MANAGEMENT DISCUSSION AND ANALYSIS OPERATING ENVIRONMENT GROWTH
The country’s financial services sector consists of capital markets, insurance sector and non-banking financial companies (NBFCs). India’s gross national savings (GDS) as a percentage of Gross Domestic Product (GDP) stood at 30.73% in 2020. The number of Ultra High Net Worth Individuals (UHNWI) is estimated to increase from 6,884 in 2021 to 11,198 in 2025. India’s UHNWIs is likely to expand by 63% in the next five years. India is expected to have 6.11 lakh HNWIs in 2025.
India has scored a perfect 10 in protecting shareholders rights on the back of reforms implemented by Securities and Exchange Board of India (SEBI) in the World Banks Ease of Doing Business 2020 report.
India’s Mutual Fund industry has experienced immense growth. In May 2021, the mutual fund industry crossed over 10 crore folios. As of May 2022, AUM managed by the mutual funds industry stood at Rs. 37.37 trillion (US$ 477.55 billion) and the total number of accounts stood at 133.3 million. Inflow in Indias mutual fund schemes via systematic investment plan (SIP) stood at Rs. 1.24 lakh crore (US$ 15.91 billion) in FY22. Equity mutual funds registered a net inflow of Rs. 22.16 trillion (US$ 294.15 billion) by end of December 2021. About 17% assets in the mutual fund industry were generated from B30 locations in December 2021. These assets increased by 25%, from Rs. 5.13 lakh crore (US$ 68.33 billion) in January 2021 to Rs. 6.42 lakh crore (US$ 85.51 billion) in January 2022.
The Government of India has taken various steps to deepen reforms in the capital market, including simplification of the IPO process, which allows qualified foreign investors (QFIs) to access the Indian bond market. In 2019, investment in Indian equities by foreign portfolio investors (FPIs) touched five-year high of Rs. 101,122 crore (US$ 14.47 billion). Investment by FPIs in India’s capital market reached a net Rs. 12.52 lakh crore (US$ 177.73 billion) between FY02-21 (till August 10, 2020). In FY22, US$ 14.55 billion was raised across 127 initial public offerings (IPOs). The number of companies listed on the NSE increased from 135 in 1995 to 2,012 by FY22.
The number of demat account in India reached 7.38 crore from April 2021-October 2021. The number of companies listed on the NSE increased from 135 in 1995 to 1,920 by December 2021.
In September 2021, the international branch of the National Payments Corporation of India (NPCI), NPCI International Payments (NIPL), has teamed with Liquid Group, a cross-border digital payments provider, to enable QR-based UPI payments to be accepted in 10 countries in north and southeast Asia.
In the Union Budget 2022-23, India has announced plans for a central bank digital currency (CBDC) which will be known as Digital Rupee. In August 2021, Prime Minister Mr. Narendra Modi launched e-RUPI, a person and purpose-specific digital payment solution. e-RUPI is a QR code or SMS string-based e-voucher that is sent to the beneficiary’s cell phone. Users of this one-time payment mechanism will be able to redeem the voucher at the service provider without the usage of a card, digital payments app, or internet banking access.
On September 30, 2021, the Reserve Bank of India communicated that the applicable average base rate to be charged by non-banking financial company - micro finance institutions (NBFC- MFIs) to their borrowers for the quarter beginning October 1, 2021, will be 7.95%.
In July 2021, Rajya Sabha approved the Factoring Regulation (Amendment) Bill in 2020, enabling ~9,000 NBFCs to participate in the factoring market. The bill also gives the central bank the authority to establish guidelines for improved oversight of the US$ 6 billion factoring sector.
In July 2021, Indias largest commodities derivatives exchange, Multi Commodity Exchange of India Ltd., and European Energy Exchange AG (EEX) signed a memorandum of understanding (MOU) with the goal of knowledge sharing and expertise exchange on electricity derivative products. This MoU will make it easier for the two exchanges to collaborate in areas including knowledge sharing, education and training, and event planning in the field of electricity derivatives.
In January 2021, the National Stock Exchange (NSE) launched derivatives on the Nifty Financial Service Index. This service index is likely to provide institutions and retail investors more flexibility to manage their finances.
In January 2021, the Central Board of Direct Taxes launched an automated e-portal on the e- filing website of the department to process and receive complaints of tax evasion, foreign undisclosed assets and register complaints against ‘Benami’ properties.
