07:00: Half-year report

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INDIA CAPITAL GROWTH FUND LIMITED

 

Interim Results for the six months ended 30 June 2020

 

30 September 2020, London – India Capital Growth Fund (‘ICGF’ or ‘the Company’), the London-listed investment company investing in long-term investment opportunities in companies based in India, reports results for the six months ended 30 June 2020.

 

Highlights

 

 

 

Unaudited

30 June

2020

Audited

31 December

2019

 

        % change

Unaudited

30 June

2019

Per Ordinary Share

Net Asset Value (NAV)

70.42p

88.50p

-20.4%

97.02p

Share price discount to diluted NAV

24.5%

20.4%

12.4%

Performance vs benchmark BSE Midcap Index

-11.4%

-5.7%

-2.1%

Currency impact

Indian Rupee / Sterling (rupees to the pound)

92.69

93.48

+0.8%

87.35

 

·      NAV declined by 20% over the six months including recovering 22% from the low on 31 March 2020 when Covid-19 hit equity markets.

 

·      NAV has continued to recover since the end of June, increasing a further 14% to 80.15p at 31 August 2020, outperforming the BSE Midcap TR Index 

 

·      Share price discount to NAV widened to 24.5% in the period but narrowed to below 20% at 31 August 2020     

 

·      The investment manager sold seven holdings and invested in seven new companies:

 

Ø A more diversified exposure to financials was adopted with holdings in ICICI Lombard, a general insurance company and Multi Commodity Exchange (MCX) the world’s largest commodity exchange by volume. Investments were made in two gas companies, Gujarat Gas and Aegis Logistics, giving exposure to the ‘gasification’ of the Indian economy, driven by environmental concerns. Other investments included Aarti Industries, a manufacturer of speciality chemicals which is winning market share from its Chinese competition, and Dixon Technologies which is benefitting from increasing domestic production of electrical equipment. 

 

Ø Exposure to retail banking was significantly reduced through the sale of three banks (Yes Bank, Jammu & Kashmir Bank & DCB Bank). Investments were also sold in Manpasand Beverages, which has been a drag on performance, and Motherson Sumi which has been hit by the slowdown in auto demand. Radico Khaitan and Aurobindo Pharma were sold given their on high valuations.

 

Ø The portfolio holds 32 investee companies

 

Elisabeth Scott, Chairman of India Capital Growth Fund, said: “The complexities of investing in India during the pandemic should not to be underestimated, but the Board believes that the strengthening of the investment management team and the improved investment process is starting to bear fruit. We believe that the focus on good quality companies with strong management capabilities and a clear path to growth is the way to generate positive investment performance. 

“India’s economy will benefit from the structural reforms being introduced by Prime Minister Modi’s Government, even if there is short term drag as business models are revised. In addition, India’s comparatively low labour costs and large population make it a viable alternative for manufacturers, particularly as efficiency improvements follow the reforms.

 

ENQUIRIES

 

David Cornell

Ocean Dial Asset Management

+44 20 7068 9870

david.cornell@oceandial.com

William Clutterbuck

Maitland/AMO PR

+44 20 7379 5151

wclutterbuck@maitland.co.uk

Robert Finlay

Shore Capital

+44 20 7408 4090

Nick Robilliard

Apex Fund and Corporate Services (Guernsey) Limited

+44 1481 735827

nick.robilliard@apexfs.com

 

About India Capital Growth Fund

India Capital Growth Fund Limited the LSE premium listed investment company registered and incorporated in Guernsey, was established to take advantage of long-term investment opportunities in companies based in India. ICGF predominantly invests in listed mid and small cap companies, although investments may also be made in large cap and private Indian companies where the Fund Manager believes long-term capital appreciation will be achieved. www.indiacapitalgrowth.com

 

CHAIRMAN’S STATEMENT

 

Performance

 

The first few weeks of 2020 saw promising signs of economic recovery in India. Unfortunately, as the COVID-19 pandemic swept across the globe, India was badly affected with a nationwide lockdown introduced in March, bringing economic activity to a grinding halt. We read about the mass migration of Indian workers attempting to return home to their rural villages from the cities. 

Performance was poor during the period, with the BSE Midcap Index (sterling total return) declining by 11.4%. The Company’s Net Asset Value (NAV) underperformed, falling by 20.4%. The Company’s exposure to the banking sector was responsible for the bulk of the underperformance. 

On a more optimistic note, since the end of the period we have seen an improvement in absolute and relative performance. As I noted in the Annual Report, Ocean Dial has implemented a number of measures to strengthen the team managing the Company’s portfolio. The review of the investment management process has resulted in a number of changes in holdings some of which are discussed in the Investment Manager’s report.

Governance and discount

On 12 June 2020, an Extraordinary General Meeting was held to vote on the Company’s continuation, the introduction of the redemption facility and some changes to the Articles of Association. I am pleased to say that shareholders voted to support the continuation of the Company. The redemption facility gives shareholders the right to request the redemption of part or all of their shareholding on 31 December 2021 and every second year thereafter at a maximum exit discount of 6% to NAV.

The investment management fee payable to Ocean Dial Asset Management has been reduced from 1.25% of total assets per annum to the lower of 1.25% of average market capitalisation per annum or 1.25% of total assets per annum. 

During the period the Company’s discount to NAV widened to 43.5% but ended the period at 24.5%. This discount is wider than we would like, and the Board and the Investment Manager continues to look for ways to reduce the discount further over time.

As I wrote in the Annual Report, John Whittle, our Audit Chair is standing down from the Board. He will not stand for re-election at the AGM. The Board asked an executive search firm, Fletcher Jones, to find his replacement and I am pleased that Patrick Firth, an experienced Audit Chair and financial services professional, has agreed to join the Board with effect from our AGM. John Whittle has been a conscientious and diligent director of the Company and he leaves with our grateful thanks for his work over the past nine years.

Investor relations

The Board and Investment Manager believe that effective communication with shareholders is more important than ever, given the uncertainties surrounding the global economy. With the assistance of Shore Capital, our brokers, Ocean Dial has hosted a number of webinars for shareholders and carried out a programme of one-on-one meetings with large shareholders and private wealth managers. Our PR agency, Maitland/AMO continues to raise the profile of the Company and I hope that you have seen the Investment Manager’s comments on India and the prospects for the Company in the press from time to time. 

We would like to ensure that all shareholders have the opportunity to engage with the Board and the Investment Manager and to access up to date information on the Company as required. We are putting in place a plan for more webinars and written research to be widely available. Further details will be available on our website in due course (www.indiacapitalgrowth.com).

Outlook

The complexities of investing in India during the pandemic should not to be underestimated, but the Board believes that the strengthening of the investment management team and the improved investment process is starting to bear fruit. We believe that the focus on good quality companies with strong management capabilities and a clear path to growth is the way to generate positive investment performance. 

