MANAGEMENT DISCUSSION AND ANALYSIS INDIAN ECONOMY The year started on a promising note with 2014 general election results taking almost everyone by surprise. BJP under the leadership of PM Modi recorded its best performance ever and the best by any political party in the last 30 years. Such a strong electoral mandate has undoubtedly raised the bar for reform expectations. While, some may be disappointed with the pace of reform process, there has definitely been progress on this front - FDI liberalization (defense and insurance), prudent food management policies (moderate MSP hikes and grain procurement), de-regulation of diesel prices, auction of coal blocks and telecom spectrum in transparent manner, significant progress on financial inclusion through Jan Dhan accounts, better targeting of subsidies through direct cash transfers and taking steps to enhance ease of doing business - all account for significant progress on the policy front. The government has taken initial steps within the challenging environment it inherited. It is using the 'Ordinance' route with serious intent to push reforms in key sectors like insurance, minerals auctions, land acquisition, etc. Quite a few ordinances have been issued so far. Infrastructure connectivity, smart cities and industrial corridors are getting a big push, as are technology and digital initiatives. The 'Make in India' campaign is a serious effort to boost manufacturing activities, and hence job creation in the country. Online environmental clearances are being initiated. A number of stalled projects have started moving following faster project clearances. The government is now pushing for projects under the EPC route, rather than the PPP route, given the implementation challenges the PPP model faced in recent years. Allowing 100% FDI in railway infrastructure, increase in allowable FDI in defense and plans for several roads, transmission, airport projects are other key initiatives. The Hon'ble Prime Minister has taken initiatives himself to pitch India as an investment destination by visiting key countries like Japan, USA., Australia, Canada, Germany, France, China etc. India's economic growth rate in the FY 2014-15 was 7.3%, an improvement to the brvious year (6.9% in FY 2013-14), mainly on the back of recent policy initiatives, pick up in investments and lower oil prices. Going forward, growth rate is estimated at 7.5% by IMF, which would mean that India will outpace China in successive years to become the fastest growing emerging economy. This is achieved mainly because of restoring macroeconomic stability achieved on account of fiscal consolidation, control over inflation and support from fall in the global commodity prices. Fiscal balance further improved with Government's fiscal deficit has fallen to 4.1% of GDP in FY 2014-15 from 4.5% of GDP in FY 2013-14, this fall is aimed to be achieved through the government's stake sale in state owned entities and rationalization of fuel subsidy amid higher devolution to the states as per the recommendation of the 14th Finance Commission. The government has increased the share of capital expenditure in total expenditure to kick-start investments in the economy through higher allocation to transportation infrastructure including roads, railways and ports. Fiscal deficit is projected to be at 3.9% of the GDP for the FY 2015-16. Government is also confident of achieving the FRBM fiscal target of 3% of GDP by FY 2017-18. However, it is important to note that fiscal consolidation as envisaged is subject to risks; especially with respect to lower tax revenues if the economy does not grow on expected lines. The fall in international crude prices translated into a sizable saving on account of petroleum and oil imports, despite a pick-up in import volumes in Q3. Gold imports also moderated, coming off the seasonal cum pent-up demand spurt in September-November. On the other hand, non-oil non-gold import growth remained relatively firm leading to decline in overall imports in December. Hence, the estimate of the current account deficit (CAD) for FY 2014-15 is currently placed at 1.3 per cent of GDP, significantly lower than earlier projections. The CAD has been comfortably financed by net capital inflows, mainly in the form of buoyant portfolio flows but also supported by foreign direct investment inflows and external commercial borrowings. The exchange rate during FY 2014-15 averaged Rs. 61.15 per US$ after touching an all-time low of Rs. 63.67 per US$. Foreign exchange reserves were US$ 341.64 billion at the end of March 2015. However one of the key disappointments of FY2015 was the detoriation in growth momentum. Credit growth is at decadal lows and two wheeler sales, cement production and steel production growth has tapered in the second half. Private sector continues to remain in none-too-healthy shape, with Indian corporates now being one of the most leveraged and staring at earnings downgrades. Also, capacity utilization of manufacturing sector continues to detoriate and is now at 70%, five year low. In view of this, the first half of FY2016 may continue to see difficult business environment before growth starts returning gradually in the second half. While it revised inflation projection upwards to 6.0% (from 5.8% earlier) for March 2016, it cut growth projection 20bps to 7.6% for FY2016. On the inflation front, progress of monsoon, now brdicted to be deficient in this season as in the brvious season, oil prices and global situation remain key variables. Indian corporates are witnessing low capacity utilization and stretched balance sheets and Indian borrowers are facing high real interest rates. Hence further monetary action from RBI may be required to overcome the current challenges. The outlook for growth has improved modestly on the back of disinflation, real