India’s insurance industry has huge growth potential. India’s insurance market is expected to reach US$ 250 billion by 2025. It also offers an opportunity of US$ 78 billion of additional life insurance premiums between 2020-30. The government has approved 100% FDI for insurance intermediaries and increased FDI limit in the insurance sector to 74% from 49% under the Union Budget 2021-22. The total first-year premium of life insurance companies reached US$ 40.1 billion in FY22.
Indias retail inflation jumped to a 17-month high of 6.95 per cent in March 2022, according to data released by the Ministry of Statistics and Programme Implementation.
Food prices, which contribute to nearly half of the consumer price index (CPI), jumped by 7.68 per cent yoy in March as compared with 5.85 per cent a month before.
Aditi Nayar, Chief Economist, ICRA said "the CPI inflation shot up well beyond our expectations, touching a 17-month high of 6.95% in March 2022, led predominantly by a sharper than anticipated surge in some components of food and beverages such as meat and fish. Most other components printed broadly in line with our forecasts, suggesting that a gradual pass through of the commodity price pressures has commenced."
"With the MPC having signalled an imminent stance change, the rate hike cycle may begin as early as June 2022, if the next CPI inflation print doesn’t significantly cool off from the March 2022 level. We now expect to see 50-75 bps of rate hikes by the end of Q2 FY2023, followed by a pause in H2 FY2023, and perhaps another 50 bps of hikes in FY2024"
"With the CPI inflation surging in March 2022, we expect the 10-year G-sec yield to cross 7.2% imminently. With dimming hopes of early bond index inclusion, the 10-year G-sec yield could test 7.5% in H1 FY2023 "
On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today (August 5, 2022) decided to:
• Increase the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points to 5.40 per cent with immediate effect.
Consequently, the standing deposit facility (SDF) rate stands adjusted to 5.15 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 per cent.
• The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
During fiscal 2021, the Rupee depreciated by from 75.42 per US dollar at April, 2021 to 75.82 per US dollar at end-March 2020, with a mild depreciation 0.02%.
Economic conditions remain challenging going forward considering the uncertainties with regard to the impact of the global health crisis and the stand-still in economic activity. There has been a significant rise in risks in the operating environment along with lack of clarity on the timeline for conditions to normalise and economic activity to revive. The Indian economy would be impacted by this pandemic with contraction in industrial and services output across small and large businesses. Current estimates of India’s GDP for fiscal 2022 by various agencies and analysts indicate a contraction in GDP growth. While systemic liquidity is abundant, the economic weakness caused by the pandemic and uncertainty regarding normalisation will impact banking sector loan growth, revenues, margins, asset quality and credit costs.
OUR COMPETITIVE STRENGTHS
Experienced management team and a motivated and efficient work force
Our Company is managed by a team of experienced and professional personnel having knowledge of all aspects of marketing, finance and broking. The faith of the management is in the staff and their performance has enabled us to build up capabilities to expand our business.
FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
The Directors Report contains a detailed summary of operational performance. Kindly go through the same.
ADEQUACY OF INTERNAL CONTROL SYSTEM
The Company has adequate internal control systems for the business processes in respect of all operations, financial reporting, compliance with laws and regulations etc. Internal Control Systems have been designed to provide reasonable assurance that assets are safeguarded and, transactions are executed in accordance’s with management’s authorization and properly recorded and accounting records are adequate for preparation of financial statements and other financial information. Regular internal audits ensure that responsibilities are executed effectively. The Audit Committee reviews the adequacy of internal controls on regular basis. Internal check is conducted on a periodical basis to ascertain the adequacy and effectiveness of internal control systems.
The Board of Directors has identified various elements of risks which in its opinion may threaten the existence of the Company and have formulated measures to contain and mitigate risks. The Company has adequate internal control systems and procedures to combat identified risks. The audit committee periodically reviews the risks which may potentially affect the company’s operations or performance. However, in this time of pandemic distress, it is difficult to manage sudden risks relating to lockdown
HUMAN RESOURCE DEVELOPMENT
The Employee Relations with the Management continued to be cordial. The Company regards its employees as a great asset and accords high priority to training and development of its employees. The Company recognizes that its human resource is its strength in realizing its goals and objectives.
This report contains forward-looking statements extracted from reports of Government Authorities / Bodies, Industry Associations etc. available on the public domain which may involve risks and uncertainties including, but not limited to, economic conditions, government policies, dependence on certain businesses and other factors. Actual results, performance or achievements could differ materially from those expressed or implied in such forward-looking statements. This report should be read in conjunction with the financial statements included herein and the notes thereto. The Company does not undertake to update these statements.