India’s economy will benefit from the structural reforms being introduced by Prime Minister Modi’s Government, even if there is short term drag as business models are revised. In addition, India’s comparatively low labour costs and large population make it a viable alternative for manufacturers, particularly as efficiency improvements follow the reforms.

Once again, I must thank you for your support and patience over the past few months.

Elisabeth Scott

Chairman

29 September 2020

 

INVESTMENT MANAGER’S REPORT

 

So much has transformed in the last six months that reporting on, or even thinking back to, life before the pandemic feels like going back to a period before time began. India appeared largely unaffected in the first two months of 2020, but in our March monthly report to investors we noted that 45 cases of COVID-19 had been reported in India, though these were predominantly holidaymakers from Italy hostelled in New Delhi. Looking back to then, we were concerned about the extent to which the economy was primed to recover from a banking and liquidity crisis that had engulfed the corporate sector for the eighteen months prior (particularly the small and midcap space), and whether credit growth and retail consumption would recover sufficiently to support earnings growth forecasts in the portfolio’s investee companies.

 

We also noted disappointment that the Budget (also in February) failed to deliver any stimulus to drive the much-needed pickup in retail demand. Hence, when the financial tsunami struck in March, already weak underlying GDP growth and ongoing lacklustre investor sentiment dealt Indian equities a harsh blow, both in relative (to the broader Emerging Market universe) and absolute terms.


Over the six-month period under review, India’s midcap equity market fell 25.9% from a high on January 16th to the lows on April 3rd before recovering 13.3% by the end of June. Over the same period, the net asset value (NAV) fell 41.5% and the share price fell 56.5%, whilst the discount to NAV crossed 40% at the nadir. The recovery in the NAV has been more robust, rising 28.1% from the lows, whilst the share price has rallied sharply, recovering 56.5% to the end of June. The index has rallied 18.5%. Returns have benefitted from a combination of local currency improvements in the NAV, supported by a stronger INR (vs GBP) and a narrowing of the discount from 40.6% at the lows to 24.4% at June end. Over the reporting period in question, the portfolio fell 20.4%, delivering a relative performance (gross of fees) of -7.5% to its stated benchmark, the BSE Mid Cap Total Return Index. Relative performance continues to be substandard and is a critical issue that is addressed both later in this report and in the Chairman’s statement.

Given the size of the population and its limited infrastructure, India is not best suited to managing the pandemic.  The proximity with which many urban dwellers are forced to co-habit, the limited medical resources on hand to cope with an escalating crisis and the lack of any form of social security net pose far greater risks for its people than many developed market economies. However, the Indian Government acted quickly and decisively in late March, imposing a nationwide lockdown, severe by global standards, prioritising the wellbeing of the nation over economic stability. The lockdown was gradually eased over four iterations as the Government’s understanding of the economic and social impact of the virus became clearer alongside their ability to increase hospital capacity and to ramp up testing.

In early June “Unlock 1.0” was announced, representing a stepped approach to reopening parts of the economy including manufacturing facilities, some shopping malls, restaurants and limited parts of the transport infrastructure in areas where the pandemic has not spread or has been successfully contained. In a similar strategy to other countries, local lockdowns are being imposed as a way of ensuring the economy is able to function where feasibly possible. The response has been better than forecast, as measured by several high frequency indicators including rail freight, electricity generation, tax receipts and “work mobility”, all of which are still lower than they were a year ago but have recovered substantially from the virtual complete collapse witnessed in April and May. The impact on consumption growth of certain bigger ticket items and of overall consumer sentiment can be seen in the chart below, suggesting partial recovery.

A closer look at the data indicates that the rural economy has proved its relative resilience over the urban which should not be a surprise. The Government’s immediate response was to direct its fiscal firepower to the poorest and most vulnerable which are rural based, whilst the lockdown forced migrant workers to give up jobs in the cities and head back to the village where survival chances are greater. Additional support has come from a plentiful planting season and monsoon. GDP data for 1Q FY21, from April to June has not yet been published but is forecast to fall year-over-year for the quarter by circa 15% (in real terms). Although this represents a big fall, the contribution from agriculture will be positive. However, a pickup in both demand and supply of credit is absent despite the RBI cutting interest rates by 125 basis points in the year to date, alongside other measures to support the economy. Transmission remains weak as banks continue to park excess liquidity back with the Central Bank indicating both the appetite to lend, and the demand to borrow, still remain weak.

In spite of the uncertainty that permeates, there are many reasons to be optimistic. The Government has maintained fiscal integrity in its handling of this crisis. Although the fiscal response headlined at over 10% of GDP, the incremental costs to the Exchequer were closer to 1% for this year, focusing on small business, agriculture and the poor. The fiscal deficit will expand substantially even so, as tax receipts collapse, but spending is constrained and overall Government debt levels are manageable (particularly by developed market standards), and predominantly locally financed. The current account deficit has shrunk as the value of imports, helped by lower international oil prices, have fallen more than exports and there is evidence of a pickup in import substitution, particularly in electrical equipment, which suggests a structural lowering of imported components for the long term.

Currency reserves now exceed US$500bn and continue to reach new highs, protecting the economy from external shocks and supporting the value of the Rupee. This has been a standout performer over the period, rallying 1.5% against the Pound Sterling (though 6.5% weaker versus the US Dollar), which is a big step change from previous crises when the currency collapsed, and is today the case with other developing peers. Foreign Direct Investment levels (FDI) remain very healthy, buoyed by India’s largest company by market capitalisation (Reliance Industries), raising US$20bn from foreign investors in the midst of the crisis. Facebook, Google, Qualcomm and Microsoft all invested, demonstrating that India’s digital consumer remains uppermost in the strategic thinking of the only industry that seems to matter. Indeed, as has been witnessed in major economies globally during the crisis, the acceleration of the digitisation of the economy, as consumers spend more time and resources online, is playing out in India as rapidly as anywhere. Here, however, the potential for sustained growth is far more exciting since smart phone penetration is low by global standards, whilst data consumption per capita is high, and incomes are forecast to rise for a generation.

Another important shift in global activity which is already benefitting India is a shift in global supply chain dependence away from China. Trade wars and COVID-19 aside, India’s labour cost is now one third of China’s, and we are already witnessing global corporates using India as an alternative hub, albeit in niche sectors today. India-based manufacturers of active pharmaceutical ingredients and speciality chemicals, in particular, are seeing gains in market share, as are electrical equipment makers (TVs, washing machines, mobile phones etc) now that the Government is incentivising local producers. There are multiple opportunities here and the inflection point may turn out to take several years to play out, but if the Government can do its bit, there is much to play for here.

