Voltaire Leasing & Finance Ltd Management Discussions

ANNUAL OVERVIEW AND OUTLOOK

This trend is evident in the consecutive monthly growth of GST collections, accompanied by sustained optimism in business sentiment. The government is also introducing positive changes in domains including banking, taxation management and digital and physical infrastructure, to make the business environment more conducive and attract investors.

While traditionally economic growth in India has been concentrated in certain areas, but things are changing and Indias economic growth is becoming more geographically spread out. While key metropolitan centres continue to hold strategic importance, a new wave of economic hubs is rising to prominence. This diversification fosters a ripple effect, disseminating development opportunities to a wider range of regions. Recognising the potential for inclusive growth, the government has implemented a strategic focus on tier 2 and 3 cities. By prioritising infrastructure development and industrial initiatives in these smaller centres the government is fostering job creation and attracting businesses. This targeted investment serves as a potent catalyst, propelling the economic trajectory of these localities. Furthermore, enhanced connectivity is playing an important role in this economic transformation. Strategic investments in highways, railways, and airports are streamlining the movement of goods and people across the nation. This improved logistical network not only benefits urban centres but also serves to revitalise rural areas, ensuring a more inclusive distribution of economic benefits.

This trend towards more balanced geographical growth is a positive sign for Indias future.

Going forward, Indias growth is expected to remain strong, supported by improving macroeconomic factors and countrys robust internal financial stability. Indias economy is set to grow more than 7% in FY 2024-25. Currently among the top five economies globally, in the next three years, the country is expected to become the third-largest economy in the world, with a GDP of $5 trillion. Moreover, according to projections by the International Monetary Fund (IMF), Indias contribution to global growth will be around 18% by FY 2027-28; backed largely by robust domestic demand.

The year 2024 is shaping up to be an interesting year for the Indian financial services sector due to a slowing global economy and multiple disruptive factors that are causing a fundamental shift in the way banking and capital markets operate. The Indian market recently reached record highs, but quickly encountered turbulence amid rising geopolitical concerns, particularly tensions in the Middle East. However, its important to remember that geopolitical events typically cause short-term volatility, as seen during the Russia-Ukraine war. The Indian equity market is expected to continue performing well due to strong macroeconomic fundamentals, with Indias GDP growth estimated at 7% - the highest among major world economies - and a strong corporate earnings growth outlook for FY 25- 26. The expectation of re- election of the BJP government under Prime Minister Modi bodes well for the equity markets, as a stable government provides clarity on the continuity of policy reforms. The rising number of Mutual Fund folios indicates increasing participation by domestic investors in stock market to capitalize on the India growth story. This, coupled with the growing number of Demat accounts, clearly indicates higher retail participation towards stock markets. This shift has undeniably reflected broader changes in the overall Indian economy, including improved financial literacy, widespread digitization, and the availability of diverse investment products. Additionally, a changing demographic profile with younger investors leading the way signifies their adoption of more diversified investment strategies.

On the flip side, escalating geopolitical concerns could impact crude oil prices, making inflation the next big concern for investors. Rising energy prices are a concern for global inflation, and major central banks will be closely monitoring inflation data before starting to cut interest rates. The RBI is likely to follow suit with other global central banks, considering Indias strong growth outlook.

While we are confident of our deal flow pipeline and growth from new business initiatives. We are also mindful of the looming recession threat globally and volatile geopolitical situation. In case of any precipitation on these fronts, there could be a deterioration of economic environment.

There is a distinct bias towards earnings downgrades rather than upgrades, and it will pay to select sectors and stocks where earnings growth downgrade risk is minimal and better visibility might start attracting higher premiums. For instance, our calculations suggest up to 5% EPS downgrade for India due to higher borrowing costs. However on the geopolitics side, things couldnt possibly worsen.

The strength of the Indian economy is evident through a number of indicators. Surveys show improving consumer sentiment, closing in on pre-Covid levels (quite the opposite in advanced economies), PMI both manufacturing and services at 55+ on a sustained basis, strong volume compounded annual growth rate in production of steel and coal etc. Government tax collections are likely to beat budget estimates, but while they will be neutralized for some time by cost overruns in food, fertilizer and fuel subsidies, given recent trends in commodity prices.

However, these cost overruns may not last for long, and rapid fiscal position improvement might happen in 2HFY24. Corporate leverage are at a 9-year low, and with banks having raised capital, the twin balance sheet problem is all but gone. Reform momentum has been strong in the last 3 years and should sustain. Forex reserves are substantial, and external debt to GDP is low compared to other countries.

Voltaire Leasing & Finance Limited (VLFL) has exposures in various line of business. VLFL are exposed to specific risks that are particular to their respective businesses and the environments within which they operate, including market risk, competition risk, credit risk, liquidity and interest rate risk, operational risk, information security risks, regulatory risk and macro-economic risks. The level and degree of each risk varies depending upon the nature of activity undertaken by them.

The Company has quoted investments which are exposed to fluctuations in stock prices. GCM continuously monitors market exposure in equity and, in appropriate cases, also uses various derivative instruments as a hedging mechanism to limit volatility.

The Company is exposed to liquidity risk principally, because of lending and investment for periods which may differ from those of its funding sources. Management team actively manages asset liability positions in accordance with the overall guidelines laid down by various regulators. The Company may be impacted by volatility in interest rates in India which could cause its margins to decline and profitability to shrink. The success of the Companys business depends significantly on interest income from its operations. It is exposed to interest rate risk, both as a result of lending at fixed interest rates and for reset periods which may differ from those of its funding sources. Interest rates are highly sensitive to many factors beyond the Companys control, including the monetary policies of the RBI, deregulation of the financial sector in India, domestic and international economic and political conditions and, inflation. As a result, interest rates in India have historically experienced a relatively high degree of volatility.

The Company seeks to match its interest rate positions of assets and liabilities to minimize interest rate risk. However, there can be no assurance that significant interest rate movements will not have an adverse effect on its financial position.

The Company recognizes that its success is deeply embedded in the success of its human capital. During 2023-2024, the Company continued to strengthen its HR processes in line with its objective of creating an inspired workforce. The employee engagement initiatives included placing greater emphasis on learning and development, launching leadership development programme, introducing internal communication, providing opportunities to staff to seek inspirational roles through internal job postings, streamlining the Performance Management System, making the compensation structure more competitive and streamlining the performance-link rewards and incentives.

The Compliance function of the Company is responsible for independently ensuring that operating and business units comply with regulatory and internal guidelines. The Compliance Department of the Company continues to play a pivotal role in ensuring implementation of compliance functions in accordance with the directives issued by regulators, the Companys Board of Directors and the Companys Compliance Policy. The Audit Committee of the Board reviews the performance of the Compliance Department and the status of compliance with regulatory/internal guidelines on a periodic basis.

The Company has complied with all requirements of regulatory authorities except delay in complying with the provisions of SEBI LODR Regulations, 2015. No penalties/strictures were imposed on the Company SEBI or any other statutory authority on any matter related to capital market during the last three years.

Mumbai, August 9, 2024

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