GCM Commodity & Derivatives Ltd Management Discussions

ANNUAL OVERVIEW AND OUTLOOK

The Asian Development Bank (ADB) projects growth in Indias gross domestic product (GDP) to moderate to 6.4% in fiscal year (FY) 2023 ending on 31 March 2024 and rise to 6.7% in FY2024, driven by private consumption and private investment on the back of government policies to improve transport infrastructure, logistics, and the business ecosystem. The projection is part of the latest edition of ADBs flagship economic publication, Asian Development Outlook (ADO) April 2023, released today. The growth moderation for India in FY2023 is premised on an ongoing global economic slowdown, tight monetary conditions, and elevated oil prices. However, FY2024 is expected to see faster growth in investment, thanks to supportive government policies and sound macroeconomic fundamentals, lower nonperforming loans in banks, and significant corporate deleveraging that will enhance bank lending, according to ADO April 2023. “Despite the global slowdown, Indias economic growth rate is stronger than in many peer economies and reflects relatively robust domestic consumption and lesser dependence on global demand,” said ADB Country Director for India Takeo Konishi. “The Government of Indias strong infrastructure push under the Prime Ministers Gati Shakti (National Master Plan for Multimodal Connectivity) initiative, logistics development, and industrial corridor development will contribute significantly to raising industrial competitiveness and boosting future growth.” Improving labor market conditions and consumer confidence will drive growth in private consumption. The central governments commitment to significantly increase capital expenditure in FY2023, despite targeting a lower fiscal deficit of 5.9% of GDP, will also spur demand. Helped by recovery in tourism and other contact services, the services sector will grow strongly in FY2023 and FY2024 as the impact of COVID-19 wanes. However, manufacturing growth in FY2023 is expected to be tamped down by a weak global demand, but it will likely improve in FY2024. Recent announcements to boost agricultural productivity, such as setting up digital services for crop planning and support for agriculture startups will be important in sustaining agriculture growth in the medium term. Inflation will likely moderate to 5% in FY2023, assuming moderation in oil and food prices, and slow further to 4.5% in FY2024 as inflationary pressures subside. In tandem, monetary policy in FY2023 is expected to be tighter as core inflation persists, while becoming more accommodative in FY2024. The current account deficit is projected to decline to 2.2% of GDP in FY2023 and 1.9% in FY2024. Growth in goods exports is forecast to moderate in FY2023 before improving in 2024, as production-linked incentive schemes and efforts to improve the business environment, such as streamlined labor regulations, improve performance in electronics and other areas of manufacturing growth. Services exports growth has been robust and is expected to continue to strengthen Indias overall balance of payments position.

INDUSTRY OVERVIEW

Led by retail-focused players, non-banking financial companies (NBFCs) are likely to close the current fiscal and the next with loan growth of 10-12 per cent and see around 50 basis points improvement in profitability, a report said. According to ICRA Ratings, retail-focused NBFCs are expected to grow 12-14 per cent while the housing finance companies may grow by 10-12 per cent. The forecast is based on the asset quality improvement and the overall pick-up in credit demand. However, microfinance and personal loans, which together constitute a quarter of the Rs 25-lakh crore shadow banking sector, will continue to grow at a high pace. Sectoral profitability will improve by 40-50 basis points (bps) this fiscal, supported by stable margins and lower credit cost, and will reach the pre-pandemic levels, the report said. While growth will be broad-based across various sub-sectors, microfinance and personal loans will be leading the growth chart. On the other hand, vehicle financing loans (commercial vehicle finance, passenger vehicle finance), which have remained significantly subdued since FY20, are also expected to report higher growth numbers, following an improvement in the operating environment. Accordingly, the growth outlook for NBFC-HFCs is 10-12 per cent for FY23. Within this, NBFC-retail is expected to grow at 12-14 per cent, while HFCs may grow at 10-12 per cent, she said, adding, for FY24, the growth estimate is pegged at 10-12 per cent, given the uncertain global macroeconomic conditions which may pose some downside risks towards the end of FY23 or early FY24. According to the report, the asset quality of non-banks has been improving steadily since December 2021 as borrowers gradually recovered from the pandemic-induced stress. The improvement has been on the back of higher collections, a lower-than-anticipated share of restructured portfolio estimated at 2 per cent of total assets under management as of

September 2022 and controlled slippages from this book and reported ratios also benefiting from the base effect of high growth. Overall, the majority of stress from the restructured book is likely to be absorbed in FY23 and slippages are expected to remain range-bound. The agency, therefore, expects the NBFCs to report some moderation in reported asset quality indicators and credit costs by March 2023. On the profitability front, while rising interest rates are expected to bring net interest margins pressure, the impact has been somewhat offset as banks have not passed on the entire cost increase and NBFCs have been able to pass on the limited rate hikes to their borrowers.

OPPORTUNITIES & THREATS

A strong, regulated, and efficient capital market is essential for a vibrant financial system and sustainable economic development of a nation. The Indian financial system has always encouraged a robust capital market for supporting the investment requirements of individuals and funding requirements of companies. Capital markets provide a platform for wealth creation in the economy, and India is one of the fastest-growing wealth management markets in the world. The Indian financial markets have been witnessing increasing growth and are becoming more mature and modernized. At the same time, markets are also getting increasingly multifaceted due to the emergence of new products, technology enabled processes and rising global integration. The Government of India has taken numerous measures to usher in financial and regulatory reforms in the primary and secondary market. Over the years, the growth of the Indian capital market has enabled the participation of citizens in nation-building. Easy and improved access to digital financial services has resulted in increased retail participation of investors in the capital market, which also calls for a robust framework for investor protection, education and awareness. It is imperative to strengthen the awareness of investors. Thus, the Securities and Exchange Board of India (SEBI) and Investor Education and Protection Fund Authority (IEPFA) have been working towards enhancing the level of financial literacy across the nation. As India marches into the Amrit Kaal, the Indian capital markets will be well poised to support Indias growth story. In this growth, SMEs will also have a big role to play, and we need to empower them by providing easy and low-cost access to capital through our capital market. Owing to the robust structural and institutional reforms taken by the Government of India, the Indian economy successfully navigated the pandemic and managed the global headwinds and volatile geo-political situation much better than many economies of the world. As we come out of this challenging phase, private sector enterprises in India are eager to expand their businesses. Capital markets role in meeting corporate Indias long-term funding requirements assumes huge significance. Reserve Bank of India (RBI) has said that domestic economic activity does face challenges from an uninspiring global outlook going forward, but resilient domestic macroeconomic and financial conditions, expected dividends from past reforms and new growth opportunities from global geo-economic shifts place India at an advantageous position in the current fiscal.

RISKS AND CONCERNS

GCM Commodity & Derivatives Limited (GCM) has exposures in the trading and investments in shares & securities. GCM are exposed to specific risks that are particular to their respective businesses and the environments within which they operate, including market risk, volatility risk, credit risk, liquidity and interest rate risk, human resource 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.

MARKET RISK

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.

LIQUIDITY AND INTEREST RATE RISK

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.

HUMAN RESOURCE DEVELOPMENT

The Company recognizes that its success is deeply embedded in the success of its human capital. During 2022-2023, 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.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

The provision of the Companies Act, 2013 relating to CSR Initiatives are not applicable to the Company.

COMPLIANCE

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. Delay was mainly due to the difficult phase of COVID-19 pandemic wherein the normal life was disrupted and staffs were forced to perform their duties with limited resources. The Company has made payment of penalty of 0.64 Lakh to BSE during FY 2020-21. 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, except as detailed herein above.