On account of a lengthy period of underperformance in the portfolio and the resultant expansion of the share price discount to net asset value, many investors will be aware that the Board brought forward the Company’s continuation vote from September to June. Inherent to the successful outcome was a commitment by the Investment Manager to deliver better performance going forwards. Indeed, this has been our particular focus for the last twelve months. We have strengthened the investment team and overhauled the investment process, following a root and branch review, adding one portfolio manager and two sector analysts. The process has been given more focus, enabling analysts to devote more time to pre-approved investible universe, leading to more objectivity to portfolio construction and a tighter sell discipline. We have chosen to close an open-ended product with a similar investment strategy in order to free up team capacity, now redeployed to the India Capital Growth portfolio. The attribution report for the period does not capture the extent of the turnaround in performance because the evidence is only recently beginning to show through. More detail is provided in the attribution report below.

Attribution

Over the six months under review the portfolio sold seven positions and initiated on the same number. The exposure to retail banking was significantly reduced through the sale of three banks (Yes Bank, Jammu & Kashmir Bank & DCB Bank). A more diversified exposure to the broader financials sector was adopted with the purchase of a position in ICICI Lombard, a general insurance company, and Multi Commodity Exchange (MCX), the world’s largest commodity exchange by volume. Both companies have benefitted from the pandemic, the former through an increase in demand for insurance products, the latter as a consequence of volatility and increased traded volume.  Elsewhere the portfolio exited Manpasand Beverages, which has been a negative drag on performance, and Motherson Sumi which has seen business severely affected by the slowdown in auto demand. In addition, Radico Khaitan and Aurobindo Pharma were sold on the basis of premium valuations and profit booking. The portfolio has initiated positions in two gas companies, Gujarat Gas and Aegis Logistics, both providing exposure to the ongoing gasification of the economy on environmental grounds, at either end of the supply chain. Elsewhere, Aarti Industries, a manufacturer of speciality chemicals, is winning market share from its Chinese competition, whilst Dixon Technologies is also benefitting from an increase in domestic manufacturing of electrical equipment. 

The portfolio’s relative performance was pulled down by three sectors predominantly. Financials was the largest contributor driven by fears that asset quality would continue to be impaired as a consequence of the pandemic and investors would be required to inject additional capital. Consumer staples exposure also dragged performance lower as the sector’s premium valuation was impacted by a slowdown in consumption that gained momentum as the lockdown came into force. Investee companies Bajaj Consumer Care and Kajaria Ceramics were principally responsible for the underperformance. Lastly, Tech Mahindra, the portfolio’s only exposure to the IT services sector, fell sharply over the period due to the majority of its telecom related clientele being US and European based in anticipation of lower economic activity. On the positive side, the portfolio’s exposure to the energy and utility sectors generated relative contribution as did the consumer discretionary sector to which the portfolio had limited exposure. At a stock level, Aurobindo Pharma was the strongest contributor as investors gravitated towards the Pharma sector over the period, with Neuland Laboratories also providing a positive return. PI Industries, a manufacturer of pesticides and at times the portfolio’s largest position, delivered absolute returns in a falling market, as has the recent portfolio purchase, Gujarat Gas.

In the three months to the end of August,  the portfolio has generated a positive return of over 24%, comfortably outperforming its benchmark which rose by 18%. The major driver of better performance has been a combination of new portfolio entrants (Neuland Laboratories up 119%, weighting 2.0%) and the portfolio’s exposure to the cement sector (Sagar Cements up 63%, weighting 1.9%). Other stocks such as BLS Services,  Skipper, Welspun India and Indusind Bank,  considerable laggards in 2019, have started to recover as the market looks through the current uncertainty to a resumption of economic growth. Although admittedly it is still early days, it is reassuring to see that the changes that were made are starting to deliver better performance.

Looking forward

At the time of writing India has reported close to 5.6m infected individuals and is closing in on  the United States as the country with the highest reported number of cases. The numbers are huge, and the country as a whole is not yet seeing a flattening of the curve, but as a percentage of the total population it is low by comparison to many others. In addition, although the pandemic has spread across a wider part of the population, just five States make up the bulk of reported cases; the main cities of Mumbai and New Delhi are coming under control as these local curves start to flatten out. India’s recovery rate is rising, and its fatality rate remains low (at 2%) by global averages. It would seem that some combination of a young and resilient population and a warmer climate are ensuring, for the time being at least, that India is managing better than many had predicted.

The long-term investment case for India still holds, with recent world events providing added impetus and most definitely at a time when valuations have become more attractive in many forms. Foreign investors are predominantly attracted to India by its growth prospects; it is our belief that these will soon be on the rise again and no more so than in the small and mid-cap area of the market which is the engine room of growth. This opportunity, combined with improving performance metrics deserves close consideration, and we look forward to reporting our progress six months from now.

Ocean Dial Asset Management

29 September 2020

INVESTMENT POLICY

The Company’s investment objective is to provide long-term capital appreciation by investing in companies based in India. The investment policy permits the Company to make investments in a range of Indian equity and equity linked securities and predominantly in listed mid and small cap Indian companies with a smaller proportion in unlisted Indian companies. Investment may also be made in large cap listed Indian companies and in companies incorporated outside India which have significant operations or markets in India. While the principal focus is on investment in listed equity securities or equity linked securities, the Company has the flexibility to invest in bonds (including non-investment grade bonds), convertibles and other types of securities. The Company may, for the purposes of hedging and investing, use derivative instruments such as financial futures, options and warrants. The Company may, from time to time, use borrowings to provide short-term liquidity and, if the Directors deem it prudent, for longer term purposes. The Directors intend to restrict borrowings on a longer-term basis to a maximum amount equal to 25% of the net assets of the Company at the time of the drawdown. It is the Company’s current policy not to hedge the exposure to the Indian Rupee.

 

 

PRINICPAL INVESTMENTS
AS AT 30 JUNE 2020

 

Holding

Market cap size

Sector

Value

£000

% of Company NAV

PI Industries

M

Materials

        4,631

5.9%

Divi’s Laboratories

L

Healthcare

        4,426

5.6%

Federal Bank

S

Financials – Banks

        4,121

5.2%

Gujarat Gas

M

Utilities

        3,674

4.6%

Jyothy Laboratories

S

Consumer Staples

        3,138

4.0%

Balkrishna Industries

M

Consumer Discretionary

        3,020

3.8%

Emami

S

Consumer Staples

        2,930

3.7%

Bajaj Consumer Care

S

Consumer Staples

        2,838

3.6%

JK Lakshmi Cement

S

Materials

        2,754

3.5%

CCL Products India

S

Consumer Staples

        2,703

3.4%

Berger Paints India

M

Materials

        2,691

3.4%

Multi Commodity Exchange

S

Financials – Diversified

        2,673

3.4%

Tech Mahindra

M

Information Technology

        2,609

3.3%

Kajaria Ceramics

S

Industrials

        2,590

3.3%

Finolex Cables

S

Industrials

        2,371

3.0%

Skipper

S

Industrials

        2,285

2.9%

City Union Bank

S

Financials – Banks

        2,227

2.8%

Aegis Logistics

S

Energy

        2,184

2.8%

Welspun India

S

Consumer Discretionary

        2,155

2.6%

ICICI Lombard Gen Ins

L

Financials – Insurance

        2,126

2.6%

Total top 20 equity investments

58,146

73.4%

 

Market capitalisation size definitions:

 

L: Large cap – companies with a market capitalisation above US$7bn

 

 

M: Mid cap – companies with a market capitalisation between US$2bn and US$7bn

 

 

S: Small cap – companies with a market capitalisation below US$2bn

 

Investments may be held by the Company and its Mauritian subsidiary, ICG Q Limited.

