SMIFS Capital Markets Ltd Management Discussions

ANNEXURE–A

ANNEXURETODIRECTORSREPORT

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 financial year 2024-25 began on a promising note as supplies of goods were improving, financial markets exuded greater optimism and globally central banks were steering their economies towards a soft landing. In December 2024, President Trump sparked trade tensions by targeting Indias high tariffs under his "America First Trade Policy". On 2nd April 2025 USA announced reciprocal tariffs: a minimum flat 10% tariff on all imports from various countries as well as country-specific rates mirroring foreign levies on US goods, citing unfair trade practices and tariff asymmetry as threats to US economic stability. For India, a 26% duty on exports to USA starting 9th April, 2025 was announced. However, in a significant shift from his earlier aggressive stance, President Trump announced a 90 day pause on implementing new reciprocal tariffs on India which meant 10 % flat duty on all imports, while maintaining high tariffs on Chinese imports which has later been revised to 30% tariff for 90 days. This signals a strategic reconsideration amidst global supply chain challenges and evolving geopolitical priorities. For India, these developments could have a significant impact on exports by various sectors like textiles, gems and jewellery etc.

Auto parts, steel, and aluminum are not covered in the recent tariff orders as they are already subject to the Section 232 tariffs of 25% announced on 26 March 2025. Auto parts exports for which the US is a key market, may face headwinds. Indias exports of semiconductor devices to the US were approximately US$ 1.81 billion in 2023. Thus, acknowledging their critical role in global supply chains, semiconductors have been exempted from these tariffs.

Amongst the global turmoil and near recessionary conditions in many countries, India remains one of the fastest growing economies in the world. Reserve Bank of India in April 2025 has projected Indias GDP growth rate for the financial year 2025-2026 at 6.5 % and has estimated CPI inflation to come down in 2025-26 to 4 %. IMF has cut Indias GDP Forecast To 6.2% for 2025-26, which is lower than RBIs estimates for the financial year 2025-26.

Indias retail inflation has reduced from 5.4 per cent in 2023-24 to 4.9 per cent in 2024-25(April-December), aided by various government initiatives and monetary policy measures. WPI inflation eased to a nine-month low of 0.85% in April, down from 2.05% in March, driven by falling fuel prices and moderated food inflation. IMD and Skymet have forecasted above normal and normal monsoon respectively for India in 2025. Therefore, moderating inflation pressures and forecast of normal monsoon have opened up possibility of interest rate cuts in India in the second half of 2025-26 as well after two repo rate cuts of 25 basis points each in last few months.

Our economy is growing at a fast pace and this is evidenced by highest GST revenue collection for April 2025 at Rs. 2.37 lakh crores. This represents a significant 12.6% year on year growth driven by a strong demand in domestic transactions (up 10.7%) and imports (up 20.8%). Indias Industrial growth (IIP) for the financial year 2024–25 was at 4% compared to 5.9% for the year 2023–24 which is expected to accelerate in 2025-26. Inspite of a record US $824.9 billion worth of exports in financial year 2024–25, Indias trade deficit widened to US$ 94.26 billion, as total imports rose by 6.85%, amounting to US$ 915.19 billion for the financial year. Indias services exports grew at one of the fastest rates over the last 18 years and Indias defence and electronics exports have risen rapidly.

Indias fiscal deficit in 2024–25 has come down to 4.8% of GDP and is estimated to come down to around 4.4% in 2025–26. Inspite of geopolitical developments affecting crude prices, India has managed its crude imports well by negotiating appropriate discounts from Russia and other exporting countries.

Amidst this volatility, our banking and non-banking financial service sectors in India remain healthy and is well governed by the Regulator. The Indian Rupee has also moved in an orderly manner in the financial year 2024 – 25.

As per IMF, India is likely to become the third largest economy in 2027. Capital expenditure has emerged as a key growth driver in India. Government has accelerated public sector capital expenditure and private sector capital expenditure is now catching up. Capacity utilization has now reached around 75 percent and corporates are considering setting up new capacities. The Government has also come out with production linked incentive schemes in various sectors which is boosting capital expenditure and manufacturing.

