutual Funds

In order to further safeguard interest of investors, SEBI, vide its another circular no. SEBI/HO/IMD/IMD-I DOF1/P/ CIR/2022/132 dated September 30, 2022 decided to extend the Two-Factor Authentication for subscription transactions in the units of Mutual Funds as well. Accordingly, In case of subscription and redemption of units,

Two-Factor Authentication (for online transactions) and signature method (for offline transactions) shall be used for authentication.

This circular was made applicable with effect from April 01, 2023.

• Folios without PAN / PEKRN (PAN exempted KYC reference number)

This is in reference to SEBIs letter no. SEBI/HO/OW/IMD/PoD/P/2022/ 48112 /1 dated September 12, 2022 on the captioned subject received by AMFI.

Pursuant to the aforesaid SEBI letter, AMFI, vide its circular no. AMFI/ 35P/ MEM-COR/ 46 / 2022-23 dated

September 21, 2022 advised all AMCs to ensure that a) No investments (Systematic transaction, lump sum, redemption) shall be permitted in such folios wherein PAN/ PEKRN details are not available. b) All necessary steps are taken to populate such folios with PAN or PEKRN (as may be applicable) before March 31, 2023 by obtaining PAN / PEKRN from the concerned unitholders. c) Non-PAN and Non-PEKRN folios would be liable to be frozen from April 01,2023. Frozen Folios shall be able to lodge grievance or avail service request only after furnishing the details.

AMC to continue to report the progress and steps taken to clean up the Non-PAN and Non-PEKRN folios to the Trustee in their quarterly report.

• Timelines for transfer of dividend and redemption proceeds to unitholders

SEBI has amended Regulation 53 of SEBI (Mutual Funds) Regulations, 1996 vide Gazette Notification No.SEBI/

LAD-NRO/GN/2022/106 dated November 15, 2022. Consequent to the above amendment the following has been decided.

1) Transfer of dividend payments: - Within seven working days from the record date. Record date shall be two working days from the date of issue of public notice.

2) Transfer of redemption or repurchase proceeds: - Within three working days from the date of redemption or repurchase. For schemes investing at least 80% of total assets in permissible overseas investments, the transfer of redemption or repurchase proceeds to the unitholders shall be made within five working days from the date of redemption or repurchase. AMFI, vide its letter no. AMFI/ 35P/ MEM-COR/ 74 / 2022-23 dated January 16, 2023 has further published the list of exceptional situations and the additional timelines for making redemption payment prepared by AMFI in consultation with SEBI.

3) Interest on Delay Payment: - 15% per annum along with the proceeds of redemption or repurchase or dividend. Such interest shall be borne by AMCs. Investors shall also be informed about the rate and amount of interest paid to them.

• T+2 redemption payment cycle in respect of Equity Schemes w.e.f. February 01, 2023

As per the communication issued by the stock Exchange regarding Equity market moving to T+1 Settlement cycle from January 27, 2023 all AMCs had been advised to move to T+2 redemption payment cycle for equity schemes, and implement this uniformly with effect from February 01, 2023, (i.e, for all transaction received before cut off timing on February 01, 2023 and proceeds at closing NAV for February 01, 2023) after allowing a couple of days for the settlement cycle/ process to stabilize.

Performance of your Company

The performance of the Company for year ended March 31, 2023 is given in brief below:

Particulars	Year Ended March 31,2023	Year Ended March 31,2022
	( In lakhs)	( In lakhs)
Total Income	583.61	489.28
Total Expenditure	1031.08	556.53
Profit Before Tax	(447.48)	(67.25)
Tax Provision for the Year	(44.40)	88.35
Balance brought forward from previous year	(1017.67)	(855.55)
Balance carried to Balance Sheet	(1423.33)	(1017.67)

During the year 2022-2023, the Companys total income increased by 19.28% to 583.61 lakhs as compared to 489.28 lakhs in 2021-2022. However, since the Company is still in expansion mode investing in infrastructure & resources to augment future business revenue, loss before tax increased by 565% to 447.48 lakhs in 2022-2023, as compared to 67.25 lakhs in 2021-2022.

AUM of Shriram Mutual Fund has increased by 24.51% from 218.23 Crores in FY 2021-2022 to 271.72 Crores in FY 2022-2023 and corresponding Management Fees increased from 52.34 lakhs in FY 2021-2022 to 61.78 lakhs in FY 2022-2023.

Performance of Schemes of Shriram Mutual Fund:

Shriram Hybrid Equity Fund, launched in November 2013, delivered return of 9.09% (at the end of March 2023 on a CAGR basis) since inception accompanied by lower levels of volatility. Shriram Flexi Cap Fund, launched in September 2018, delivered return of 10.22% (at the end of March 2023 on a CAGR basis) since inception. Shriram Long Term Equity Fund, launched in January 2019, delivered return of 12.10% (at the end of March 2023 on a CAGR basis) since inception. Shriram Balanced Advantage Fund, launched in July 2019, delivered return of 9.58% (at the end of March 2023 on a CAGR basis) since inception. Shriram Overnight Fund, launched in August 2022, delivered return of 3.66% (at the end of March 2023 on a CAGR basis) since inception.

Risks and concern:

The Risk Management Manual sets out an enterprise wise risk management framework for Shriram Asset Management Company Limited and Shriram Mutual Fund. This Manual is intended to serve as a model, which will help the AMC and the Mutual Fund to monitor and mitigate the risks faced by the Company in the discharge of its business and also use risk management to increase value for investors.

Internal control system:

The Company has adequate system of internal controls commensurate with its size and level of operations to ensure that all assets of the Company are safeguarded and protected and that transaction of the Company are authorised, recorded and reported correctly, and also to ensure the efficiency of applicable laws and regulations as well as protection of resources. Moreover, the Company continuously upgrades these systems in line with the best available practices. The internal control system is supplemented by internal audits, regular reviews by management and standard policies and guidelines to ensure reliability of financials and all other records to prepare financial statements and other data. The Audit Committee of the Board reviews internal audit reports given along with management comments. The Audit Committee also monitors the implementation of suggestions given by the Committee.

Human Resources:

Employee Relations remained cordial throughout the year at all levels. Your Company would like to place its appreciation for all the hard work, dedication and efforts put in by all the employees. As on March 31, 2023, the Company had an employee strength of 41.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along explanations therefor, including:

(i) Debtors Turnover 9.48

(ii) Inventory Turnover - NA (iii) Interest Coverage Ratio - NA (iv) Debt Equity Ratio - NA

(v) Operating Profit Margin (%) 44% (vi) Net Profit Margin (%) -69%

Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof: Return on net worth is (6.14%) for FY 2022-23 as compared to (2.85%) for FY 2021-22 since the Company is still in expansion mode investing in infrastructure & resources to augment future business revenue.