UNAUDITED CONDENSED STATEMENT OF COMPREHENSIVE INCOME 

FOR THE SIX MONTHS TO 30 JUNE 2020

 

Unaudited

Unaudited

Audited

Six months

Six months

Year to

to 30.06.20

to 30.06.19

31.12.19

Notes

Revenue £000

Capital £000

Total
£000

Total
£000

Total
£000

Income

Dividend income

15

15

Net loss on financial asset at fair value through profit or loss

5

(20,049)

(20,049)

(4,962)

(14,220)

Total income

15

(20,049)

(20,034)

(4,962)

(14,220)

Expenses

Operating expenses

3

(194)

(194)

(248)

(431)

Foreign exchange loss

(46)

(46)

(1)

(129)

Investment management fees

(42)

(42)

(13)

Transaction costs

(21)

(21)

(9)

Total expenses

(303)

(303)

(249)

(582)

Loss for the period/year before taxation

(288)

(20,049)

(20,337)

(5,211)

(14,802)

Taxation

6

Loss for the period/year after taxation

(288)

(20,049)

(20,337)

(5,211)

(14,802)

Loss per Ordinary Share (pence)

4

(18.08)

(4.63)

(13.16)

 

Fully diluted loss per Ordinary Share (pence)

4

(18.08)

(4.63)

(13.16)

 

 

The total column of this statement represents the Company’s statement of comprehensive income, prepared in accordance with IFRS as adopted by the EU. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies, as disclosed in the Basis of Preparation in Note 1.

 

The loss after tax is the “total comprehensive income” as defined by IAS 1. There is no other comprehensive income as defined by IFRS and all the items in the above statement derive from continuing operations.

 

 

UNAUDITED CONDENSED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2020

 

Unaudited

Unaudited

Audited

30.06.20

30.06.19

31.12.19

Notes

£000

£000

£000

Non-current assets

Financial assets designated at fair value through profit or loss

5

78,434

109,095

95,887

Current assets

Cash and cash equivalents

713

109

3,716

Other receivables and prepayments

234

175

153

947

284

3,869

Current liabilities

Payables

7

(156)

(226)

(194)

Net current assets

791

58

3,675

Net assets

79,225

109,153

99,562

Equity

Ordinary share capital

9

1,125

1,125

1,125

Reserves

78,100

108,028

98,437

Total equity

79,225

109,153

99,562

Number of Ordinary Shares in issue

 9

112,502,173

112,502,173

112,502,173

70.42

97.02

88.50

 

UNAUDITED CONDENSED STATEMENT OF CHANGES IN EQUITY 

FOR THE SIX MONTHS TO 30 JUNE 2020 (UNAUDITED)

 

  

Notes

Share Capital £000

Capital Reserve £000

 Revenue Reserve £000

Other Distributable Reserve £000

Total   £000

Balance as at 1 January 2020

1,125

14,193

(10,524)

94,768

99,562

Loss on investments

5

(20,049)

(20,049)

Revenue loss for the period after taxation

(288)

(288)

Balance as at 30 June 2020

1,125

(5,856)

(10,812)

94,768

79,225

 

For the six months to 30 June 2019 (unaudited)

 

  

Notes

Share Capital £000

Capital Reserve £000

 Revenue Reserve £000

Other Distributable Reserve £000

Total   £000

Balance as at 1 January 2019

1,125

28,413

(10,524)

95,350

114,364

Loss on investments

5

(4,962)

(4,962)

Revenue loss for the period after taxation

(249)

(249)

Balance as at 30 June 2019

1,125

23,451

(10,773)

95,350

109,153

 

For the year ended 31 December 2019 (audited)

 

  

Notes

Share Capital £000

Capital Reserve £000

 Revenue Reserve £000

Other Distributable Reserve £000

Total   £000

Balance as at 1 January 2019

1,125

28,413

(10,524)

95,350

114,364

Loss on investments

5

(14,220)

(14,220)

Revenue loss for the year after taxation

(582)

(582)

Balance as at 31 December 2019

1,125

14,193

(10,524)

94,768

99,562

 

 

UNAUDITED CONDENSED STATEMENT OF CASH FLOWS 

FOR THE SIX MONTHS TO 30 JUNE 2020 (UNAUDITED)

 

 

Unaudited

Unaudited

Audited

30.06.20

30.06.19

31.12.19

£000

£000

£000

Cash flows from operating activities

Operating loss

(20,337)

(5,211)

(14,802)

Adjustment for:

Net loss on financial asset at fair value through profit or loss

20,049

4,962

14,220

Foreign exchange losses

46

1

129

(Increase)/decrease in receivables

(81)

31

53

(Decrease)/increase in payables

(38)

14

(18)

Cash flow used in operating activities

(361)

(203)

(418)

Cash flows from investing activities

Acquisition of investments

(7,019)

(3,650)

Disposal of investments

4,423

300

7,900

(2,596)

300

4,250

Net (decrease)/increase in cash and cash equivalents during the period/year

(2,957)

97

3,832

Cash and cash equivalents at the start of the period/year

3,716

13

13

Foreign exchange losses

(46)

(1)

(129)

Cash and cash equivalents at the end of the period/year

713

109

3,716

 

 

NOTES

 

1. Accounting Policies

 

 

The condensed financial statements have been prepared in accordance with International Financial Reporting Standard (‘IFRS’) IAS 34 ‘Interim Financial Reporting’ and, except as described below, the accounting policies set out in the statutory accounts of the Company for the year ended 31 December 2019.

 

The condensed financial statements do not include all of the information required for a complete set of IFRS financial statements and should be read in conjunction with the consolidated financial statements of the Company for the year ended 31 December 2019, which were prepared under full IFRS requirements. 

 

Certain current standards, amendments and interpretations are not relevant to the Company’s operations. Equally, certain interpretations to existing standards which are not yet effective are equally not relevant to the Company’s operations. At the date of the authorisation of these financial statements, the following standards and interpretations which were in issue but do not have any material effect on the Company’s operations or the unaudited financial statements:-

 

Standards, interpretations and amendments to published statements effective but not material to the financial statements

                   

The following standards are effective for the first time for the financial period beginning 1 January 2020 and are relevant to the Company’s operations:

 

·      IFRS 16 Leases

·      IFRIC 23 Uncertainty over Income Tax Treatments

·      Prepayment Features with negative compensation (Amendments to IFRS 9)

·      Annual Improvements to IFRSs 2015-2017 Cycle

·      Long- term Interests in Associates and Joint Ventures (Amendments to IAS 28)

 

The following standards and amendments have been issued and are mandatory for accounting periods beginning on or after 1 January 2020 but are not relevant or have no material effect on the Company’s operations or financial statements:

 

·      IFRS 17 Insurance Contracts

·      Definition of a Business (Amendments to IFRS 3)

·      Definition of Material (Amendments to IAS 1 and IAS 8)

·      Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

 

Other standards in issue, but not yet effective, are not expected to have a material effect on the financial statements of the Company in future periods and have not been disclosed.

