MANAGEMENT DISCUSSION AND ANALYSIS

GLOBAL ECONOMY

Economic conditions improved modestly and global growth in 2014 was 3.4 %. IMF has projected global growth to be slightly higher in 2015, at around 3.5 % and rising to 3.8 % in 2016. The increase in growth in 2015 will be driven by a rebound in advanced economies, supported by the decline in oil prices, with the United States playing the most important role. Growth in the United States was stronger than expected, averaging about 4 % annualized in the last three quarters of 2014. The main engine of growth has benefited from steady job creation, income growth, improved consumer confidence as unemployment rate declined in United States. The euro area continued to recover during the past year, but private investment remained weak, with Ireland, Spain, and Germany being notable exceptions.

EMERGING ECONOMIES

In emerging markets, in contrast, growth is projected to decline in 2015 - for the fifth year in a row. A variety of factors explain this decline, sharp downward revisions to growth for oil exporters, a slowdown in China that reflects a move toward a more sustainable pattern of growth that is less reliant on investment and a continued weakening of the outlook for Latin America resulting from a softening of other commodity prices.

A pickup in emerging markets is assumed to drive the global growth rebound in 2016, primarily reflecting a partial waning of setbacks to domestic demand and production (including from geopolitical tensions) in a number of economies, including Brazil and Russia. Despite the slowdown, emerging market and developing economies still accounted for three-fourths of global growth and their growth is projected to 4.3 % in 2015 and 4.7 % in 2016.

HE INDIAN GROWTH STORY

The growth of the Indian economy is projected to accelerate to 7.4% in the current fiscal. At this level it is estimated to be on par with China, currently the fastest growing economy in the world. It is also the first time that the economy is projected to be bigger than $2 trillion; India's GDP is estimated to be $2.1 trillion in FY 2014-15. With the first three quarters' economic growth numbers at 6.7%, 8.4% and 6.6% respectively. In the fourth quarter, India's GDP advanced 7.5 % supported by a strong expansion in manufacturing and services sectors.

'SERVICE SECTOR GROWTH IS STILL OUTPERFORMING DESPITE SETBACK IN MANUFACTURING

The Indian growth story has been led by services-sector growth which is now in double digits. As per Advance Estimates (AE) during FY 2014-15, the service sector is projected to grow at 10.6 % as compared to 9.1% in brvious year, this is mainly due to growth acceleration in financial, real estate, and professional services to 13.7 % from 7.9 %.

In 2016, global growth is forecast to improve to 3.8 % but there are still considerable downside risks to the baseline forecast related to the upcoming move towards monetary policy normalisation in the US, ongoing uncertainties in the euro area, potential spillovers from geopolitical conflicts and persistent vulnerabilities in emerging economies.

India's economic growth is projected to surpass that of China's, with the GDP expected to zoom by 7.7 % in 2016, according to a UN report leading India to help accelerate economic growth in South Asia.

Growth in China is expected to decline to 6.8 % in 2015 and 6.3 % in 2016. These projections have been revised downward by % and V percentage point, respectively, as brvious excesses in real estate, credit, and investment continue to unwind. The Chinese authorities are now expected to put greater weight on reducing vulnerabilities from recent rapid credit and investment growth, and hence the forecast assumes less of a policy response to the underlying moderation. Brazil's economy is projected to contract by 1 % this year. India's growth is expected to strengthen from 7.2 % last year to 7.4 % this year and next. Growth will benefit from recent policy reforms, a consequent pickup in investment, and lower oil prices.

? FIIs have invested a net of US$ 43.5 billion so far in 2014-15— expected to be their highest investment in any fiscal year. Of this, a huge amount—US$ 26.3 billion—was invested in debt and it is their record investment in the asset class, while equities absorbed US$ 17.2 billion.

? On balance of payments basis (i.e., excluding valuation effects), the foreign exchange reserves increased by US$ 61.4 billion during 2014-15 as compared to an increase of US$ 15.5 billion during 2013-14.

? Assets of the mutual fund industry have hit an all-time high of about Rs.11.00 trillion (US$ 173.75 billion) as on 31st March 2015. During the fiscal year 2014-15 equity funds had inflows of Rs. 0.71trillion(US$ 11.40 billion), taking total inflows as on 31st March 2015 to Rs. 3.45 trillion (US$ 55.38 billion).

? India's life insurance sector is the biggest in the world with about 36 crore policies, which are expected to increase at a compounded annual growth rate (CAGR) of 12-15 % over the next five years. The insurance industry is planning to hike penetration levels to 5 % by 2020, and could top the US$ 1 trillion mark in the next seven years. The total market size of India's insurance sector is projected to touch US$ 350-400 billion by 2020.