income gains from decline in oil prices, easier financing conditions and some progress on stalled projects. These conditions should augur well for a reinvigoration of private consumption demand, but the overall impact on growth could be partly offset by the weaker global growth outlook and very short-run fiscal drag due to likely combrssion in plan expenditure in order to meet consolidation targets set for the year. Domestically, conditions for growth are slowly improving with easing input cost brssures, supportive monetary conditions and recent measures relating to project approvals, land acquisition, mining and infrastructure. GLOBAL ECONOMY Global growth is forecasted to increase with uneven prospects across different countries and regions. Growth in many emerging market economies is softening, reflecting an adjustment to diminished medium-term growth expectations and lower revenues from commodity exports, as well as country-specific factors. The outlook for advanced economies led by the US is showing signs of improvement, owing to the boost to disposable incomes from lower oil prices, continued support from accommodative monetary policy stances, and more moderate fiscal adjustment. The decline in oil prices, if sustained, could boost consumption and support growth. Geopolitical tensions continue to pose threats, and risks of disruptive shifts in asset prices remain relevant. In some advanced economies, protracted low inflation or deflation also pose risks to activity. Headline inflation has declined in advanced economies reflecting the decline in oil prices, softer prices for other commodities, and a weakening of demand in a number of countries already experiencing below-target inflation, such as the Euro area and Japan. With regard to emerging markets, lower prices of oil and other commodities have generally contributed to reduction in inflation, with the notable exception of countries suffering sizeable exchange rate debrciation, such as Russia. Global growth is projected to increase slightly to 3.50% in 2015 from 3.40% in 2014 and then to rise further in 2016 to 3.80% according to the International Monetary Fund (IMF). The increase in 2015 will be driven by are bound in advanced economies (which is expected to increase to about 2.4% in 2015, compared to 1.8% in 2014) supported by the decline in oil prices, with the United States playing the most important role in the recovery. In emerging and developing markets, in contrast, growth is projected to decline to 4.3% in 2015 compared to 4.6% in 2014, reflecting downward revision for oil exporters, a slowdown in China which reflects a move toward more sustainable growth that is less reliant on investment, and a weaker outlook for Latin America resulting from softening of commodity prices. Stock markets of advanced nations continued to perform well in FY 2014-15. The Dow Jones Industrial Average closed the year at 17,776 after touching a high of 18,288 and a low of 16,026 during FY 2014-15, up 8% YoY. Japan's Nikkei 225 rose 30% YoY to close at 19,206 after touching a high of 19,754 and a low of 13,910 during FY 2014-15. UK's FTSE 100 touched a high of 7,038 and a low of 6,183 during FY 2014-15 and closed at 6,773 - a rise of 2% YoY. Back in India, the BSE Sensex was up 25% YoY after touching an all-time high of 29,682 and a low of 22,277 during FY 2014-15. The Nifty also touched an all-time high of 8,996 and dropped to a low of 6,653 during FY 2014-15, closing at 8,491 up 26% YoY. THE EQUITY MARKETS IN FY2015 The benchmark Nifty was up 26.65% YoY in FY2015 (21.61% YoY in USD terms). Bulk of the returns came during the first quarter, as expectations built around the Elections and then immediately following the decisive results. The subsequent quarters saw the returns taper, as markets awaited a revival in business cycle and improvement in corporate earnings. Short-term returns (3-Month) were marked by heightened volatility, which picked up in Q4FY2015 vs. brvious quarters. Nifty's average P/E in FY2015 was 21.08x, with an increasing trend since the Elections. This is up from the 5-Year historical average of 19.73x. CNX Midcap's average P/E in FY2015 was 18.59x, up from the 5-Year average of 17.15x. The gap between the large-cap and mid-cap indices had broadened in the immediate months after the election results, but has been closing since January 2015 onwards. As and when corporate earnings pick up, valuations should re-rate. But despite tapering returns, FIIs and domestic investors still clocked strong net inflows into equities during that period. On a relative basis, the Nifty outperformed leading benchmarks (of both Emerging and Developed Markets) in US$ terms on both the 1-Year basis and 10-Year basis. However, it under performed them on a 3-Month basis. Despite the short-term volatility, the long term scenario looks strong due to expectations from the new government and challenges confronting competing Emerging Markets like China, Brazil, Russia, etc. India also outperformed the Frontier Markets index across all the time-periods, indicating that India remains a much stronger economic story in comparison to the Frontier Markets. NSE market capitalization stood at Rs. 99.30 tn, as of 31st March, 2015. This was up 36.45% for the year (up 31.02% in USD terms). The long-term growth in the overall market capitalization remains strong, with the 10-Year CAGR at 20.14% (up 15.91% in USD terms). In terms of the broader market, the CNX mid-cap and small-cap indices saw an uptick in the third quarter of the fiscal year. This indicates that investor activity moved to those scrips with a lag of roughly two quarters as compared to the Nifty, which had apbrciated the most in the first quarter. In fact, the uptick in small-caps specifically continued into the fourth quarter as well. DEBT MARKETS IN FY2015 After enduring