 

Going concern

                          

Subsequent to 31 December 2019, the COVID-19 outbreak was declared a pandemic by the World Health Organisation. The situation is dynamic with various cities and countries around the world responding in different ways to address the outbreak. There are meaningful direct and indirect effects developing with companies across multiple industries and the world. The Company will continue to monitor the impact COVID-19 has on them and reflect the consequences as appropriate in its accounting and reporting. The Investment Manager made an assessment of the Company’s ability to continue as a going concern taking into account all available information about the future including the analysis of the possible impacts in relation to COVID-19, which is at least, but is not limited to, twelve months from the date of approval of these financial statements. At an Extraordinary General Meeting held on 12 June 2020, the Shareholders approved an Ordinary Resolution that the Company continue as currently constituted and introduced a redemption facility which gives the ordinary shareholders on record on the 30 September 2021 the ability to redeem part or all of their shareholding at the first redemption point on 31 December 2021 at an exit discount equal to a maximum of 6% of NAV. There is therefore a possibility that redemption requests may impair the future viability of the Company. Due to the above, there is a material uncertainty which may cast significant doubt as to the Company’s ability to continue as a going concern. In an attempt to mitigate the potential for large redemptions, the Investment Management team in Mumbai has been substantially strengthened at both the Senior Management and analyst level which, together with a complete review of the investment management process, has resulted in a number of changes in the portfolio which are already having a positive effect on performance. Notwithstanding the uncertainty over the potential redemptions, the Directors are satisfied that the Company has sufficient liquid resources to continue in business for the foreseeable future therefore the financial statements have been prepared on a going concern basis.

 

2. Significant accounting judgements, estimates and assumptions

 

IFRS require management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equate to the related actual results. The main use of accounting estimates and assumptions occurs in the calculation of the sensitivity analysis in note 11. In relation to the valuation of the unlisted investment, actual results may differ from the estimates. It is management’s judgement that the Net Asset Value (NAV) of ICG Q Limited is an appropriate proxy for fair value as the Company can control the sale of the subsidiary’s investments which are all listed on stock exchanges in India and therefore are mostly regarded as highly liquid. These are unchanged from the statutory accounts of the Company for the year ended 31 December 2019.

 

The principal risks and uncertainties of the Company are in relation to performance risk, market risk, relationship risk and operational risk. These are unchanged from 31 December 2019, and further details may be found in the Directors’ Strategic Report within the Annual Report and Audited Consolidated Financial Statements of the Company for the year ended 31 December 2019. The Directors will continue to assess the principal risks and uncertainties relating to the Company for the remaining six months of the year but expect these to remain unchanged.

 

3. Operating expenses

Unaudited

 Six

 months

Unaudited

Six

 months

Audited
Year

to 30.06.20

to 30.06.19

to 31.12.19

£000

£000

£000

Administration and secretarial fees

22

22

43

Audit fee

15

30

30

Broker fee

15

16

31

Directors’ fees

44

44

88

D&O insurance

3

3

6

General expenses

17

40

84

Other professional fees

27

23

12

Marketing expenses

36

57

111

Registrar fee

3

3

6

Regulatory fees

12

10

20

194

248

431

 

4. Earnings per share

Loss per Ordinary Share and the fully diluted loss per share are calculated on the loss for the period of £20,337,000 (2019 – £5,211,000) divided by the weighted average number of Ordinary Shares of 112,502,173 (2019 – 112,502,173).

 

5. Financial assets designated at fair value through profit or loss

 

Financial assets at fair value through profit or loss comprise of investments in securities listed on Indian stock markets, namely the National Stock Exchange or the Bombay Stock Exchange, as well as investment in the wholly-owned subsidiary, ICG Q Limited.

 

A summary of movements is as follows:

 

Unaudited

Unaudited

Audited

Six months to

Six months to

Year

to

30.06.20

30.06.19

31.12.19

Total

Total

Total

£000

£000

£000

Fair value at beginning of year

95,887

114,357

114,357

Disposal of investments

(4,423)

(300)

(7,900)

Acquisition of investments

7,019

3,650

Realised (loss)/gain on disposal of investments

(1,355)

190

4,683

Unrealised loss on revaluation

(18,694)

(5,152)

(18,903)

Fair value at end of period/year

78,434

109,095

95,887

The net realised and unrealised losses totalling £20,049,000 (2019: £4,962,000) on financial assets at fair value through profit and loss comprise of losses on the Company’s holding in ICG Q Limited to the extent of £17,088,000 (2019: £4,962,000) and losses of £2,963,000 (2019: £Nil) arising from investments in securities listed on Indian stock markets. The movement arising from the Company’s holding in ICG Q Limited is driven by the following amounts within the financial statements of ICG Q Limited, as set out below:

 

Unaudited

Unaudited

Audited

Six months to

Six months to

Year to

30.06.20

30.06.19

31.12.19

Total

Total

Total

£000

£000

£000

Dividend income

497

81

783

Other income

Unrealised losses on financial assets at fair value through profit and loss

(16,467)

(7,831)

(17,969)

Realised (loss)/gain on disposal of investments

(2,023)

2,515

4,585

Investment management fee

(460)

(825)

(1,459)

Operating expenses

(35)

(37)

(69)

Taxes

(6)

(2)

(38)

Transaction costs

(70)

(23)

(94)

Foreign exchange gains/(losses)

1,476

1,160

(3)

Net loss of ICG Q Limited

(17,088)

(4,962)

(14,264)

 

The equity investment represents holdings in listed securities in India and in ICG Q Limited, the Company’s wholly owned subsidiary. ICG Q Limited is incorporated and has its principal place of business in the Republic of Mauritius. The Company holds Participating Shares in ICG Q Limited, which confer voting rights to the Company, hence controlling interests. As described in the statutory accounts of the Company for the year ended 31 December 2019, the Company qualifies as an investment entity under IFRS 10. It therefore does not consolidate its investment in ICG Q Limited.

 

6. Taxation

 

Guernsey

 

India Capital Growth Fund Limited is exempt from taxation in Guernsey on non-Guernsey sourced income. The Company is exempt under The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended) and paid the annual exemption fee of £1,200.

 

For the period ended 30 June 2020, the Company had a tax liability of £nil (2019: £nil).

