SMIFS Capital Markets Ltd Management Discussions

49.58
(2.88%)
Jul 23, 2024|12:00:00 AM

SMIFS Capital Markets Ltd Share Price Management Discussions

1. FINANCIALSTATEMENTS

Financial Statements are in compliance with the provisions of the Companies Act, 2013 and the Accounting Standards issued by ICAI. Readers are cautioned that this discussion may include "forward-looking statements" that are not historical in nature. Forward looking statements may include statements relating to future results, financial condition, business prospects, plans and objectives. Statements are based on current beliefs, assumptions, expectations, estimates and projections on the business segment in which your company operates. The statements do not guarantee positive performance, exposed to known and unknown uncertainties, many of which are beyond the control of your Company. Uncertainty could cause results to differ from forward-looking statements, which should not be construed as representation of future performance.

2. MACRO-ECONOMICOVERVIEW

The year 2022-2023 began on a promising note as supply conditions were improving, financial markets exuded greater optimism and central banks were steering their economies towards a soft landing. However the launch of war by Russia on Ukraine which is still continuing resulted in a sharp increase in Price of various commodities causing high inflation in many countries of the world and it is expected that both Europe and USA may face recessionary conditions in the current year. The global economy is now witnessing a renewed phase of turbulence with fresh headwinds from the banking sector turmoil in some advanced economies. Bank failures and contagion risk have brought financial stability issues to the forefront. Given the stubbornness in inflation, central banks continue to tighten monetary policy, although at a reduced pace. Amidst this volatility, our banking and non-banking financial service sectors in India remain healthy and financial markets have evolved in an orderly manner. Economic activity remains resilient and real GDP growth is expected to have been 7.0 per cent in 2022-23. After taking various factors into consideration, RBI has projected real GDP growth for FY 2023-24 at 6.5 per cent.

In our Country also inflation shot up and to contain inflation, RBI has increased the policy repo rate cumulatively by 250 bps in the last 11 months starting May 2022. This was preceded by the introduction of the Standing Deposit Facility (SDF) at a rate 40 bps higher than the fixed rate reverse repo. Thus, the effective rate hike since April last year has been 290 bps. Currently, Consumer Price Index (CPI) for April 2023 has come down to 4.7 percent within the RBIs tolerance limit of 2% to 6%. 10 years Bond yield has come down to around 7 percent. In the meeting held by RBI in April 2023 it decided to keep the policy repo rate unchanged at 6.50 per cent. As expected, favourable base of last year led the Headline WPI for April 2023 at -0.9%, a negative print for the first time in 33-months which indicated lower imported inflation. The easing of overall input cost pressures suggests an improved outlook for retail inflation.

Oil prices have decreased recently as a result of rising concerns surrounding demand following weaker-than-expected economic data from China and the US, which are the biggest oil consumers. Brent crude has dropped to $73.74 per barrel from a high of $82.55 per barrel during the year. India remains a key beneficiary from the falling oil prices. The ripple effects of lower commodity prices are likely to help sooth inflation in the latter half of the year.

Indias Trade Deficit improved to USD 15.2 bn in April 2023 from USD 18.6 bn in March due to a sharp reduction in non-oil-non-gold imports. The imports declined by 14.1% YoY and exports declined by 12.7% YoY indicative of domestic and foreign demand weakness. Indias services sector remained robust with a surplus of USD 13.9 bn. The estimate for FY24 CAD/GDP is at 1.2% with crude oil prices averaging at USD 80 per barrel.

IMD has forecasted that the monsoon will be normal this year which is potentially easing concerns over the impact on agriculture production and economic growth. Showers during the June-September rainy season is likely to be 96% of a long term average. The adequate amount of rain may boost production of crops lowering food prices and aid the governments efforts to cool inflation.

Investment activity exhibited buoyancy on the back of governments thrust on infrastructure spending, high capacity utilisation and revival in corporate investment in certain key sectors. The Indian Rupee has moved in an orderly manner in the calendar year 2022 and continues to be so in 2023 also. This is reflective of the strength of domestic macroeconomic fundamentals and the resilience of the Indian economy to global spillovers. We remain watchful and focused on maintaining stability of the Indian rupee.