? The Indian banking sector is fragmented, with 46 commercial banks jostling for business with dozens of foreign banks as well as rural and co-operative lenders. State banks control 80 % of the market, leaving relatively small shares for private rivals. At the end of February 2015, 13.7 crore accounts had been opened under Pradhanmantri Jan Dhan Yojna (PMJDY) and 12.2 crore RuPay debit cards were issued. These new accounts have mobilised deposits of Rs.12,694 crore (US$ 2.01 billion). Standard & Poor's estimates that credit growth in India's banking sector would improve to 12-13 % in FY16 from less than 10% in the second half of CY14.

? In a major boost for the infrastructure sector, as well as for banks financing long gestation projects, the RBI has extended its flexible refinancing and repayment option for long-term infrastructure projects to existing ones where the total exposure of lenders is more than Rs.500 crore (US$ 78.98 million).

? India attracted foreign direct investment worth $34.9 billion between April 2014 and March 2015. This quantum was up 61.7% from the brvious fiscal year.(Source RBI).

? India received the maximum FDI from Mauritius at US$ 7.66 billion, followed by Singapore (US$ 5.26 billion), the Netherlands (US$ 3.13 billion), Japan (US$ 1.61 billion) and the US (US$ 1.58 billion) during April-January 2014-15 period. Healthy inflow of foreign investments into the country helped India's balance of payments (BoP) situation and stabilised the value of rupee.

After going through a rough phase in the last couple of years, the Indian equity markets rebounded in FY15. Muted global growth, ample liquidity, comparatively limited opportunities in other emerging markets along with a renewed optimism in the Indian economy post the formation of a stable government brought large quantum of foreign money into the Indian Capital Markets. Other factors such as declining oil prices, lower inflation and the Government's inclination towards adhering to fiscal discipline improved the domestic macro economic outlook resulting in a renewed interest by investors in the domestic markets. Not only did the benchmark indices scaled newer highs with BSE Sensex and Nifty closing at 27957 and 8491 respectively as on 31 March 2015 with corresponding growth rates of 24.8% and 26.6 %, year on year, along with this even broader based mid-cap indices displayed a significant uptick during FY15.

? At the industry level, Equity Average Daily Volumes (ADV) rose by 14% YoY during 9MFY15 to Rs. 2.36 trillion. While this may be considered as moderate, what is important to note is the strong uptick in cash volume ADV which increased by more than 55% YoY to Rs. 0.21 trillion in 9MFY15. Equity derivative ADV rose by 11% in 9MFY15 to Rs. 2.15 trillion when compared with 9MFY14. Also, important to note is that equity options volumes, which have otherwise been driving the equity ADV growth in the past, ebbed in 9MFY15. Options ADV has remained nearly flat at Rs. 1.65 trillion in 9MFY15 when compared to Rs. 1.60 trillion for 9MFY14. Consequently, during 9MFY15, 53% YoY growth in total cash volumes and 48% YoY growth in total equity futures volumes have contributed to the robust growth in the overall market volumes.

? Retail investors seem to have returned to the capital markets indirectly as seen by the robust inflows into the equity schemes of Mutual Funds during the last 9-10 months. Further, many brokers have reported 40-60% increase in activity levels of the clients. However, for retail brokers the activity levels remain much lower than what was observed in the heydays of FY08 or FY11. As per the data obtained from the exchanges, 32-34% of overall volumes currently originate from internet / mobiles / tablet platforms. This particular phenomenon is expected to have a lasting impact on the manner in which the industry evolves with much of the incremental client addition for larger brokers being 'online clients'.

? The commodity broking activity levels continue to remain at muted levels, even though it is more than 18 months since the CTT (Commodity Transaction Tax) was imposed and the NSEL crisis occurred. While the imposition of the CTT has kept most jobbers and arbitrageurs away, the occurrence of the NSEL crisis seems to have impacted investor confidence adversely, thereby, forcing most players to approach the commodity markets cautiously.

OUTLOOK

India is today one of the most vibrant global economies, on the back of robust financial sector. Several measures have been outlined in the Union Budget 2014-15 that aim at reviving and accelerating investment which, inter alia, include fiscal consolidation with emphasis on expenditure reforms and continuation of fiscal reforms with rationalization of tax structure; fillip to industry and infrastructure, fiscal incentives and concrete measures for transport, power, and other urban and rural infrastructure; measures for promotion of foreign direct investment (FDI) in selected sectors and, steps to augment low cost long-term foreign borrowings by Indian companies. All this will bring a slew of opportunities across sectors and in such a scenario; equities can provide investors good returns. Global liquidity inflows will continue to remain strong as investors brfer growth. With China and most commodity-driven economies slowing, India will be a brferred choice for global investors and this will attract a lot of FDI (foreign direct investment) and FII money over the coming years. Consequently, the equity broking business is likely to show considerable growth over the next few years.