a very volatile phase in FY2014, the debt markets were back on track in FY2015 as coordinated efforts on the monetary and fiscal fronts bore fruit along with global factors working in India's favour. The key facilitators to rejuvenating the markets were the softening inflation trajectory, drop in global crude prices and INR currency stability, which in turn resulted in constant flow from foreign investors. RBI derived the necessary comfort on inflation situation and initiated monetary easing cycle with 2 repo rate cuts totaling 50bps in Q4FY2015. Inflation targeting continues to be the primary objective of monetary policy and hence easing trajectory will be data dependent and calibrated. Onset and progress of monsoon, unfortunately now brdicted to be deficient, will be monitored by RBI for assessing impact on food prices. The market has adopted a cautious stance in response to this uncertainty even as the underlying sentiment remains positive. We expect a silent quarter or two to begin with and momentum to pick up by the second half of FY2016. The execution of Monetary Policy Framework agreement between RBI and GoI is an important debt market reform. This move can go a long way in ensuring that the victory over inflation is institutionalized and will provide crucial coordination between the Centre and RBI in breaking the back of inflation. With clear inflation targets in view, it provides greater clarity on the rate scenario and will aid market participants in timely decision making. Among other reforms, exchange traded interest rate futures launched last year have gained significant traction as multiple investor categories are active in this product segment. The simplistic and transparent nature of this product has attracted investors like corporates and HNIs, driving up the open interest. RBI has announced a plan to launch IRFs at other segments of the curve and this can help development of a liquid underlying yield curve. Meanwhile, the market continues to expect reforms in corporate bond space, especially on the liquidity front and revival of products like corporate bond repos, CDS, etc. The recovery in market sentiment and anticipation of monetary easing triggered sizable foreign portfolio investor (FPI) debt inflows through the year. The net inflow in FY2015 stood at Rs. 1.6 trillion compared to an outflow of Rs. 280 billion in FY2014. While the initial focus was on government debt segment, limits in this bucket were exhausted by the end of H1FY2015 and incremental allocation has since been invested in corporate debt segment. It is anticipated that the US Fed will begin hiking rates mid-year but India is better equipped to weather the impact of such a move and the resulting volatility is unlikely to create a sizable dent in the flow momentum Broking Business Industry Facts Equity market average volumes (ADTO) reached Rs. 3.34 tn in FY2015, up 65.16% YoY. All participant segments registered significant growth during the year, buoyed by the retail segment. Cash market volumes grew 60.81% to Rs. 213.35 bn, which is only ~6% lower than its all-time high of FY2010. Within this, cash delivery was up 62.87% YoY to Rs. 65.09 bn, and it reached its all-time high since the last 8 years. Cash intraday was up 59.92% YoY to Rs. 148.26 bn, futures were up 58.03% YoY to Rs. 513.25 bn and options were up 67.01% YoY to Rs. 2.61 tn. This is a reversal from recent years, when it was the options segment which solely led the overall volume growth. In terms of the MoM trend in cash volumes during the year FY2015, the lowest it clocked was around Rs. 180 bn levels. This, in itself, is way higher than the overall cash volumes seen in recent years, which is an encouraging sign. The other aspect is that, despite the MoM returns in the benchmark indices being volatile, the cash volumes have held above these levels throughout the year. Amongst cash market participants, the uptick was led by a 72.81% YoY growth in retail and a 50.04% YoY growth in institution. Retail investors, who had slipped into a cocoon in recent years, showed renewed faith in equities this year both through direct equity investments and through equity mutual funds. The proportion of retail within cash volumes increased from 46.86% to 50.36% YoY correspondingly. However, retail cash volumes still remain ~17% lower than its brvious peak of FY2010. Institution cash volumes were ~35% higher this year than its past peak of FY2008, as FIIs continued their net inflows into equities. As primary market activity largely dried up in recent years, the incremental number of demat accounts on a YoY basis also reduced. FY2015 saw a slight uptick in new demat accounts created, as some retail investor interest revived this year. As and when further IPOs line up, the surge in incremental demat accounts should ideally be more significant. As primary market activity largely dried up in recent years, the incremental number of demat accounts on a YoY basis also reduced. FY2015 saw a slight uptick in new demat accounts created, as some retail investor interest revived this year. As and when further IPOs line up, the surge in incremental demat accounts should ideally be more significant. Net inflows from FIIs spiked up around the Elections as optimism built up, but tapered in subsequent months. However, there has been a revival in net flows from January 2015 onwards. While DIIs saw net outflows in FY2015, its quantum has been shrinking over the last 3 years. Q3FY2015 actually saw net inflows, the first-time since 11 successive quarters. Even February and March 2015 saw net inflows, which is encouraging. In terms of consolidation of NSE cash market volumes amongst the top brokers, consolidation of volumes within the Top-25 members reduced in FY2014. Instead, it is the proportion of volumes within the Next-75 brokers that actually