 

 

7. Payables

Unaudited

Unaudited

Audited

30.06.20

30.06.19

31.12.19

Total

Total

Total

£000

£000

£000

Other payables and accruals 

156

226

194

156

226

194

 

8. Segmental information

 

The Board has considered the provisions of IFRS 8 in relation to segmental reporting and concluded that the Company’s activities form a single segment under the standard. From a geographical perspective, the Company’s activities are focused in a single area – Mauritius. The subsidiary, ICG Q Limited, focuses its investment activities in listed securities in India. Additional disclosures have been provided in this Interim Report to disclose the underlying information.

 

9. Share capital

 

Authorised Share Capital

 

Unlimited number of Ordinary Shares of £0.01 each

Issued share capital

Number of shares

Share capital

£000

At 30 June 2020

112,502,173

1,125

At 30 June 2019

112,502,173

1,125

At 31 December 2019

112,502,173

1,125

 

The Company’s capital is represented by Ordinary Shares of par value £0.01. Each share carries one vote and is entitled to dividends when declared. The Company has no restrictions or specific capital requirements on the issue or repurchase of Ordinary Shares.

 

10. Fair value of financial instruments

 

The following tables shows financial instruments recognised at fair value, analysed between those whose fair value is based on:

 

·      Quoted prices in active markets for identical assets or liabilities (Level 1);

·      Those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and

·      Those with inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

 

The analysis as at 30 June 2020 is as follows:

 

LEVEL 1

LEVEL 2

LEVEL 3

TOTAL

£000

£000

£000

£000

Listed securities

5,702

5,702

Unlisted securities

72,732

72,732

5,702

72,732

78,434

 

The analysis as at 30 June 2019 is as follows:

 

LEVEL 1

LEVEL 2

LEVEL 3

TOTAL

£000

£000

£000

£000

Unlisted securities

109,095

109,095

 

The analysis as at 31 December 2019 is as follows:

 

LEVEL 1

LEVEL 2

LEVEL 3

TOTAL

£000

£000

£000

£000

Listed securities

3,694

3,694

Unlisted securities

92,193

92,193

3,694

92,193

95,887

 

The Company’s investment in ICG Q Limited, the Company’s wholly owned subsidiary is priced based on the subsidiary’s net asset value as calculated as at the reporting date. The company has the ability to redeem its investment in ICG Q Limited at the net asset value at the measurement date therefore this is categorised as level 2. All the underlying investments of ICG Q Limited are categorised as level 1 at 30 June 2020 and 2019. The period-end fair value of those investments, together with cash held in ICG Q Limited, comprise all but an insignificant proportion of the net asset value of the subsidiary.

 

11. Financial instruments and risk profile

 

The primary objective of the Company is to provide long-term capital appreciation by investing predominantly in companies based in India. The investment policy permits making investments in a range of equity and equity linked securities of such companies. The portfolio of investments comprises of listed Indian companies, predominantly mid cap and small cap.

 

The specific risks arising from exposure to these instruments and the Investment Manager’s policies for managing these risks, which have been applied throughout the period, are summarised below:

 

Capital management

 

The Company is a closed-ended investment company and thus has a fixed capital for investment. It has no legal capital regulatory requirement. The Board has the power to purchase shares for cancellation thus reducing capital and the Board considers on a regular basis whether it is appropriate to exercise such powers. In the period ended 30 June 2020, the Board determined that it was inappropriate to exercise such powers, although continuation of these powers will be sought at the Annual General Meeting.

 

The Board also considers from time to time whether it may be appropriate to raise new capital by a further issue of shares. The raising of new capital would, however, be dependent on there being genuine market demand.

 

Market Risk

 

Market price risk arises mainly from the uncertainty about future prices of the financial instrument held by the Company and its subsidiary, ICG Q Limited (“the Group”). It represents the potential loss the Group may suffer through holding market positions in the face of price movements.

 

The Group’s investment portfolio is exposed to market price fluctuations which are monitored by the Investment Manager in pursuance of the investment objectives and policies and in adherence to the investment guidelines and the investment and borrowing powers set out in the Admission Document. The Group’s investment portfolio is concentrated and, as at 30 June 2020, comprised investment in less than 35 companies. Thus, the Group has higher exposure to market risk in relation to individual stocks than more broadly spread portfolios.

 

The Group’s investment portfolio consists predominantly of mid cap and small cap listed Indian securities, and thus the effect of market movements is not closely correlated with the principal market index, the BSE Sensex. The BSE Mid Cap Total Return Index provides a better (but not ideal) indicator of the effect of market price risk on the portfolio. Assuming perfect correlation, the sensitivity of the Group’s investment portfolio to market price risk can be approximated by applying the percentage of funds invested (2020: 88.94%; 2019: 92.68%) to any movement in the BSE Mid Cap Total Return Index. At 30 June 2020, with all other variables held constant, this approximation would produce a movement in the net assets of the Group’s investment portfolio of £7,047,000 (2019: £10,117,000) for a 10% (2019: 10%) movement in the index which would impact the Company via a fair value movement of the same magnitude in its holding in ICG Q Limited and its investments.

 

Foreign currency risk

 

Foreign currency risk arises mainly from the fair value or future cash flows of the financial instruments held by the Group fluctuating because of changes in foreign exchange rates. The Group’s investment portfolio comprises of predominantly Rupee denominated investments but reporting, and in particular the reported Net Asset Value, is denominated in Sterling. Any appreciation or depreciation in the Rupee would have an impact on the performance of the Group. The underlying currency risk in relation to the Group’s investment portfolio is the Rupee. The Group’s policy is not to hedge the Rupee exposure.

 

The Group may enter into currency hedging transactions but appropriate mechanisms on acceptable terms are not expected to be readily available.

 

At 30 June 2020, if the Indian Rupee had strengthened or weakened by 10% (2019: 10%) against Sterling with all other variables held constant, pre-tax profit for the period would have been £7,256,000 (2019: £10,901,000) higher or lower, respectively, mainly as a result of foreign exchange gains or losses on translation of Indian Rupee denominated financial assets designated at fair value through profit or loss in ICG Q Limited, the consequent impact on the fair value of the Company’s investment in ICG Q Limited and in the Company’s investment portfolio.

 

Credit risk

 

Credit risk arises mainly from an issuer or counterparty being unable to meet a commitment that it has entered into with the Group. Credit risk in relation to securities transactions awaiting settlement is managed through the rules and procedures of the relevant stock exchanges. In particular settlements for transactions in listed securities are effected by the custodian on a delivery against payment or receipt against payment basis. Transactions in unlisted securities are effected against binding subscription agreements.

 

The principal credit risks are in relation to cash held by the custodian. Kotak Mahindra Bank Limited (“Kotak”) acts as the custodian to the Group. The aggregate exposure to Kotak at 30 June 2020 was £2,341,000 (2019: £8,048,000).

 

Kotak acted as custodian of the Group’s assets during the period. The securities held by Kotak as custodian are held in trust and are registered in the name of the Group. Kotak has a credit rating of AAA.

