MANAGEMENT DISCUSSION AND ANALYSIS  REPORT 

Global Economy

According to the World Bank, global economic growth is currently estimated at 2.4 percent in 2015. The overall trend, according to both the IMF and the World Bank is towards further weakening of the global economy for the coming year. In fact, since the beginning of the year (January 2016) when the first estimates for the year were made, those forecasts have undergone a significant downward revision. Faltering growth in the advanced economies and the continuing slump in commodity prices are two major reasons behind it. Other reasons include political uncertainties, doubts about the future of monetary stimulus in advanced economies and structural problems in Emerging economies. These headwinds are likely to continue and the projection for 2016, is pegged between 2.4% (World Bank estimate) and 3.2% (IMF estimate). Interaction of these factors will determine the scope of the world economic growth.

Three key transitions that continue to influence the global outlook, according to the IMF are, : (1) the gradual slowdown and rebalancing of economic activity in China away from investment and manufacturing toward consumption and services, (2) lower prices for energy and other commodities, and (3) a gradual tightening in monetary policy in the United States in the context of a resilient U.S. recovery while central banks of other major developed economies continue to ease monetary policy

The nature of global economic growth is at brsent different from those of brvious years. While growth in emerging and developing markets will contribute to the lion's share of world economic growth, they will play a proportionally less important role than brviously as they are plagued by a host of problems. China is in the middle of rebalancing its economy from an export oriented one, to one that is focused on domestic consumption. Its economy is also reeling from a massive debt overheads, slump in manufacturing and faltering exports. Russia and Brazil, both big commodity producers, are suffering from the prolonged commodity slump the continuation of these trends has led to a cut in projected growth for them. The emerging markets estimated to have grown at 3.4% in 2015 and are expected to grow at 3.5% in 2016.

The developed economies are expected to grow by 1.7 per cent, weaker than the January projection. Rising public debt, faltering productivity levels and weak investment activity means that these economies will stabilize on a weak growth trajectory. The United States of America is expected to follow a policy of monetary accommodation, while Japan and the EU will follow a policy of monetary expansion. Interest at zero or near zero rates may however lessen the effectiveness of future monetary stimulus.

Indian Economy

The Indian economy expanded by 7.6 per cent in 2015-16, as compared to 7.2 per cent in the brvious year, to log the fastest growth among larger countries, outpacing China. The Indian economy is now officially the fastest growing major economy in the world and expected to be one of the growth engines of the global economy. In the last quarter of the fiscal year under review, in fact, the expansion in India's gross domestic product (GDP) at constant prices which factors for inflation was 7.9 per cent, and distinctly higher than most brdictions. The real per capita income also rose 6.2 per cent to Rs. 77,435. As per data on national income released by the Central Statistical Office, the country's GDP in absolute numbers and in real terms was Rs. 113.50 lakh crore in 2015-16, against Rs. 105.52 lakh crore in the year before. While Gross Value Added (GVA) at 7.3 per cent this year was better than the 7.1 per cent of brvious years, a key economic number on the demand side was weaker than last year. The growth in final consumption expenditure is estimated to be at 6.9% in 2015-2016, while in 2014-15 it was at 7.2%. Gross Capital Formation (GCF) however increased from 4.9 per cent in 2014-15 to 5.3 per cent in 2015-16. The brvailing sluggishness in the global economy took a toll on exports, while the weak energy and other commodity prices reduced the import burden. Overall Exports and imports of goods and non-factor services declined (at constant prices) by 6.3 per cent each in 2015-16.

The average headline inflation measured in terms of Wholesale Price Index (WPI) declined from 6.0 per cent in 2013-14 to 2.0 per cent in 2014-15 and further to - 3.0 per cent in 2015-16 (Apr-Dec Inflation measured in terms of Consumer Food Price Index (CFPI) declined to 4.6 percent in 2015-16 (Apr-Dec) from 6.4 per cent in 2014-15 and is currently placed at 6.4 per cent in December 2015.

Among major concerns, Gross Non-Performing Assets (NPAs), as of March 2016, of 38 listed Indian Banks stood at Rs. 5.7 trillion (about USD 85 billion); up 89% from Rs. 3.02 trillion (about USD 45 billion) a year back. Profitability will be a big challenge for public sector lenders due to the increased provisioning requirements. However, the central government along RBI has taken the matter head on and is dealing with the issue with seriousness that it deserves.