increased in FY2014, indicating they also gained some of the incremental volume flows that came into the markets Investment Banking Business Industry Facts Investor sentiments improved this year following the decisive mandate for the government, who fought elections on the promise of streamlining regulatory environment to support growth. Its initial announcements to rationalize taxation, resource allocation, land acquisition, manufacturing focus, aided by falling commodity prices and resultant favorable inflation metrics, augur well for expected uptick in investment banking activity. Banks have also taken stiff stance in respect of resolution of NPAs which will encourage M&A, capital raising etc. Deal pipeline creation and execution saw some improvement, as compared to recent years. Few IPOs and QIPs hit the markets as some companies started looking to raise capital. However, the main YoY uptick in ECM volumes this year was due to the Additional segment (OFS, FPO, etc). DCM volumes were also up slightly YoY, mainly due to increased domestic bond issuances. M&A activity remained largely damp this year, as companies brferred to remain in watch-and-wait mode. The United Spirits deal was the notable deal during the year. However, while deal activity is gaining momentum and investor sentiments towards India remain favorable, the expectation is to see more concrete resolution of issues. As the policy environment improves further, it will offer more clarity to the business community and primary market activity should take off in a big way. Equity capital raising activity witnessed a small uptrend this year after subdued performance in the brvious two years. The Initial Public Offer (IPO) market witnessed 46 IPOs of equity for raising an aggregate of Rs. 3,039 Crore and 24 debt issuances for raising an aggregate of Rs. 9,422 Crore in FY 2014-15 as against 38 IPOs of equity aggregating Rs. 1,236 Crore and 35 debt issuances aggregating Rs. 42,383 Crore in FY 2013-14. This fiscal year there was no Follow-on Public offer (FPO) compared to 2 FPO's in FY 2013-14 which raised an amount of Rs. 7,457 Crore. During the year, the corporates brferred to raise funds through qualified institutions placement raising an aggregate of Rs. 29,102 Crore from 51 issuances as against Rs. 13,663 Crore from 17 issuances in FY 2013-14. Corporates also raised Rs. 6,750 Crore through 18 Rights Issues in FY 2014-15 as against Rs. 4,576 Crore through 15 Rights Issues in FY 2013-14. There were 28 transactions of Offer for Sale for an aggregate amount of Rs. 26,935 crore as against 79 transactions for Rs. 6,859 Crore during FY2014. In FY2015, Private Equity deals worth Rs. 78,154 crore were announced compared to Rs. 52,143 crore in FY2014, registering an increase of 49.9%. The sectors that experienced the maximum interest from private equity investors include IT / ITES, Financial Services and Healthcare. Mergers & Acquisition during FY2015, 433 deals were announced as compared to 400 deals in FY2014. Total value of the deals announced in FY2015 was $44 bn (this does not include 141 deals for which deal value was not available) as against $31 bn (this does not include 115 deals for which deal value was not available) for FY2014. Investment Management Business Industry Facts As per the Karvy Wealth Report 2014, the wealth held by Indian individuals in financial assets has grown at a CAGR of approximately ~13% in the last 5 years. This is during a period when the economy itself has performed way below expectations. With the growth in the Indian economy expected to take-off on the back of macro-economic revival and policy initiation, we may expect a bull-cycle to hit the markets. That should augur well for individual wealth, which should grow at an even higher rate as compared to last 5-year CAGR. Resultantly, the Karvy report expects individual wealth to double over the next 5 years. OUTLOOK AND STRATEGY While FY 2012 to FY 2014 had witnessed challenging macroeconomic and business environment, FY 2015 saw the reversal of these conditions. Current account and fiscal deficits are now in its comfort zone and inflation has nearly halved from a year ago. Most importantly, Indian electorate chose to grant full majority to a single party in the Lok Sabha, for the first time in the last three decades. Consequently, these has been significant improvement in investors' perception with portfolio flows touching $45 billion of in FY 2015 itself and the business optimism is now positive. While, some critics may complain about the pace of reform process, the Government has indeed been able to push through a number of progressive decisions. However, business environment in FY 2015 was only marginally better compared to brvious years and the cash flows and balance sheets of corporates continue to be stretched. Hence, we feel that the first half of FY 2016 may continue see difficult business environment before growth starts returning gradually in the second half. The Indian economy, expected to grow at 7.4% is firmly on the recovery path and the key indicators support the perception of recovery. The improved performance of the industrial and services sector is also reflected in the improved profitability in the corporate sector. This is achieved mainly because of restored macroeconomic stability on account of fiscal consolidation, control over inflation and support from fall in the global prices of oil and commodities. Acceleration of reforms and capital inflows will spur investment; however, the risks from high inflation, higher cost of capital arising from high fiscal deficit and exit from the expansionary monetary policy could have a dampening effect on the growth. India's growth prospects remain bright with its growth being well balanced and largely driven by domestic consumption. With strengthening of the