 

Interest rate risk

 

Interest rate risk represents the uncertainty of investment return due to changes in the market rates of interest. The direct effect of movements in interest rates is not material as any surplus cash is predominantly in Indian Rupees, and foreign investors are not permitted to earn interest on Rupee balances.

 

Liquidity risk

 

Liquidity risk arises mainly from the Group encountering difficulty in realising assets or otherwise raising funds to meet financial commitments. As the trading volume on the Indian stock markets is lower than that of more developed stock exchanges the Group may be invested in relatively illiquid securities. The Group has no unlisted securities and its focus is to invest predominantly in mid and small cap listed stocks. However, there remain holdings where there is relatively little market liquidity, which may take time to realise. The Directors do not believe that the market is inactive enough to warrant a discount for liquidity risk on the Group’s investment portfolio. As at 30 June 2020 the ICG F and ICG Q portfolios are considered to be liquid.

 

ICG Q Limited seeks to maintain sufficient cash to meet its working capital requirements. The Directors do not believe it to be appropriate to adjust the fair value of the Company’s investment in ICG Q Limited for liquidity risk, as it has the ability to effect a disposal of any investment in ICG Q Limited’s investment portfolio at the prevailing market price and the distribution of proceeds back to the Company should it so wish.

 

All liabilities are current and due on demand.

 

Taxation risk

 

Taxation risk arises mainly from the taxation of income and capital gains of ICG Q Limited and the Company increasing as a result of changes in the tax regulations and practice in Guernsey, Mauritius and India. The Company and ICG Q Limited are registered with the Securities and Exchange Board of India (“SEBI”) as a foreign portfolio investor (“FPI”) with a Category I licence, and ICG Q Limited holds a Category 1 Global Business Licence in Mauritius and has obtained a Mauritian Tax Residence Certificate (“TRC”) which have been factors in determining its resident status under the India-Mauritius Double Taxation Avoidance Agreement (“DTAA”) and General Anti Avoidance Rules (“GAAR”) under the Income Tax Act 1961 (“ITA”).

 

However, with effect from April 2017, the DTAA was amended such that the advantages of investing in India via Mauritius were removed and capital gains arising from investments in Indian companies are subject to Indian Capital Gains Tax regulations. Consequently, tax on short term capital gains (for investments held less than 12 months) of 15% and long-term capital gains (for investments held for 12 months or longer) of 10% apply to the investment portfolio.

 

The Group seeks to minimise the impact of these changes in the taxation rates applicable to its capital gains by maintaining its investment strategy of investing in a concentrated portfolio for long term capital appreciation. There is no capital gains tax accrual at 30 June 2020 (2019: Nil).

 

12. Related party transactions and material contracts

 

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.

 

The Directors are responsible for the determination of the investment policy and have overall responsibility for the Company’s activities. Directors’ fees are disclosed fully in each Annual Report. The fee payable to the Chairman is £35,000 per annum, to Peter Niven is £25,000 per annum and to John Whittle is £28,000 per annum.

 

The Investment Manager is entitled to receive a management fee payable jointly by the Company and its subsidiary equivalent to 1.25% per annum of Total Assets, calculated and payable monthly in arrears. The Investment Manager earned £502,000 in management fees during the six months ended 30 June 2020 (six months ended 30 June 2019: £826,000 and year ended 31 December 2019: £1,472,000) of which £81,000 was outstanding at 30 June 2020 (30 June 2019: £135,000 and 31 December 2019: £106,000).

 

Under the terms of the Administration Agreement, Apex Fund Services (Guernsey) Limited is entitled to a minimum annual fee of US$41,000 or a flat fee of 5 basis points of the NAV of the Company, whichever is greater. The Administrator is also entitled to reimbursement of all out of pocket expenses. The Administrator earned £22,000 for administration and secretarial services during the six months ended 30 June 2020 (six months ended 30 June 2019: £22,000 and year ended 31 December 2019: £43,000) of which £7,500 was outstanding at 30 June 2020 (30 June 2019: £3,000 and 31 December 2019: £16,300).

 

13. Contingent liabilities

 

The Directors are not aware of any contingent liabilities as at 30 June 2020 and the date of approving these financial statements.

 

14. Subsequent events

 

There have been no material events since the end of the reporting period which would require disclosure or adjustment to the financial statements for the period ended 30 June 2020.

17:16: Holding(s) in the Company

Comments Off on 17:16: Holding(s) in the Company

TR-1: Standard form for notification of major holdings

 

NOTIFICATION OF MAJOR HOLDINGS (to be sent to the relevant issuer and to the FCA in Microsoft Word format if possible)i

1a. Identity of the issuer or the underlying issuer of existing shares to which voting rights are attachedii:

India Capital Growth Fund Ltd

1b. Please indicate if the issuer is a non-UK issuer  (please mark with an “X” if appropriate)

Non-UK issuer

2. Reason for the notification (please mark the appropriate box or boxes with an “X”)

An acquisition or disposal of voting rights

x

An acquisition or disposal of financial instruments

Other (please specify)iii:

3. Details of person subject to the notification obligationiv

Name

City and country of registered office (if applicable)

City of London Investment Management Company Limited

4. Full name of shareholder(s) (if different from 3.)v

London, UK

Name

City and country of registered office (if applicable)

5. Date on which the threshold was crossed or reachedvi:

23/09/2020

6. Date on which issuer notified (DD/MM/YYYY):

25/09/2020

7. Total positions of person(s) subject to the notification obligation

Resulting situation on the date on which threshold was crossed or reached

% of voting rights attached to shares (total of 8. A)

% of voting rights through financial instruments
(total of 8.B 1 + 8.B 2)

Total of both in % (8.A + 8.B)

Total number of voting rights of issuervii

Resulting situation on the date on which threshold was crossed or reached

5.2%

0.0%

5.2%

112,502,173

Position of previous notification (if

applicable)

 

 

 

8. Notified details of the resulting situation on the date on which the threshold was crossed or reachedviii

A: Voting rights attached to shares

Class/type of
shares

ISIN code (if possible)

Number of voting rightsix

% of voting rights

Direct

(Art 9 of Directive 2004/109/EC) (DTR5.1)

Indirect

(Art 10 of Directive 2004/109/EC) (DTR5.2.1)

Direct

(Art 9 of Directive 2004/109/EC) (DTR5.1)

Indirect

(Art 10 of Directive 2004/109/EC) (DTR5.2.1)

GD00B0P8RJ60

0

5,828,113

0.0%

5.2%

SUBTOTAL 8. A

5,828,113

5.2%

 

 

B 1: Financial Instruments according to Art. 13(1)(a) of Directive 2004/109/EC (DTR5.3.1.1 (a))

Type of financial instrument

Expiration
date
x

Exercise/
Conversion Period
xi

Number of voting rights that may be acquired if the instrument is

exercised/converted.

