Dear Shareholders,
I am truly honoured to chair the Board of PNB Gilts Ltd. and as the
Chairman of the Company, my priority is to lead the Company towards sustained growth and
help in accelerating the value creation for all of our stakeholders. I have immense
pleasure in presenting the Annual Report of your Company for Financial Year 2023-24.
During FY 2023-24, global interest rates reacted to build up in rate
cut expectations as markets priced in softening of monetary policy. However, central banks
pushed back rate-cutting plans due to the strength of economic growth and the persistence
of inflation. RBI?s monetary policy committee also maintained a cautious approach
towards reducing interest rates, as retail inflation remained considerably away from the
MPC target of 4%.
India?s economy continued to tread on a high growth path largely
driven by investment led demand, which was in turn driven by government?s
infrastructure spending. Real GDP grew by 8.2% in FY 2023-24, exceeding 8% mark in three
out of four quarters of the year. Strong growth in the manufacturing sector,
higher-than-expected agricultural output, and robust government spending, made India the
world?s fastest-growing major economy in FY 2023-24. On the fiscal policy front,
after expanding the fiscal deficit to 9.2% of GDP during pandemic shock in FY 2020-21, the
government undertook fiscal consolidation. The fiscal deficit to GDP ratio of the Union
Government is down from 6.4% of GDP in FY 2022-23 to 5.6% of GDP in FY 2023-24. This
reduction was driven by robust growth in direct and indirect tax revenues, thanks to
resilient economic activity and improved tax compliance. India?s Inflation trajectory
also improved tremendously from 6.7% in FY 2022-23 to 5.4% in FY 2023-24. However, owing
to the continuing gap between the target inflation and actual inflation, RBI?s
monetary policy remained restrictive during the year as the MPC refrained from altering
both stance and policy rates in the policy meets held during the year.
In the macroeconomic context stated above, some relief has been seen in
the domestic yields in the first quarter amid expectation of domestic bond inclusion in
global emerging market indexes, however bond yields again hardened and remained elevated
till October as inflation remained firm and RBI maintained a disinflationary stance. The
fourth quarter of the year, witnessed softening of yields due to lower than expected GOI
borrowing and strong buying by FPIs ahead of the bond index inclusion. Hence, bond markets
ended the year on a strong note. Besides this, as money market rates were under upward
pressure due to persistent deficit of liquidity, Company witnessed rising funding costs.
In light of the bond market and funding dynamics discussed above, Company posted a PBT of
Rs 98.81 crore and a PAT of Rs 69.41 crore as on March 31,2024. Company?s NOF
increased by 6.08 per cent from '1238.06 crore as on March 31,2023, to '1313.35 crore as
on March 31, 2024. Your Company remained adequately capitalized with a capital adequacy
ratio (CAR) of 34.01 per cent as on March 31,2024 (31.83 per cent as on March 31,2023),
against RBI?s minimum stipulation of 15 per cent. I am pleased to inform you that
your Company continues to make a difference by supporting numerous social and
environmental initiatives through its CSR activities. Company contributed an amount of Rs
6.21 crore during FY 2023-24 (against Rs 6.48 crore during FY 2022-23) towards various
agencies and trusts working in the field of education, healthcare and environmental
conservation.
The Company complies with every requirement set forth by the
regulators. Aside from this, the Company is well poised with its departments operating
effectively and complying with different Board-approved and regulatory standards. I want
to thank you for your continuous faith and cooperation, as well as for being an important
member of the Company. The Company will keep moving toward robust and continuous
expansion, and we sincerely desire your steadfast support in this endeavor.
Forward Guidance
For the bond markets in particular, the last three years have been
challenging, with the rising inflation wave seen post COVID (driven by geopolitical
tensions, supply disruptions and oil price volatility), and a period of global Central
Bank rate hikes. Going forward, many factors indicate positive momentum for the bond
markets. The anticipated shift in the US Federal Reserve's monetary policy is a factor
that can influence Indian bonds positively. Major central banks are already indicating
that the most aggressive tightening cycle in decades is coming to an end and that interest
rates will probably decline in the upcoming months as inflation declines. We may therefore
shortly see a turn in the global monetary cycle, with yields potentially coming down,
together with a Bull steepening of the yield curve.
Notwithstanding the rate cut story, another large positive for the
Indian bond markets is the inclusion in the JP Morgan global bond index -Emerging Market
and announcement of India's inclusion in Bloomberg Emerging Market (EM) Index, starting
January 31st 2025. The development will reduce the funding cost for the government, apart
from putting the Indian bond market on the radar of global bond investors. Furthermore, if
the index inclusion by JP Morgan & Bloomberg nudges other EM index providers like
FTSE, to include India in their EM Bond indices, it will result in additional inflows in
the economy. Further fiscal prudence by the government has also stoked expectations of
sovereign rating upgrade by global rating agencies. The final budget for FY 2024-25 is
bond positive as government reduced dated government borrowing further by '12,000 crore
and T-bill borrowing by Rs 1,00,000 crore, making supply demand dynamics highly
favourable.
Overall, the domestic factors seem much more positive for the bond
market than the global situation. Domestic inflation has already been in a comfortable
zone for RBI and the government has also been following a well-defined fiscal
consolidation trajectory. However, RBI sees adverse climate events as upside risk to food
inflation and overall inflation trajectory. A combination of factors - index inclusion,
rate cuts and fiscal prudence - could boost the bond market in FY 2024-25, which augurs
well for Company?s performance.
On behalf of Company's board, I convey our deep sense of gratitude to
all our stakeholders-clients, directors, regulators and employees for their continued
support, unwavering trust and tireless efforts to strengthen the position of the Company.
I assure that your Company will continue to remain committed to enhancing the value for
all the stakeholders.
(Kalyan kumar) Chairman