As you are aware, 2004-05 has been a very difficult year for participants in the fixed income securities market in India. The pace at which the reversal of interest rate cycle took place early in that year left little time for the majority of market participants particularly Primary Dealers who by the very nature of their business maintain sizeable trading stocks of Government Securities to undertake portfolio adjustments to mitigate the market risk arising out of upward movement in interest rates. A series of developments beginning May 2004, notably a sharp increase in international crude prices followed by a jump in domestic inflation rate, further contributed to adverse market sentiments. Primary Dealers specially those with trading in fixed income securities as their main activity were the worst affected. Your Company being one of the largest and most active Primary Dealers was thus badly hit by the adverse market conditions and I had dealt with this aspect at some length in my statement to shareholders at last years Annual General Meeting. Your Company ended the year with a net loss for the first time since its inception in 1994, the loss being of the order of Rs.97.80 crore after taking into account deferred tax credit. As mentioned in the Directors Report, the loss arose mainly because of quick slashing down of the Companys book size, even by incurring losses, as a derisking exercise, once clear signs of continuing interest rate uncertainty emerged. The silver lining is that following derisking of its portfolio, your Company has recorded uninterrupted profitability on a quarterly basis since the third quarter of 2004-05, even though at much lower levels than in the past years. Despite low profitability, a return to profitable working has ensured that the Companys networth has been protected from further erosion; in fact the networth has been showing a slow but steady rise since the third quarter of last year. The Companys capital adequacy ratio stood at a high level of 70.67% as on March 31, 2005 which is far above the regulatory requirement of 15%. The Company continues to enjoy top ratings from credit rating agencies (P1+ or equivalent) for its short term papers of maturities up to one year.

Developments and Outlook in the current year
After a phase of sharp interest rate volatility last year, a degree of stability has since returned to the market in the current financial year. Nevertheless, rates continue to fluctuate, though in a narrower range, making day to day trading a difficult proposition. The global market continues to be worried about monetary policy responses to continued growth in the U.S. and certain other economies as well as the impact of rising oil prices on growth, inflation and inflationary expectations. These concerns straddle the domestic market as well which has additional worries arising from a high government borrowing programme coupled with a declining appetite for government paper from the banking system which is experiencing a record high level of credit off-take. There is no sign yet of any sizeable alternate investor class emerging that can substitute banks as investors in gilts. All these factors point to a possible further hardening of interest rates in the coming months. In a scenario where interest rate is expected to rise, profitable trading opportunities will be few and far between especially when appropriate hedging instruments are yet to be introduced and short selling is still not permitted. Apart from trading profits remaining low, interest earning is also likely to suffer as it will be necessary to hold down inventory levels to minimise valuation risks in an uncertain and volatile environment. One encouraging sign is that liquidity in the system is expected to remain buoyant during the year on the back of strong FII and ECB inflows which gives some comfort on funding cost. Primary Dealership business will thus continue to see challenging times during the current financial year too, even as it slowly creeps on a recovery path after the battering it received last year. As far as your Company is concerned, the strategy that we have adopted for the current year is to remain profitable, even if profits are low, and avoid marked to market portfolio losses to the extent possible, fulfilling at the same time the role of a Primary Dealer as a participant in primary auctions and a market maker in the secondary market for government securities.

Future of Primary Dealership Business
I fully recognise that a strategy of remaining barely profitable cannot be a viable commercial approach in the medium to long term, for we must aim at delivering reasonable return to our shareholders on an ongoing basis something which we were able to do in the past. We are, therefore, fully conscious of the need to evolve a new enduring business model which will be commercially viable in the future. To this end, we have been making representations to the Reserve Bank of India, for necessary regulatory approval for diversifying into other products and activities e.g. dealing in securities of selected sovereign governments abroad and in equities in the Indian market. Similarly, we have also sought RBI permission for gaining presence in a few carefully selected overseas markets active in gilts. We have also been anxiously waiting for further reforms in the government securities market in India such as introduction of When Issued transactions and short selling, without which it is not possible for Primary Dealers to effectively manage risks in their trading portfolio particularly at times of uncertain interest rates. Another longstanding request of the Primary Dealers has been the grant of exclusive access to primary auctions. The good news is that in his last Annual Monetary Policy Statement in April 2005, the Governor, Reserve Bank of India indicated that several of these measures were under active consideration. Once these changes are approved and made operational, the business prospect of Primary Dealers will become much clearer and it will then be possible to envision your Companys future with greater clarity. In this context, it is important to highlight the possibility of Reserve Bank extending Primary Dealership to commercial banks as well who may be permitted to undertake this business directly through dedicated departments as part of their own balance sheets. This proposal was mooted in the last Annual Monetary Policy Statement and I believe is under close consideration of Reserve Bank. If commercial banks are permitted to become direct Primary Dealers under current regulations banks can take up this business only through subsidiaries or separately incorporated companies it can have a major impact on the business and clientele of stand-alone Primary Dealers like your Company. The question arises whether in such a scenario, there will still be enough scope for stand-alone Primary Dealers to remain in business in a profitable way. It is difficult to answer the question at this stage and one would need to wait for the unveiling of the new structure. Our fervent appeal to Reserve Bank in the meantime is that whatever be the new structure of Primary Dealership business in India, there should be room for independent and stand-alone entities like our Company which is not an integral part of any bank, for they do add a unique value by acting as focussed distributors, market makers and traders of government securities something which commercial banks, with their wide ranging business portfolio, often find difficult to do.

Acknowledgement
I take this opportunity to thank the Government of India, the State Governments, the Reserve Bank of India, Bank of India, other commercial and cooperative banks, insurance companies, mutual funds and other clients for their cooperation and support. I would also like to acknowledge the hard and committed work put in by the Companys officers and staff during 2004-05 the most difficult year the Company has faced since its inception in 1994.