Steel City Securities Ltd Management Discussions

ECONOMY OVERVIEW:

World entered FY2023 amidst uncertain macroeconomic environment due to the cumulative effects of the COVID-19 pandemic, Russias invasion of Ukraine and Chinas decision to continue lockdown in its cities due to the increasing number of Covid cases had a detrimental impact on the global supply chain. This led to significant increase in oil and food prices which in turn lead to rise in inflation across the global economies. Due to the escalating inflation rates, several central banks have embarked on a course of action to increase interest rates. Notably, the US Federal Reserve responded by raising interest rates 10 times in a span of 14 months, resulting in a rate of 5.25%, the highest level observed in 16 years, in an endeavor to stabilize prices. Similarly, the European Central Bank opted to raise rates for the first time in 11 years.

The global economy showed resilience in the face of tightening financial conditions, despite persistent inflation and tightening financial conditions. This was evidenced by a growth in global real GDP of 3.4%. Whereas United States, Euro area and Indias GDP growing by 2.0%, 3.5% and 6.8%, respectively. The global economic expansion will continue at a moderate pace. Near-term growth is dominated by service sectors.

Indian Economy:

FY23 was a landmark year for the Indian economy. While the global economy faced a growth slowdown in a high-interest rate environment, Indias economy was resilient. It became the worlds fifth largest economy. In India, retail inflation, as indicated by the Consumer Price Index, attained an eight-year peak in April 2022 and consistently exceeded the upper tolerance threshold of 6.0% set by the Reserve Bank of India (RBI) for a significant portion of the year. The Monetary Policy Committee (MPC) of the RBI took a unanimous decision during an off-cycle meeting in May 2022 to increase the repo rate by 40 basis points. Subsequently, additional rate hikes were implemented, culminating in the sixth continuous rate hike since May 2022. In aggregate, the repo rate was raised by 250 basis points during the fiscal year 2023, reaching a level of 6.5%. Meanwhile, the reverse repo rate remained unchanged at 3.35%. Consequently, retail inflation subsided to a 15-month low of 5.66% in March 2023. In April 2023, the MPC maintained the repo rate at 6.5% while affirming its commitment to a gradual withdrawal of accommodative measures.

Indian economy underwent broad based recovery across sectors, positioning to ascend to pre-pandemic growth path in FY23. Indias GDP experienced double-digit growth of 13.1% in Q1FY2023 partially due to the base effect. However, growth slowed down in Q2FY2023 and Q3FY2023, reaching 6.2% and 4.5% respectively, due to high inflation and weakening demand. In Q4FY2023, growth bounced back to 6.1%, pushing the overall growth rate to 7.2% for FY2023. India continues to be one of the fastest growing major economies globally in FY2023.

INDIAN EQUITY MARKET

The Indian markets had a decent year FY2023 with major indices closing flat despite various challenges. BSE Sensex ended the year with minor Positive of 0.7% while the Nifty 50 ended with Negative 0.6% return for FY23. Equity markets, which were down during the first quarter bounced back with Sensex and Nifty achieving an all-time high of 63,284 and 18,812 respectively in the month of December 2022. The key factors that supported the bullish run were relative strong domestic growth, robust corporate earnings, optimistic growth outlook, large inflows into domestic institutional investors etc. Sensex and Nifty closed at 58,992 and 17,360 respectively in March 2023, down from all-time high due to US banking crisis where multiple banks were declared insolvent. Still, India was the second best equity market performer among the emerging markets in FY2023.

India recorded FII outflows for the second consecutive year to the tune of Rs. 376 crore. June 2022 witnessed monthly FII outflows at Rs. 50,203 crore, 2nd highest ever after March 2020. On the contrary, DIIs recorded highest ever inflows of Rs. 2.6 lakh crore.

In FY2023, Rs.2.5 crores new Demat accounts were opened as against Rs.3.5 crores in FY2022. This drop is attributed to various factors like volatile market conditions, tepid IPO markets etc. The total number of Demat accounts, across CDSL and NSDL, stood at Rs.11.45 crores as of 31st March 2023, registering a growth of 28% YoY.

Investing environment far more secure for Retail investors:

Indias regulatory environment (SEBI) has been continuously evolving and rightly so to protect the interest of the smallest retail investor in the country. By doing so, the regulator has made the investing environment far more secure today, which gives a major boost to retail investors confidence.

In May 2022, SEBI introduced a new regulation regarding the segregation of margin, in the form of cash and collateral, at client level, which was earlier being done at the broker level. By doing so, the regulator has further re-emphasized their empathy towards retail investors. This regulation built new guardrails to secure client funds and eliminate any chance of misappropriation of client money. The said circular proposed clients to bring in at least 50% of their margins in the form of cash while the balance can be in the form of collateral. The circular, also allows brokers to apportion a part of their proprietary funds towards fulfilling the 50% cash margin requirement at client level.

Another major regulation announced in FY23, was flushing out all client funds on the first Friday following either the monthly or quarterly settlement as opted by the client. This regulation was implemented from October 2022, when the industry geared up rapidly and flushed out all funds back to their clients. Post this, the market volumes continued to grow. In order to further insulate clients funds, SEBI in its recently approved two proposals:

1) Introduction of Application Supported by Blocked Amount (ASBA) like facility for secondary market

2) Upstreaming of clients funds by stock brokers / clearing members to clearing corporations While ASBA framework is optional for both the client and stock broker to offer, it would be implemented in a phased manner. Upstreaming of clients funds will be implemented in two phases starting from 1st July 2023. Under the approved framework, funds shall be up streamed only in the form of cash, lien on Fixed Deposit Receipts (subject to certain conditions) or pledge of units of Mutual Fund Overnight Schemes. This is yet another step taken by the regulator in the direction of insulating the retail investor from any risk of losing their capital.

Future Outlook

Indias GDP growth is expected to remain robust in FY24. GDP forecast for FY24 to be in the range of 6-6.8 %. (Source: Economic survey 22-23). India will still maintain its position as one of the fastest-growing major economies globally. The Indian economy has demonstrated remarkable resilience in the face of the deteriorating global situation due to strong macroeconomic fundamentals. Steps to promote ease of doing business, skilled manpower, and presence of natural resources, liberal FDI policies, huge domestic market and prospects of healthy GDP growth have made India an attractive destination for foreign investors. Thus, going forward, India is expected to see relatively stronger growth.

Few of the initiatives which will be stepping stones for the growth of our Company in coming years:

• Digital continues to be a game changer: Digitization has been a key driver for the financial services industry. Advances in technology, increasing smartphone penetration, and increasing digitization at systemic level are expected to lead more retail investors to adopt and consume financial services through Online. We have launched new version of Mobile App (Steel city SMART PLUS). We strongly believe significant growth of business transactions through our Mobile app will grow day by day.

• Completely digital on-boarding process (Quick KYC) whereby clients can open SCSL Demat & Trading accounts instantly will also help to onboard new clients quickly and hassle free.

• Plans to set up over 45,000+ E-governance centers by FY24

• We have plans to broaden and deepen geographical presence and expand distribution networks in the Northern and Western market of India

• Focus on augmenting product line under the e-governance segment with emphasis on NPS promotion. Leveraging its TIN centers for distribution of third party products ie. Loans, mutual funds, insurance schemes, credit cards and IPOs.