economy and stable economic and political environment, the Indian capital market is expected to perform well. Given the robust growth prospects, we seek to consolidate our position further both in capital market and financial market. Our strategy will continue to be deepening our portfolio of financial services and products, client centric focus, effective risk management and build a business model that is well diversified across financial market activities. Focus on delivering client centric solutions, infrastructure and technology, investing in human capital and strong risk management will remain our basis for patient and responsible growth. KSL, strategy focuses on long-term growth and sustained value creation. We retain our long-term vision while achieving short-term targets. At the same time, while taking decisions which are ultimately in the long-term interest of the stakeholders and the company, we are also brpared to make short-term sacrifices. While we were sustaining our business during 2010-15, it impacted our profitability in the short-term. Given our focus on long-term growth of the company, we opted to suffer short-term pains. With this phase complete, we will be focusing on improving operating and capital efficiency in the following years which starts a new phase of growth for KSL. Going forward, the building blocks of our organization, viz. people, technology, processes, risk management and governance are in right place and ready to garner our share of growth. We see ahead of us a macro scenario rich with latent opportunity and we are well positioned to leverage our potential. We are ready to grow and we are environment agnostic now. Along with the above, our other organizational priorities include rigorous balance sheet management, organizational structure strengthening with divergent talent acquisition and leadership development, institutionalization of culture and strengthening our risk and compliance functions and instill customer centricity. AN OVERVIEW OF KHANDWALA SECURITIES LIMITED Khandwala Securities Limited's equity shares are listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The way to understand the activities of the Company is to analyse its business it carries out. It may be noted that the Company is focused on financial services as its core business area. Various businesses in the Company are divided in four segments. These are: Investment banking business comprising Capital Raising, M&A Advisory, Domestic IPOs, Private Equity placements, Corporate finance advisory, Restructuring, FCCBs and GDRs; Institutional Equities business comprising institutional equity sales, execution, research; Broking and Distribution business comprising non-institutional equity sales, trading, research, broking and distribution, depository participantship; Investment Advisory business comprising private and corporate wealth management, portfolio management. Various operating businesses are carried out by having independent teams and regulatory licenses. Our Company wide clients include public and private sector corporations, multinational corporations, financial institutions, institutional investors - both domestic and global, high net-worth individuals and retail investors as well as market intermediaries Broking Business: The Brokerage services of your Company include equity and debt broking and are supported by a strong research platform. Income received for brokerage services, had accounted for approximately 86.96% of our total revenues at Rs. 506.85 Lacs for the year ended March 31, 2015. Your Company also trades in the currency derivatives segment of National Stock Exchange. Private Client Broking business: Our private client broking services are targeted at High Net worth Individuals (HNIs) who actively invest and trade in equity markets and seek priority service with Bloomberg research and advisory support. Our approach is to provide advisory-based brokerage services with a strong emphasis on research, and to offer our clients value-added services usually reserved for institutional clients. KSL with its concentrated efforts in equity broking business, and as future strategy to build high volumes and revenues could successfully add a good number of Trading Accounts for various segments (Cash, Derivatives and Currency Futures) during the period 1st April 2014 to 31st March 2015. Your Company is confident that with its high degree of execution skills and services support, besides with its high end research will grow to new heights in its revenues in the coming years. Institutional Equities business: Equity and derivatives brokerage business of the Company contributed 83.01% of the consolidated revenue during this financial year. The Company's revenue of Rs. 506.85 Lacs for the year showed an increase of 15.67% over the brvious year corresponding to a comparable increase in volume. However it is encouraging to note that we marginally increased our market share. The number of clients who traded and the number of transactions were also good. The institutional equities business comprises institutional equity sales, sales-trading and research. We differentiate ourselves based on our cutting-edge research focus, which aids our execution capabilities across our sales and trading platforms. We provide equity and derivatives sales and trading services to a large and diversified base of institutional investors, including FIIs and domestic institutional investors. As at brsent, we have over 38 institutional investors actively transacting with us on a continuous basis. Investment banking business: The equity capital markets team focuses on structuring and executing diverse equity capital raising transactions in the public and private markets for our clients. Products in this segment include IPOs, follow-on offerings, rights offerings, private