Key Forecasts FY16-17

The forecasts for Indian economy for upcoming years vary from Institution to Institution. The World Bank expects that the expansion of the Indian economy to continue but decelerate somewhat in the next three years. The Bank recently revised down its brdictions for India’s economic growth for this fiscal year to 7.6% and the next two financial years to 7.7%. In January, the bank had forecasted growth of 7.8% for this fiscal and 7.9% each for next two financial years. The Bank bases its forecast on the fact that India faces headwinds such as a slowdown in rural consumption and sluggish lending to the corporate sector. The Bank also believed that Weaker-than-expected growth in advanced economies will weigh on exports. This is in line with 2015-2016, when India’s exports fell 16% to $261 billion in the past financial year.

The Reserve Bank of India on other hand sees an improving situation. In its June 2016 survey, it states that national output growth is likely to gradually improve in 2016 and further in 2017. The RBI has indicated that an improvement in the overall business situation is imminent, driven by better capacity utilisation and domestic and external order books among Indian companies. These developments have improved the expectation of business conditions in the first half of 2016-17. Public investment, especially in roads and railways, is gaining strength, though the continuing weakness in private investment is of concern. Demand conditions are likely to improve going forward; consumer confidence is seen as rising on improving expectations of employment and spending, with rural demand aided by a stronger monsoon. Rising capacity utilisation should prompt private investment.

Forecasters expect real Gross Value Added at basic price (GVA) to increase by 7.6 per cent in 2016 - 17. ‘Agriculture & Allied Activities’ and ‘Services’ are expected to grow by 2.9 per cent and 8.8 per cent, respectively. ‘Industry’ growth forecast has been placed at 7.6 per cent. Central Government’s gross fiscal deficit (GFD) is projected at 3.5 per cent of GDP in 2016 -17 and is expected to moderate to 3.1 per cent of GDP in 2017 - 18.

There are signs that corporate performance is improving. Available information on Q4 earnings suggests double digit growth in EBITDA levels for non-financial corporates. RBI forecast further states that indicators for April point to a firming recovery, although it is still uneven. Leading the upturn are cargo traffic at major ports, automobile sales (especially two-wheelers and three-wheelers), commercial vehicle sales, passenger air and freight traffic, cement production and steel consumption. Abstracting from seasonal effects, this suggests that the expansion, especially in the service sector, is getting broad-based. On the other hand, railway freight traffic and passenger car sales have decelerated on sectorspecific constraints. Purchasing managers in the services sector indicated slowing new business in May and subdued expectations of future activity.

CMIE’s (Centre For Monitoring Indian Economy Private Ltd) data on stalled projects also shows that there has been a sharp decline in the number of such projects due to lack of environmental and non-environmental clearances. According to the CMIE database, the cumulative impact of projects stalling on account of the lack of environmental and non- environmental clearance, and raw material supply problems came down from 56 per cent in 2012-13 to less than 10 per cent in 2015-16. Some say that as and when the demand comes back, the removal of bottlenecks will lead to faster investment.

End of Q1 in FY16-17, Brexit influenced discussions and speculation on global economy. The immediate impact of Brexit on Indian markets were mixed. While the debt market remained calm, Sensex the day after Brexit dropped 1091 points however recovered 486 points on the same day. The impact of Brexit on the market started easing after 48 hours. A week after, the market gained with monsoon advancing in most part of the country. While the global risk aversion post Brexit can certainly impact India, investors may not change their asset allocation based on Brexit. India is reasonably insulated from Brexit type of global developments, since the country is going to be the fastest growing major economy in the world, assisted by several policy initiatives such as FDI, Make in India and renewed thrust on infrastructure development.

As a positive development towards making the India growth story gaining further momentum, Government of India In June 2016 announced FDI liberalisation in nine sectors such as defence, civil aviation, retail and private security services. This is expected to increase private investments and boosts productivity.

Equity Markets

Indian equity markets struggled in CY 2015 on account of three significant events. Firstly global investors have been pulling out money from emerging markets including India. Within India there has been a resetting of reform and policy expectations from the government even as the government has faced political challenges in passing reform legislation. Finally and most significantly, the ongoing economic recovery has been weaker than expected so far and consequently demand has not picked up sufficiently. This has led to disappointments in topline growth across sectors leading to earning downgrades. Especially during the first three quarters of FY15-16, corporate profits have trailed nominal GDP growth over the last few years.