On April 22, 2025, in a devastating attack in Pahalgam, militants opened fire on tourists which led to the tragic demise of civilians. In response to the terror attack, decisive action was taken by India in destroying terror infrastructure in Pakistan and PoK. Pakistan approached India for a ceasefire which India accepted and our markets moved up in the week thereafter also aided by trade agreement between USA and China for a 90 day pause. BSE Sensex moved up from 73,651 on 31st March 2024 to 77,415 on 31st March 2025, a rise of 5.11 %. FIIs sold Rs. 3,99,939.69 crores worth of shares during 2024-25 as valuations became expensive and funds moved to developed markets during the year.

3. OPPORTUNITIES

The imposition of very high reciprocal tariffs by the US may lead to lower global and US GDP growth and higher global and US inflation. However, on a relative basis, India appears to be better-placed versus competition as relatively low tariff rates have been imposed versus major competing economies and India is significantly less dependent on exports versus competition.

Moreover, Services Exports have not been impacted. Indias macro situation is stable and robust and monetary policy has turned very supportive.

The near-term impact on Indias exports and GDP growth is expected to be minimal due to the relatively lower tariffs. However, certain sectors such as automobiles and steel and aluminium may face immediate challenges. The union budget not only aimed to stimulate consumption by providing Income tax relief to the middle class, it provided scope for RBI to cut rates, thereby reviving growth. Rural economy is also expected to see a pickup on expectation of a good monsoon. Even Urban consumption could see a recovery led by lower inflation, income tax and interest rate cuts.

Brent crude prices are hovering around US$ 65 much below the budgeted amount and leaving a large surplus for government to increase spending. India has already done mutually beneficial trade treaty with United Kingdom and it is expected that it will negotiate a mutually beneficial bilateral trade agreement with USA. On announcement of ceasefire between India and Pakistan and a 90 day tariff agreement between USA and China, our markets moved up in the week thereafter.

The Indian banking system remains sound and healthy, with strong capital and liquidity positions, improving asset quality, better provisioning coverage along with improved profitability. The Indian Capital markets have performed well in 2024-2025 and the BSE Sensex has moved up from 73,651 on 31st March 2024 to 77,415 on 31st March 2025, an appreciation of 5.11 %. Participation of retail and high networth individuals have grown significantly as evidenced by the growth in demat accounts. Demat accounts on 31st March 2024 were 151 million and have increased to 192.4 million on 31st March 2025.

4. THREATS

In December 2024, President Trump sparked trade tensions by targeting Indias high tariffs under his "America First Trade Policy". On 2nd April 2025, USA announced reciprocal tariffs: a flat 10% duty on all imports starting 5 April as well as country-specific rates mirroring foreign levies on US goods, citing unfair trade practices and tariff asymmetry as threats to US economic stability. For India, this meant a 26% duty starting 9th April. However, in a significant shift from his earlier aggressive stance, President Trump announced a pause on implementing new reciprocal tariffs on India, for 90 days. This signals a strategic reconsideration amidst global supply chain challenges and evolving geopolitical priorities. For India, heavily reliant on exports, these developments could have a significant impact sectors like textiles, gems and jewellers.

Auto parts, steel, and aluminum are not covered in the recent tariff orders as they are already subject to the Section 232 tariffs of 25% announced on 26th March 2025. While exports to US formed 27% of the total exports in 2024-25, auto parts exports, where the US is a key market, may face headwinds. Indias exports of semiconductor devices to the US were approximately USD $1.81 billion in 2023. Thus, acknowledging their critical role in global supply chains, semiconductors have been exempted from these tariffs.

Because of the uncertainties due to increase in tariffs threatened by USA and the prospects of global slowdown and expensive valuations of our market, FIIs sold shares worth Rs. 3,99,939.69 crores during 2024-25 and our markets corrected by 2.48 % between October 01, 2024 to March 31, 2025.

5. RISKSANDCONCERNS

Medium-term risks include trade disruptions, retaliatory tariffs, and a potential global growth slowdown. The extent of the eventual impact for India may depend on the US-India bilateral agreement which is expected in the next few months. India may have to look at lowering both tariff as well as taxes and non-tariff barriers such as surcharges on imports from the US in sectors such as alcoholic beverages, automobiles, chemicals, electronics, etc

6. FUTUREOUTLOOK

Your company is registered as a Category I Merchant Banker and executes assignments in areas of mergers and acquisitions, debt syndication, placement of equity shares and debentures and is cautiously optimistic for the year 2025-26 as good monsoon, rural recovery, interest rate cuts, infusion of higher liquidity by RBI and policy reforms are driving growth momentum in the economy.

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.