placement, ADR offerings, GDR offerings, QIP transactions and convertible offerings, etc. for both listed and unlisted entities. As an Investment Banking firm, it has always been our endeavor to structure and put together transaction structures that build long term, sustainable value for both the borrower and lender of funds in the equity markets. This approach, though having proved its mettle during the stages of market tightness, has been somewhat considered as a weakness by industry participants, resulting in us not being able to successfully convince Bloomberg on its benefits. This has led to situations wherein KSL has had to either withdraw from certain mandates or had to face resistance from Indian Corporates in awarding their fund raising mandates to us from the secondary markets. This is despite the management of these corporate houses acknowledging the deep knowledge and understanding of the micro and macro economy factors including the future growth prospects in specific industry, and the sustainable long term valuation parameters. We always believe that in order for market to value and reward its participants, it is important for both the Promoter Groups and the Merchant Bankers to design appropriate and sustainable valuation models such that it remains consistent with the overall corporate performance and at the same point in time is able to ride both the good and the bad times. Investment Baking and Advisory Group is putting their best endeavors on reviving some of the lost or delayed transactions, and are confident that in improved market sentiment same can be executed efficiently. Portfolio Management Services: The Portfolio Management Segment is bound to grow and offer immense business potential for financial advisory services. The NRI community is the key market segment. Successful NRI business owners and professionals are of great interest to Portfolio management institutions. KSL has identified this rapidly growing segments' need for specific products and services and has created practice models and advisory teams that specialize in servicing NRIs. Our service offerings include providing HNIs with investment advisory, planning and asset deployment advice, asset allocation and the distribution of a wide range of products. Our primary focus is on understanding each client's financial profile, including tolerance for risk, capital growth expectations, and current financial position and income requirements in order to create combrhensive and tailored investment strategies. Our Portfolio Management services have increased our clients' access to and use of our financial products and services Your Company is confident to garner much larger assets under management under the PMS division compared to last year and could be able to clearly demonstrate its core expertise to maximize the value under PMS, even under adverse market situation. Market Research: Our institutional equities business is supported by an experienced and dedicated team of analysts in fundamental, technical and alternative investment research. Our research initiatives are driven by committed professionals, management graduates, Chartered Accountants and Engineers having combined experience of several decades. Besides conventional tools, including quantitative analytical techniques and models to identify short and medium-term investment opportunities. Our research team maintains an updated database on, and tracks regularly, various factors impacting economy, industry and companies. The trends are analyzed using data both on macro and micro level. Various research products such as Market Today, Market Weekly, Market Technicals, India Strategy, Model Portfolio, Eco Update, InSight, Company/Sector reports/updates and others are sent to esteemed clients on a regular basis. These reports are supplemented by day-to-day market information by way of market alerts and impact analysis. Strength of our research capability lies in our ability to identify emerging investment themes and spot winners ahead of time. Our research reports, widely acknowledged by domestic and international print and electronic media, are rated among the leading domestic brokerage houses and have earned royalties from international data services providers in foreign exchange. Our Intelligent Research Reports are accessible on globally acknowledged and marquee websites such as Bloomberg.net <http://Bloomberg.net>, thomsonreuters.com <http://thomsonreuters.com>, 1call.com <http://1call.com>, moneycontrol.com <http://moneycontrol.com>, securities.com <http://securities.com>, valuenotes.com <http://valuenotes.com>, capitaliq.com <http://capitaliq.com>. Our research reports are highly recognized by international investor's community including leading Foreign Institutional Investors, global central banks, multi-lateral development agencies and independent multi-strategy funds. Some of the research reports, apart from being widely acclaimed, have been ranked among the best by international financial information providers such as Thomson-Reuters and Bloomberg. OPPORTUNITIES AND THREATS The following factors brsent specific opportunities across our businesses: • Expected GDP growth rate of 7.4% coupled with reforms push by the government relating to project approvals, land acquisition, mining, and infrastructure will lead to huge investments by both the public and private sector companies. There will be huge capital requirement to fund these investments which will brsent opportunities for investment banking and advisory business; • Fall in global commodity prices will reinvigorate private consumption demand and lead to capacity expansion by the industry; • Corporates are looking at expanding in domestic as well as overseas markets through mergers & acquisitions which offer opportunities for the corporate advisory business. • Growing