FY2015 was a landmark year for us. A fall in crude oil prices, together
with a decline in international food prices meant that India''s infl
ation and trade deficit fell sharply. These were the two big lingering
vulnerabilities of the Indian economy over the past three years.
Deriving comfort from this windfall, and in a bid to encourage growth,
the Reserve Bank of India commenced the rate easing cycle. The decisive
mandate seen in the elections spurred retail and institutional investor
interest. After the formation of the Modi Government at the Centre last
year, business, consumer and investor confidence has improved. Over
time when fully implemental, these incremental changes will add up to a
much improved social and economic outcome.
In FY2015, the Indian markets rallied and investor sentiment was at
peak owing to the new government, the same couldn''t be said of other
emerging markets. India ended the fiscal year as one of the best
performing markets. Bulk of the returns came in the first quarter
around the election period, while the subsequent quarters saw returns
taper. Nevertheless, it outperformed most major markets on both 1-Year
and 10-Year basis. Cash volumes in the market were Rs. 213.35 bn, up
significantly as compared to the levels clocked during the last 3
years. It was only 6% lower than its all time high of FY2010. Within
this, cash delivery volumes reached its all time high in FY2015, as
compared to the last 8 years. The fraction in cash market volumes were
led by a 73% YOY growth in retail and a 50% YOY growth in Institution.
The return of retail investors was the talking point this year, both
through direct equities and through equity funds. While institution
cash volumes were 35% higher than its previous peak of FY2008, retail
cash volumes still remain 17% lower than its previous peak of FY2010.
Equity funds saw net inflows in FY2015 after a successive quarter of
net outflows. FII''s also continued to repose their faith in Indian
Away from home, the year was a mixed bag for the global economy. In the
United States, the economy continued to gain traction, with unemployed
rate declining gradually, but in the rest of the western world,
economic growth remained weak. In fact, a major highlight of FY2015
was the sustained rise in USD against all major currencies, and the
consequent fall in global commodity prices. The latter acted as a boon
for most of the world economies, as inflation declined and real
incomes improved. However, in contrast the European Union remains a
stark outsider to this trend, with the region constantly battling
crisis. Perhaps, it is now becoming clear that a monetary union without
a fiscal union is not an ideal model, and will require requisite
mechanisms in place to tackle crisis. Meanwhile, the big Emerging
Market economy that has slowed down is China. It appears that the
slowdown is not just a cyclical one, but more of a fundamental one.
There is need for rebalancing the economy, from investments to
consumption, as well as from manufacturing to services. This
rebalancing will be extremely critical for not just China, but also the
rest of the world.
Khandwala Securities Limited (KSL) despite its strong bearings,
suffered from the adverse economic conditions and market realities even
though FY2015 provided hope in the form of rejuvenated economic wave.
FY2015 has been a validation to re-instate our long-term strategy.
Synergistic Diversification in line with our new five year strategy
to grow Return on Equity (ROE) sustainably to 20% your company will
make strategic allocation of capital to long-term ROE enhancing
opportunities into Capital Markets Business, Life Insurance Business,
Diversified Asset Management Business, Credit Business, and Commodity
This year, your Company has reported an income of Rs. 506.85 lacs up
15% from last year, and Profit After Tax of Rs. 25.10 lacs, up
compared to the previous year loss. The Return on Equity has been
improved to 0.21% for FY2015 to (1.01)% for FY2014. The Company''s
Networth is now Rs. 2977.58 lacs with a balance sheet size of Rs.
3938.25 lacs. Your Company''s future endeavors will be to have a healthy
financial performance and a solid balance sheet which will allow us to
serve you even better, through good times as well as lean ones.
Many of you may be aware that KSL has incredible innovated ideas under
every line of business under adverse market conditions. At a time when
competitors and peers were scaling back operations or mothballing
investment plans, your Company has actively invested. Since FY2015, we
consciously focused on building out the organization across business to
support and sustain growth. This strategy of selective and efficient
hiring, improving efficiency and productivity, strengthening and
growing the balance sheet, robust risk management and investment in
technology will bring the organization to the future ready status that
it should enjoy. Your Company''s five pronged focus on Profitability,
Scalability, Sustainability, Governance and Quality Management will
help hone performance.
1. Financial Markets - An Overview
Witnessing a massive rally in tandem with the new government at the
centre, India market cap moved up 37% from Rs. 74 trillion to Rs. 101
trillion while the daily turnover for equity trading in FY15 grew 56%
to Rs. 216 billion. The combine FY2015 fl ow in debt and equity stands
at Rs. 2.7 trillion which is the highest since 1998. To top it, the
Bombay Stock Exchange recently claimed a steep 34% rise to Rs. 2.67
million retail investors on the Exchange.
2. Life Insurance - An Overview
While FY 2015 has been a landmark year with the passage of the
Insurance bill, it has continued to be a challenging period for the
Life Insurance companies in terms of business growth. Overall the
Industry registered a degrowth of 10.3% over year ago through private
players witnessed some signs of traction growth at 16%. It is expected
that increasing financial savings, huge under-penetration and rising
disposable income provides huge potential for growth.
3. Asset Management - An Overview
The Indian asset management industry continued to witness growth on the
back of buoyant equity markets. The Mutual Fund''s industry in India
witnessed a return of retail investors resulting in the industry''s AUM
growing 35% to reach Rs. 10.8 trillion at the end of March 2015. In
the Alternative space, domestic Alternative Investment Funds have shown
a significant growth and have almost doubled the AUM commitments in
the fiscal period.
4. Credit - An Overview
Credit growth in commercial banking sector continued to be sluggish in
FY 2015. Stretched cash flows and balance sheets of corporates
negatively impacted the asset quality of the banks, especially PSU
banks. NBFC''s, given their agility, could record reasonable growth in
their credit books. Housing credit remains a low 7% as a percentage of
GDP, an opportunity that is waiting to be tapped as RBI begins the
ritual of reducing rates.
5. Commodities - An Overview
The size of the commodity related markets (including agri dependent
industries) in India is a significant 58% of the country''s GDP of
13,207 billion offering immense potential to become a separate asset
class for investing community. Agri business has a significantly
large and untapped potential in India with India importing almost 4.6
million tons of pulses over 3.65 million tons last fiscal.
As I write this letter, the RBI Governor has taken the much expected
step to reduce interest rates. Corporate financial performance still
has a couple of quarters to go before a visible turnaround can be seen.
Inflation targets are holding steady though monsoons seems to be
heading towards an unpredictable performance. We continue to believe
that ''Make in India'' will be successful as long as enough incentives
are provided to ''Consume in India'' and that goes back to the basic
requirement of India''s youth - jobs.
Consistent and high quality execution is also the theme of your Company
for FY2016 to FY2020, years that we believe will be the foundation of a
newer, energized, inclusive and aggressive India. As your Company
reviews its future plan, we see that the stated long-term
growth-aspirations remain intact and achievable after the FY2015
With your support, KSL stands steadfast and tall today. I would like to
express my gratitude to our passionate, committed and hardworking
employees for their immense contribution towards the Company''s growth.
I am also grateful to our Board of Directors for their guidance and to
all our shareholders who have reposed their trust in us and given us
their constant support and look forward to a long and mutually benefi
cial partnership together.
With best wishes,
CFO & Director
26th May, 2015