NBI Industrial Finance Company Ltd Management Discussions

GLOBAL ECONOMY AND MARKETS:

The Economic scenario namely, growth, individual sustenance, fiscal deficits, and central bank balance sheet expansion are now markedly different when we compare Europe, USA to the large ASEAN nations. The irony is that energy shortages, inflation and banking crises in the Western hemisphere are strangely similar to situations ASEAN countries faced in the late 1990s, except that given the luxury and comfort of being global currencies, the West is not reeling undera currency depreciation crisis.

The global economy was recovering from the impact of successive waves of the COVID-19 pandemic by early 2022, aided by large policy stimulus and expanding coverage of vaccination, when the war in Ukraine jolted the upturn. The gains achieved through concerted fiscal and monetary policy interventions during the pandemic period (2020 and 2021) were undermined by the impact of the war. A generalised surge in global inflation triggered monetary policy actions by central banks in the form of successive interest rate increases and the pulling back of liquidity, leading to tightening of financial conditions and together with otherfactors, a toll on growth which slowed from 6.2 per cent in 2021 to 3.4 per cent in 2022, according to the International Monetary Fund (IMF). Global inflation surged to 8.7 per cent from 4.7 per cent in 2021, overshooting targets in the majority of countries through the year. Global trade (goods and services) growth slowed from 10.4 per cent in 2021 to 5.1 per cent in 2022, reflecting the post-pandemic slowdown in global demand and the restrictions on cross-border movements of goods and services imposed by the war in Ukraine.

The US Fed is facing an acute conundrum. During the Covid-19 pandemic, the government doled out free monies resulting in a consumption frenzy. Despite tariffs and logistics issues in 2021, the average consumer in US remained on a buying spree. Finally, the Ukraine war and the resultant shortages brought about a sudden rise in inflation. The US Fed began to battle inflation, albeit with a delayed lag, resulting in a sharp increase in US Fund Rates. This sudden increase in rates did not allow investors to rebalance their portfolios and thus are left with Mark-to-Market (MTM) losses on their safest asset - government securities. Consequently, the US Fed is now dealing with an unforeseen banking crisis. As per the last publicly known estimates, the US banking system is now burdened with a MTM loss of around USD 620 bn.

Empirical evidence has shown that in periods of high rates, asset bubbles burst. Two asset classes have taken a hit - cryptocurrency and venture capital. The market capitalization of cryptocurrency, an asset whose classification as an asset class itself has always been a suspect, has plummeted from its peak of USD 3 tn to nearly USD 800 bn, in just over a span of one year.

For the second asset class-venture capital and more appropriately, its valuation, the picture is further opaque. With the failure of the Silicon Valley Bank, it seems a long winter has set-in in the start-up world. In times to come, with lack of incremental capital funding, we may witness large layoffs and closure of many start-ups not only in the US, but world over.

These events over the past year have impacted investor sentiments negatively. Investors are now more than ever, investing with caution. Post the aftermath of FTX, the famous crypto- exchange, investors are allocating funds towards investments which are well understood and regulated.

Further, the turbulence in global financial markets has ensued uncertainty in gold prices and has once again made it a safe heaven.

INDIAN ECONOMY AND MARKETS

Amidst strong global headwinds, the Indian economy is expected to have recorded a growth of 7.0 per cent in real GDP in 2022-23. Like many other economies, India also experienced a surge in inflation during 2022-23, primarily reflecting the impact of overlapping global supply shocks and pass-through of higher input costs. As a result, inflation reached a peak of 7.8 per cent in April 2022. Overall, headline inflation increased to 6.7 per cent in 2022-23 from 5.5 per cent in 2021-22. The Central Bank had to intervene through increase in interest rates to control the inflation. The world had also to deal with disruptions in food and energy supplies of a magnitude which was not experienced in recent memory. The impact on India remained marginal, mainly on account of the astute policies, faster recovery from effects of pandemic and efficient food grain distribution by the government. Consequently, in India, large & small companies and the services sector has not been substantially negatively impacted. Even so, the year FY 2022-23 recorded a lower earnings growth for the Nifty 50 companies than what was estimated by analysts at the beginning of the financial year. The Nifty 50 recorded an approximate fall of 2.5%, but showed impressive resilience given the global circumstances & food grain distribution, as is visible in the following chart.