mid-size segment of corporates where the need for customized solutions is particularly high will brsent opportunities for our advisory businesses; • With increase in the income levels, change in attitude from wealth protection to wealth creation and risk taking abilities of the youth, there is also a huge market opportunity for wealth management service providers. • Improved sentiments in the secondary markets will also enhance the participation of investors across segments thereby helping the prospects of equity brokerage business. We expect economic activity to pick up from grass root levels brsenting opportunities in both lending and asset reconstruction business. Despite the above opportunities, our performance could be affected by following perceived threats to our businesses: • Impact of abnormal monsoon, rising fiscal deficit, sustained high interest rates and high inflation; • Geopolitical tensions across the globe; • Regulatory changes impacting the landscape of business; • Increased intensity of competition from players across the segment/industry; • Attrition of employees caused by strong demand from ever increasing number of market participants; • Continuous downward brssure on the fees, commissions and brokerages caused by heightened competition and willingness of most players to deliver services at very low fees; • Entry of corporate heavy weights and global players in the lending business. Given their capital strength as well as access to cheaper sources of capital will increase brssure on us to remain competitive and impact margins. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY Our research reports are highly recognized by international investor's community including leading Foreign Institutional Investors, global central banks, multi-lateral development agencies and independent multi-strategy funds. Some of the research reports, apart from being widely acclaimed, have been ranked among the best by international financial information providers such as Thomson-Reuters and Bloomberg. We maintain adequate internal control systems commensurate with the nature of business, size and complexity of its operations. We have well-established processes, guidelines and procedures to augment the internal controls. This, coupled with adequate internal information systems ensures proper information flow for the decision-making process. Adherence to these processes is ensured through frequent internal audits. The internal control system is designed to ensure maintenance of proper accounting controls, monitoring of operations, protection and conservation of assets and compliances with applicable laws and regulations. These controls ensure that financial and other records are reliable for brparing financial statements and other information. An extensive programme of internal audit is conducted by an independent firm and reviewed by the Audit Committee. Internal audit also evaluates and suggests improvement in effectiveness of risk management, control and governance process. All our operating subsidiaries are subject to internal audits to assess and improve the effectiveness of risk management, control and governance process. These procedures ensure that all transactions are properly reported and classified in the financial records. The Audit Committee of Board provides necessary oversight and directions to the internal audit function and periodically review the findings and ensures corrective measures are taken keeping in mind the organization's requirements, growth prospects and ever evolving business environment. This system enables us to capture a brcise reflection of the organization's position at all times and also facilitates timely detection and plugging of anomalies by various business groups. We also address any issues identified by regulatory inspection teams very diligently and report the same to the Board of Directors and the regulators. RISK CONCERNS AND RISK MANAGEMENT The Risk Management Function is overseen by the Audit Committee. Risk Management Policies are designed after discussion with various constituents and experts. In a business where prices and realities change every instant, it is imperative for KSL to operate within a broadly de-risked business model that protects stakeholder interests on the one hand and facilitates growth on the other. Therefore, the concept of real-time risk mitigation management is integrated within the Company's existing business strategy. It is integrated into the Company's strategic and operational decision making process; it is ingrained in the organizational mindset; it pervades all organizational tiers, roles and functions. KSL's effective risk management is guided by an understanding of the various parameters that can have a bearing on its business and profitability: S External: These comprise risks that the Company faces but cannot control - industry slowdown, competition, regulatory changes, brand perception etc. S Internal: These comprise risks that the Company can directly control through prudent strategy - costs, liquidity, technology, operations, people etc. KSL controls client risk through a prudent categorization of clients as per their financial depth. This helps circumscribe their trading limits, leading to effective risk management. KSL monitors a client's trading pattern in addition to keeping a continuous vigil on positions, balances and margins. This provides an understanding of a client's trading pattern in terms of nature of transactions, trading, investments, F&O types of scrips, etc. to detect any undesirable or prohibited practices. Based on this, remedial actions are initiated whenever required. This ensures strict regulatory compliance Industry Risk KSL is primarily engaged in the business of financial services. Any slowdown in the country's economy or financial sector as