Global Capital Markets Ltd Management Discussions

ANNUAL OVERVIEW AND OUTLOOK

India is a significant global economic player, with its nominal GDP at current prices estimated at Rs. 296.58 trillion (US$ 3.56 trillion) in 2023-24. The country boasts the third-largest unicorn base globally, reflecting a vibrant startup ecosystem. The government is committed to renewable energy sources, aiming for 40% of energy from non-fossil sources by 2030 and striving for Net Zero Emissions by 2070 through the ‘Panchamrit strategy. India ranks third in the renewable energy country attractive index, indicating a favorable environment for renewable energy investments. Indias GDP growth is projected to moderate to 6.8% in the upcoming fiscal year, down from the current fiscals better-than-expected 7.6%. This moderation is due to several factors. Firstly, higher interest rates, which are typically used to manage inflation by reducing borrowing and spending, can potentially alleviate inflationary pressures. Secondly, a reduced fiscal impulse, indicating a decrease in government spending or an increase in taxes, can affect inflation dynamics by impacting consumer spending and overall economic activity. Lastly, the normalizing effect of net taxes on demand refers to tax adjustments that could affect consumer purchasing power and, consequently, inflation trends. Indias GDP growth is projected to moderate to 6.8% in the upcoming fiscal year, down from the current fiscals 7.6%. Despite this moderation, India is expected to retain its position as a significant global economic player. The Interim Budget for 2024-25 allocates a significant amount for capital expenditure, focusing on infrastructure and development projects. This investment is expected to stimulate economic activity and contribute to GDP growth. Tax receipts are estimated to increase, with GST collections crossing significant benchmarks. This increase in tax collections indicates a robust economy. The fiscal deficit is estimated at 5.1% of GDP in 2024-25, aligning with the goal of reducing it below 4.5% by 2025-26. This reduction in fiscal deficit is a positive sign of fiscal responsibility and economic stability. The governments commitment to renewable energy sources and its aim for 40% of energy from non-fossil sources by 2030 shows a progressive approach towards sustainable development. Global uncertainties and domestic factors, such as the ongoing effects of previous interest rate increases and the Reserve Bank of Indias measures, could pose challenges. However, these are being actively managed to ensure stable economic growth. In conclusion, while there are challenges ahead, the article suggests that India is well-positioned to maintain strong economic performance in the future. The governments focus on infrastructure development, fiscal responsibility, employment generation, and sustainable energy sources are key factors that will contribute to this growth. However, its important to note that these projections are based on current data and assumptions, and actual outcomes may vary.

INDUSTRY OVERVIEW

Indias financial sector is undergoing significant growth and diversification, comprising a wide range of entities, including commercial banks, insurance companies, non-banking financial companies, cooperatives, pension funds, mutual funds, and other smaller financial entities. The banking regulator has recently allowed the establishment of payment banks, further expanding the variety of financial services available in the country. The financial sector in India is predominantly a banking sector, with commercial banks accounting for more than 64% of the total assets held by the financial system. The Government of India and the Reserve Bank of India (RBI) have introduced several reforms to liberalize, regulate, and enhance this industry. These measures aim to facilitate easy access to finance for Micro, Small, and Medium Enterprises (MSMEs), such as launching credit guarantee schemes, issuing guidelines on collateral requirements, and setting up a dedicated refinancing agency, Micro Units Development and Refinance Agency (MUDRA). During the fiscal year 2024, the mutual fund (MF) industry witnessed a significant increase in new investors, up by 70% from the previous year, mainly due to the recovery in the equity market. This rise added 6.8 million unique investors, taking the total MF subscriber count to 44.5 million. The industrys assets under management (AUM) experienced a notable 35% growth, marking the second-highest increase in a fiscal year, while the number of folios reached a record high of 147.8 million, indicating the industrys healthy expansion. The heightened investor interest extended beyond mutual funds to encompass other equity investment avenues, indicative of a broader trend towards increased participation in capital markets. Active SIP accounts observed a significant rise, with net additions doubling from the previous year and over 82% of these accounts being dedicated to active equity schemes. However, the MF customer base of 44.5 million remains only around half of the latest tally of income tax return filings, signalling substantial room for further expansion. Indias financial sector is experiencing a significant transformation, characterized by the expansion and diversification of financial institutions, reforms initiated by the government, and the swift integration of digital payment technologies, notably mobile wallets. This evolution signifies a promising outlook for Indias capital markets, showcasing vibrant growth prospects and abundant opportunities for both investors and enterprises.