The brssure on profitability has come from a number of factors

– weak demand, large capex projects in progress (many of which have got stuck or delayed), high interest rates and high input cost inflation. As these issues start getting resolved over time, we should be entering a period where earnings growth can outpace nominal GDP growth over the next few years. In terms of attracting foreign investments, India continues to face competition from other emerging economies with prospects for strong growth, including South Africa and Nigeria. Rs 48,952 crore was raised via equity instruments during the financial year 2015-16 .This was lower than Rs. 58,801 crore raised during FY15. However fund raising via QIPs halved to Rs. 14,438 crore in FY15-16 from Rs. 29,102 crore in FY14-15. As far as right issues, the year saw India Inc raising Rs. 8,785 crore via rights issues against Rs. 6,750 crore in FY15.

However the primary market clocked 25 public issues amounting to a total Rs. 14,772 crore making FY15-16 the best financial year for IPOs since FY 2010-11.

However during the first quarter of FY15-16 the Sensex and Nifty gained 12% and 13% respectively.

Review of Business Segments

Providing trusted and transparent financial services to retail investors is pivotal to company’s business model. The company is an acknowledged Industry leader in this segment, especially in the south. Broking activity, however, is vulnerable to cyclical market fluctuations and as such the year under review saw a decline in broking volumes and revenues in tandem with the downturn in the markets. The company has also seen a decline in volumes from derivatives trading.

The gross revenues from broking fell from Rs. 215.62 crores in the last year to Rs. 168.30 crores, in the brsent year, a decrease of 22%. The average equity cash volume per day went down from 426 crore to 369 crore, a decrease of 13%. Derivative volume per day decrease was 12 %, i.e from 868 crores per day witnessed last year to 760 crores in this year. While the total Internet enabled trading volume decreased during the year, mobile trading volume per day went up by 33% during the year.

New clients enrolment (Equity+Mutual fund) has increased significantly from 53,200 to 94,600 trading clients, an increase of 78%. Assets under Management and Custody increased from 223 Bn INR to 234 Bn INR, an increase of 5%. Our Pan India network of offices stands at 511 offices, as compared to 483 offices last year.

Depository services

Due to aggressive client acquisition drive by our company, we were able to reduce the effects of market volatility impacting the company to some extent. Despite the submissive market performance, our outreach and branding efforts have helped the company to acquire over 82,000 new depository accounts. In line with the increase in the number of clients, the number of depository accounts increased by nearly 15% during the year, from 4.82 lakhs 1 APRIL’ 15 to 5.54 lakhs at the end of 31 March 2016. Income from this activity was Rs. 13.78 Crores. In view of the new regulation to convert a demat account which holds less than Rs. 2 lakh, to a basic-services one and there by these demat accounts coming under zero annual maintenance fee category likely have a adverse impact on revenues

Distribution of financial products

The company sees growth potential in distribution business. In fact based on market trends, investor brferences and the company's own assessment, the company expects the distribution business to evolve into the major segment of capital market in the near future. The company has started to aggressively promote distribution of Mutual funds. The company bases its approach on the brmise that most of the mutual funds have made positive returns in the long term. The total income from distribution decreased from Rs. 18.91 crores to Rs. 14.76 crores mainly due to newly introduced service tax and discontinuation of upfront commission from AMC though the collection has increased from Rs. 780 crores to Rs. 809 crores.

Portfolio Management Services.

The PMS segment of the company's business did well considering the state of the markets. Just as with the year before, both Advantage and Freedom portfolios have outperformed most of the indices in the 2015-2016 period. The company continues to lay faith in making long term strategic investments in the equity markets. Our PMS portfolios are well positioned to take advantage of the growth of the economy. The company is focusing on High Net Worth Investors and NRI clients for this segment. Though the number of clients has increased from 534 to 648, the Income from PMS services decreased from Rs. 4.55 crores to Rs. 3.62 crores, a decrease of 20%, mainly due to market performance. The company continue to give focus on Systematic Investment Plans for retail investors with regular monthly income.

Financing

Geojit Credits, which is our NBFC subsidiary, continues to offer value added financing solutions to investors. Due to the sensitive nature, of the industry, the company lays unstinting emphasis on both strict internal controls and the highest standards of compliance with all relevant regulations. The operations continue to remain at a low level due to very low capital base of the company

Detailed financial performance of subsidiaries, joint ventures and associate companies forms part of this annual report.