well as any changes in interest rates, political climate or regulatory changes could affect the Company's prospects. Further the capital market is always exposed to the cyclical risk of upswing and downturns, which in turn depend on the overall economical growth of the country. Management Perception KSL's brsence in multiple product segments also serves as a natural hedge against a downturn in any particular sector. For instance, the Company's brsence in the relatively volatile equity segment is balanced by its brsence in the relatively stable insurance, mutual funds and fixed interest-bearing debt instruments. Your Company has broadly three major revenue generation department viz. Broking division, Corporate Advisory Division and Capital Market Operation. The total revenue generated by the company during the year shows the overall performance of all the departments jointly and doesn't depend on any single segment of revenue. Liquidity risk In the event of clients not honoring their financial commitments following an unexpected market movement, the Company's cash flow could be KSL has exercised prudence in client selection and credit extension. For instance, the Company's internal audit team ascertains client credentials before they are permitted to trade. Management Perception As a corporate policy, it is endeavor to constantly monitor the margin payments and settlements of our customers on a continuous basis. Our ability to understand the financial track record of each of our customers provides us with a judgment and direction on the margin calls to be issued as also calling for br-payments if need be in cases of exigencies. This approach we believe gives the Company the required flexibility in managing the liquidity risk across multiple categories and types of customer profiles. This assumes that at KSL we follow an independent and customer centric risk management exercise thereby ensuring timely interventions to significantly reduce potential liquidity risks. Economic risk A slowdown in economic growth in India could cause the business of the Company to suffer. While the Indian economy has shown sustained growth over the last several years, the growth in industrial production has been variable. Any slowdown in the Indian economy, and in particular in the demand for housing and infrastructure, could adversely affect the Company's business. Similarly, any sustained volatility in global commodity prices, including a significant increase in the prices of oil and petroleum products, could once again spark off a new inflationary cycle, thereby curtailing the purchasing power of the consumers. Management Perception The Company manages these risks by maintaining a conservative financial profile and following prudent business and risk management practices. Human Resource Risk Human Resources rebrsent the company's principal asset in a knowledge-led business, where any attrition or skill obsolescence could lead to a weaker industry position. Management Perception Your Company has consciously made the transition from a family based organization into a professionally managed one, accompanied by delegation of responsibilities for intellectual growth. Over the years, your company has invested in the human resource by providing timely training, various seminars on personal development etc. The free work environment provided by the Company has also resulted in to low attrition of manpower. Client Risk In the financial industry the company depends on a few bigger corporate and institutional clients from where majority of the revenue is generated. Regulatory risk The Company's brsence in a variety of financial segments warrants an ongoing compliance with the evolving requirements of their various regulators. Any violation or transgression could invite censure, affecting the Company's brand. Management Perception Your Company enjoys strong long term relationship with its clients. However, as a good Risk Management practice, the company has never relied upon particular client base and hence not exposed to such risk. During the year under review company has added 1 (One) new institutional client from where regular business is generated. It is your company's constant endeavor to search for new area of business and clients. KSL takes its compliance commitment seriously, recognizing that the business must not only serve the interest of the customer but also function well within the established guidelines of the various regulatory authorities for responsible and profitable growth. At KSL, the compliance discipline extends across the entire transaction cycle, client identification, KYC process transaction execution, transaction settlement involving securities and funds transfer. The compliance requirements across the various service points have been communicated combrhensively to branch through compliance manuals, leading to uniformity, quality, priority and discipline Human Resources Your company considers its human resource as the most valuable asset and, recognizing this, devotes a considerable development of its employees in various traits, apart from job related skills: S Employee satisfaction survey was carried out along with various seminars by the HR department of the Company to understand the employees and help them to perform in the most efficient manner. Feedbacks were received during such sessions and corrective actions have been initiated; S Communication meeting is being organized once in a quarter to apprise all the employees on the major development on various fronts such as market, deals stroked etc; S Your company had recruited Management Trainees during the year and they were given specific job assignments in the research department. This has helped your company to establish goodwill with local management schools and brpare future prospects for employment. |