The world remains behest with nations expressing differences which could escalate further. The year will be a test for the western world to manage political tensions and economic disruptions. Another geo-political crisis could be disastrous for the world at large.

As for India, we remain optimistic that Indian equity indices may record double-digit returns in FY 2023-24. Your Companys portfolio continues to be balanced between listed equities and others. The Companys overall performance can be treated satisfactory in view of turbulence in the stock market during the first half of the year gone by.

NBFC INDUSTRY & BUSINESS UPDATE

Indias financial sector is a highly diversified one comprising commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities. The sector is predominantly driven by banking and nonbanking financial companies (NBFCs). Over the past few years NBFCs have emerged as important financial intermediaries, particularly for the small-scale and retail sectors in underserved and unbanked areas.. The sector has turned out to be growth engine in an environment where significant importance is assigned to financial inclusion and have aided the economy in employment generation and wealth creation by making credit available to the rural segment.

COMPANYS POSITION

The Company NBI is registered with the RBI as a Non-Banking Financial Institution and is categorized as Non-Deposit taking NBFC" (NBFC-ND). The operations of the company continue to be centered around investments in shares and securities. The main income of the Company is dividend income on long-term investments and profit from sale of investments. The results of the Companys operations for the financial year ended 31st March, 2023 have been dealt with in the Directors Report.

The Company, being into finance and investment activity, the impact of movement of stock markets affects its profitability. The Company has long-term orientation in its investments and mainly invests in listed equities. The objective of investments portfolio is to balance risk with adequate return.

OUTLOOK

A significant portion of the Companys income arises from investment and share trading operation, which are largely dependent on the condition of the stock market. The stock market activity depends largely upon the economic growth momentum and a combination of other factors like inflation, domestic savings, surging portfolio investments into India etc. The unusual developments in the global economy may pose uncertainties and challenges for the emerging market economies like India. However, the Company has investment policy wherein it invests in those securities which have easy liquidity, better yield and potential for price appreciation in medium to long run.

INTERNAL CONTROL SYSTEM ANDTHEIR ADEQUACY

The Company has implemented a system of internal controls and risk management for achieving operational efficiency, optimal utilization of resources, credible financial reporting and compliance with local laws.

The system is aimed at covering all areas of operations. All transactions entered into by the Company are duly authorized and recorded correctly. The internal financial controls within the Company are commensurate with the size, scale and complexity of its operations. It has implemented suitable controls to ensure that financial transactions are reported with accuracy and that there is strict compliance with applicable laws and regulations. These controls are regularly reviewed internally for effectiveness. The Company has robust policies and procedures which, inter alia, ensure integrity in conducting its business, safeguarding of its assets, timely preparation of reliable financial information, accuracy and completeness in maintaining accounting records and the prevention and detection of frauds and errors.

KEY FINANCIAL RATIOS

In accordance with SEBI (Listing Obligations and Disclosure Requirements) Regulations, the details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios are as follows:-

CAUTION ARY STATE M ENT

Certain statements under "Management Discussion & Analysis" describing the Companys objectives, estimates, expectations or predictions may be forward looking statements within the meaning of applicable securities laws and regulations. Although the expectations are based on reasonable assumptions, the actual results could materially differ from those expressed or implied, since the Companys operations are influenced by many external factors beyond the control of the Company. Investors are cautioned that the Company assumes no responsibility to publicly amend, modify, revise or update any forward looking statement or opinion, on the basis of any subsequent developments, events or information.