Technology

We made considerable investments in the technology arena, both for the current as well as the future of the company and its clients. During the year we launched Selfie - a state of the art trading and investing platform. Selfie offers clients Advanced Charting features, Customizable dashboards and views with widgets basket, a uniform experience across multiple platforms and devices, Integrated Security view with quotes, charts, news, recommendations, MBP, F&O Chains & Order windows all at one place. The technology subsidiary of the company – Geojit Technologies Private Ltd’s revenue for the year is Rs. 31.18 crores with a PAT of Rs. 19.56 crores.

'Selfie' also offers Real time News aggregation and visualization engine, Market intelligence & Research calls, One click to trade as well as feature rich F&O Analytics and Visualization ngine, incorporates Heat Maps, Futures and options chains, Option Greeks charting and VWAP Screeners. Additionally, we decided to boost the security of our information system by setting up a combrhensive DR site for ensuring business continuity. The company also undertook measures to reduce or eliminate process wastage and redundancy, faster customer onboarding, Increasing the number mobile users etc.

Review of Overseas Operations

The company’s operations in the Middle East suffered from severe challenges in its operating environment. The steep decline in the price of oil hit the economies of the Gulf in a severe manner leading to cuts in public spending, decline in business expenditure and paring of payrolls. All this has adversely affected the NRI community in the region leading, including our clients.

While Aloula Geojit in which company holds 28% share reported significant losses arising from stock market decline in Saudi Arabia on account of oil crisis.

Emerging Opportunities

The recent announcement of FDI reforms by the government is in the positive direction so as to impact the markets. Increase in foreign investment could boost critical sectors of the economy, add capacity and increase overall employment. The monsoon is expected to be normal this year leading to a faster growth in rural economy. The combination of these trends could see a rise in disposable incomes and consequently investments in capital market. The company stands ready to capitalize on such growth.

The World Bank has recently warned of further global economic slowdown. The most recent forecast of global economic growth forecast was revised to 2.4%, from 2.9 % forecast in January 2016. The emerging and developing economies are still mired in slowdown, particularly oil and other commodity exporters the weakening global growth could hit the Indian economy and turn the markets bearish.

The company expects the markets to respond well to higher economic growth and increase in national income and consumption. This would see many new investors entering the market for innovative, financial solutions to meet their changing needs. The company is poised to capitalize on this as it has a wide variety of products and services that it offers at competitive rates. As a technology leader, the company is able to offer the more tech savvy investor a trusted and transparent platforms to trade and invest. The company also sees a huge opportunity from the third party distribution of financial products like Mutual Funds, Insurance etc

Human Resources

The record increase in number of clients, despite lacklustre markets, can be attributed to the determination and focused efforts of the staff of the company. Keeping employees motivated and in a constant mission mode is one of the most important initiatives of the company. The company believes that good performance must be correctly incentivized so that the employees continue to be remain motivated. Total employee strength of the Company as on March 31, 2016 was 2161

Risk Analysis and Risk Mitigation

The company operates in a multi-dimensional risk environment. Market and regulatory risks are inherent in the industry though company takes brcautions to minimize its exposure to them. A sudden change in capital market regulations by either the regulator or the Finance Ministry could adversely affect broking and distribution income. There is also risk of internal malfeasance, misuse of data, loss of sensitive information and technology obsolescence.

To address them, Geojit BNP Paribas continues to expend significant time, effort and human resources to manage and mitigate such internal and external risks. Against the various kinds of risk, the company has evolved various strategies to mitigate them. To reduce the possibility of internal risk, the company ensures that there is strictest adherence to all rules and regulations regarding technology, privacy, credit, staffing and employment etc. The audit committee of the company constantly monitors compliance with all internal rules. As far as operational risk is concerned, the company is aggressively pushing for creating new revenue streams via distribution and technology, to offset any decline in broking income.

Internal Controls

The Company has an adequate system of internal controls to ensure accuracy of accounting records, compliance with all laws & regulations and compliance with all rules, procedures & guidelines brscribed by the management. The Company has set up an Internal Control Committee to oversee all the internal control functions and report the observations to the Audit Committee on a periodic basis. The Company has in place an effective internal audit department which plans and executes a variety of audits with own staff as well as external professionals. Post audit reviews are also carried out to ensure follow up. The Audit Committee of the Board reviews the scope and observations of the internal audit on a regular basis.