OPPORTUNITIES & THREATS Opportunities

Indias financial technology, or fintech, sector is experiencing rapid evolution but it exemplifies the nations striking contrasts. While we boast one of the highest number of bank accounts globally, the average balance per account remains notably low. Our banking system is immense, comprising 137 banks, 120,000 branches, with deposits totalling $1.35 trillion and outstanding credit of $900 billion, and its growing at a remarkable pace with the sector doubling in size every five to six years. However, when it comes to per capita metrics, we still reflect the developing nature of our economy. A noteworthy divide is evident in the contribution to total deposits, with rural India, which represents more than 60% of the population, contributing less than 10% of the deposits, while urban India, comprising only around 12% of the population, contributing 50-60% of the deposits. Additionally, women own a mere 20% of the total deposits. Despite these challenges, Indian financial institutions stand out as some of the best-run businesses globally. They have relatively low non-performing assets (NPAs), comprising 3-5% of total assets, high capitalization at 18% CAR (Capital Adequacy Ratio), and impressive return ratios, with return on equity (RoE) of about 15%. Indias financial landscape has undergone a remarkable transformation in recent decades, boasting world-class infrastructure, well-regulated bodies, and a robust capital market framework. Key initiatives such as Jan Dhan, Aadhar, and UPI have been transformative, while ongoing innovations like differentiated banking/insurance licences, Central Bank Digital Currency (CBDC), Account Aggregator, the Open Credit Enablement Network (OCEN), Digilocker, and the Open Network for Digital Commerce (ONDC) continue to drive progress. With a strong foundation and Indias trajectory towards becoming a $5 trillion economy, the financial services sector presents immense opportunities for value creation. The fintech ecosystem is also seeing vibrant innovation. Indias financial services and fintech industry is poised to generate more value in the next decade than in the previous 70 years combined. We envision the financial services market cap, currently standing at about $850 billion, to reach around $1.7 trillion by 2030. Specifically, within this market, fintech is projected to contribute an additional $300 billion in market cap, surging from around $85 billion to nearly $400 billion during this period. India is undeniably at a turning point, where value creation will compound and propel significant growth. Capital Market is a commonly used term. Capital market is a market for both debt and equity securities in India. It is the market where business enterprises, including companies and governments, can raise long-term funds. In other words, it can be said that the capital market is a market where the money is provided to the borrowers for more than a year. The Indian capital market includes both the stock or the share market and the bonds market. Share or stock market is the market where equities are traded, whereas, the bond market is the market where debt securities are traded. The Capital Market is regulated by Securities and Exchange Board of India (SEBI) and they overlook the market in their jurisdiction ensuring that the investors are protected against fraud apart from other duties. The regulatory bodies lay down specific rules and regulations that must be adhered to safeguard the investors interest.

Threats

Indian economy is one of the largest and fastest-growing economies in the world. There have been various reforms that have acted as a catalyst in the growth of the Indian economy; however, there are specific challenges that continue to block the development of the Indian economy. Main challenges that act as a hurdle in the growth of the Indian economy are as follows: Inflation: The rate of inflation indicates the falling purchasing power of the people of the country and the rising prices of the goods and services. Inflation happens and continues to be one of the biggest concerns of any nation, and so is the case with India. Though there have been many monetary policies and regulatory policies released by the Reserve Bank of India, inflation is still one of the biggest challenges that hamper the growth and development of the Indian Capital Market. GDP: Gross Domestic Product or GDP is another deciding factor in the growth and development of the capital market. GDP growth of the Indian economy is highly disappointing and highlights a downward trend. The lower the GDP, the more challenging it becomes for the country. Currently, India is facing a negative GDP growth due to the pandemic spread all across the world. Foreign Policy: A countrys foreign policy deals with Foreign Direct Investments (FDI) that a country is likely to receive. The higher the rate of the FDI flowing to the country, the better it is for the country in the short run as well as in the long run.

RISKS AND CONCERNS

Global Capital Markets Limited (GCML) has exposures in various line of business. GCML 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, 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. GCML 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 2023-24, 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.