The Goods and Services Tax (GST) revenue collection for the month of April 2023 is the highest collection ever, at 1.87 lakh Crore. Gross GST collection in April 2023 is all time high. GST revenues for April 2023 are 12% higher than the GST revenues Y-O-Y (year on year). Foreign portfolio investors (FPIs) again withdrew substantial amounts from Indian equity market during the Financial Year 2022-2023, after selling a record amount in the previous year. However, FPIs are expected to return in the current financial year as India has a high growth potential in 2023-24. Factors including US Federal Reserve policy, oil prices and geopolitical developments may affect FPI flows this year. Domestic institutional investors have absorbed the massive selling by FPIs.

The number of demat account holders in India who invest in stock markets is 11 crores in January 2023, compared to only 8.4 crores as reported in 2022. Even with these massive figures, it is estimated that only 3% of Indian households are actively investing in stock market. However, India lags behind in the number of dedicated retail investors compared to the performance of other countries.

3. OPPORTUNITIES

The higher Rabi production and forecast of normal monsoon in the current year has brightened the prospects for agriculture sector and rural demand. The governments focus on capital expenditure, capacity utilisation above long-period average and moderating commodity prices should bolster manufacturing and investment activity. The drag from net external demand may continue due to increased global headwinds. The protracted geopolitical tensions and global financial market volatility pose downside risks to the outlook. Taking all these factors into consideration, real GDP growth for 2023-24 is projected at 6.5 percent.

The Indian banking system remains sound and healthy, with strong capital and liquidity positions, improving asset quality, better provisioning coverage along with improved profitability.

4. THREATS

The global economy is now confronted with serious financial stability challenges from the recent banking sector developments in some advanced economies.

The war in Ukraine and US-China tensions pose the most significant risks to the global economy in 2023 and beyond. Russias invasion of Ukraine has rapidly inflated energy and food prices, leading to cost issues for businesses and soaring living costs for consumers in 2022. Escalating tensions between the US and China, the two largest economies, could have a profound impact on international trade, thereby potentially transforming the global operating environment and disrupting business operations and supply chains. The main geopolitical risk is Chinas potential invasion of Taiwan, which has already led to deteriorating trade relations and declining business confidence among Chinas trade partners. This in turn has sparked a supply chain reorientation that is expected to accelerate, with considerable implications for the structure of the global economy.

5. RISKSANDCONCERNS

The rising uncertainty in international financial markets and imported inflation pressures need to be monitored closely. Taking into account these factors and assuming an annual average crude oil price (Indian basket) of US$ 85 per barrel and a normal monsoon, CPI inflation is projected to moderate to 6 per cent or below for 2023-24. The risks are evenly balanced.

6. FUTUREOUTLOOK

Your Company is a Category-I Merchant Banker and executes assignments in areas of Mergers and Acquisitions, Debt Syndication and Placement of Equity Shares and Bonds. Your Company is pursuing certain assignments in these areas and views the current year with cautious optimism.

7. GREENINITIATIVE

Your Company has endeavored to popularize the initiative announced by the Central Government vide its Circular No. 17/2011 dated April 21, 2011 and Circular no. 18/2011 dated April 24, 2011. Your company took measures to send all documents in electronic mode to the members who have registered their email IDs with the Company / Registrar & Share Transfer Agent, a step towards achieving paperless statutory compliances.

8. INTERNALCONTROLSYSTEMANDTHEIRADEQUACY

Internal control system adopted aimed at promoting operational efficiencies and emphasizing adherence to the policies adopted by the Board of Directors.

9. CAUTIONARYSTATEMENT

Statements in the Management Discussion and Analysis describing your Companys position and expectations may be "forward looking statements" within the meaning of the applicable securities laws and regulations. Results could differ materially from the statements expressed or implied.

For and on behalf of the Board of Directors

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