% of voting rights

SUBTOTAL 8. B 1

 

 

B 2: Financial Instruments with similar economic effect according to Art. 13(1)(b) of Directive 2004/109/EC (DTR5.3.1.1 (b))

Type of financial instrument

Expiration
date
x

Exercise/
Conversion Period 
xi

Physical or cash

settlementxii

Number of voting rights

% of voting rights

SUBTOTAL 8.B.2

 

 

 

 

 

 

9. Information in relation to the person subject to the notification obligation (please mark the

applicable box with an “X”)

Person subject to the notification obligation is not controlled by any natural person or legal entity and does not control any other undertaking(s) holding directly or indirectly an interest in the (underlying) issuerxiii

Full chain of controlled undertakings through which the voting rights and/or the
financial instruments are effectively held starting with the ultimate controlling natural person or legal entity
xiv (please add additional rows as necessary)

X

Namexv

% of voting rights if it equals or is higher than the notifiable threshold

% of voting rights through financial instruments if it equals or is higher than the notifiable threshold

Total of both if it equals or is higher than the notifiable threshold

City of London Investment Management Company Limited is a wholly owned subsidiary of City of London Investment Group plc and is the only entity subject to the notification obligations

5.2%

0%

5.2%

10. In case of proxy voting, please identify:

Name of the proxy holder

City of London Investment Management Company

Limited

The number and % of voting rights held

The date until which the voting rights will be held

11. Additional informationxvi

All voting rights on all shares are controlled by City of London Investment Management Company Limited.

Place of completion

London, UK

Date of completion

25/09/2020

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

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17:12: Result of AGM

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LEI: 213800TPOS9AM7INH846

India Capital Growth Fund Limited

25 September 2020

 

 

INDIA CAPITAL GROWTH FUND LIMITED

Results of Annual General Meeting – all resolutions passed

 

India Capital Growth Fund Limited (the “Company”) announces the results of the Annual General Meeting the details of which were set out in the circular to Shareholders published by the Company on 28 August 2020 (the “Circular”). Each of the resolutions proposed in the Circular were duly passed on a poll as follows:  

For

Against

Abstain

 

% in favour

Ordinary Resolution 1

43,482,211

27,729

 

99.9

Ordinary Resolution 2

43,482,211

27,729

 

99.9

Ordinary Resolution 3

43,447,179

45,967

16,794

 

99.9

Ordinary Resolution 4

37,925,286

5,578,460

6,194

 

87.2

Ordinary Resolution 5

43,476,017

27,729

6,194

 

99.9

Ordinary Resolution 6

37,931,436

5,572,310

6,194

 

87.2

Special Resolution 7

43,408,487

27,729

73,724

 

99.9

 

ENDS

 

ENQUIRIES:

 

William Clutterbuck

Maitland/AMO

+44 7785 292617

wclutterbuck@maitland.co.uk

 

David Cornell

Ocean Dial Asset Management

+44 20 7068 9870

david.cornell@oceandial.com

 

Robert Finlay

Henry Willcocks

Fiona Conroy

Shore Capital

+44 20 7408 4090

 

Nick Robilliard

Apex Fund and Corporate Services (Guernsey) Limited

+44 1481 735827

nick.robilliard@apexfs.com

 

About India Capital Growth Fund

India Capital Growth Fund Limited (‘ICGF’), the LSE premium listed investment company registered and incorporated in Guernsey was established to take advantage of long-term investment opportunities in companies based in India. ICGF predominantly invests in listed mid and small-cap companies, although investments may also be made in large cap and private Indian companies where the investment manager believes long-term capital appreciation will be achieved. www.indiacapitalgrowth.com

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

END

12:42: Net Asset Value

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4 September 2020

India Capital Growth Fund Limited (the “Company” or “ICGF”)

Net Asset Value statement at 31 August 2020

The Company announces its Net Asset Value per share as at 31 August 2020 was 80.15 pence.

In August the Net Asset Value (NAV) was up 10.3% in Sterling terms, whilst the BSE MidCap TR Index was up 6.7%, delivering an outperformance against the notional benchmark of 3.6%. In local currency terms, the NAV was up 10.3% for the month.

 

Portfolio analysis by sector as at 31 August 2020

Sector

No. of Companies

% of Portfolio

Materials

8

22.3%

Consumer Staples

4

15.8%

Financials – Banks

4

14.4%

Consumer Discretionary

4

10.6%

Industrials

4

10.1%

Health Care

2

8.4%

Information Technology

2

4.7%

Utilities

1

3.9%

Financials – Diversified

1

3.5%

Energy

1

2.8%

Financials – Insurance

1

2.2%

Real Estate

1

0.1%

Communication Services

0

0.0%

Total Equity Investment

33

98.8%

Net Cash

1.2%

Total Portfolio

33

100.0%

 

Top 20 holdings as at 31 August 2020

Holding

Sector

% of Portfolio

PI Industries

Materials

5.9%

Divi’s Laboratories

Health Care

5.9%

Emami

Consumer Staples

5.7%

Federal Bank

Financials – Banks

4.7%

IndusInd Bank

Financials – Banks

4.1%

Jyothy Laboratories

Consumer Staples

4.0%

Gujarat Gas

Utilities

3.9%

Tech Mahindra

Information Technology

3.7%

Multi Commodity Exchange

Financials – Diversified

3.5%

Balkrishna Industries

Consumer Discretionary

3.3%

Welspun India

Consumer Discretionary

3.3%

Bajaj Consumer Care

Consumer Staples

3.2%

City Union Bank

Financials – Banks

3.1%

Kajaria Ceramics

Industrials

3.0%

JK Lakshmi Cement

Materials

3.0%

CCL Products India

Consumer Staples

3.0%

Aegis Logistics

Energy

2.8%

Skipper

Industrials

2.8%

Berger Paints India

Materials

2.7%

Neuland Laboratories

Health Care

2.5%

 

Portfolio analysis by market capitalisation size as at 31 August 2020

 

Market capitalisation size

No. of Companies

% of Portfolio

Small Cap (M/Cap < US$2bn)

21

54.4%

Mid Cap (US$2bn < M/Cap < US$7bn)

8

29.9%

Large Cap (M/Cap > US$7bn)

4

14.5%

Total Equity Investment

33

98.8%

Net Cash

1.2%

Total Portfolio

33

100.0%

 

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END

07:00: Director Appointment and Notice of AGM

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INDIA CAPITAL GROWTH FUND LIMITED

Patrick Firth to be appointed non-executive Director

Notice of Annual General Meeting

India Capital Growth Fund Limited is pleased to announce that Patrick Firth will join the Board and become Chairman of the Audit Committee, subject to shareholder approval at the Annual General Meeting on 25 September 2020.  As previously disclosed John Whittle is standing down as Chairman of the Audit Committee and from the Board and will be retiring at the conclusion of the AGM.

Patrick Firth qualified as an accountant with KPMG and has worked in the investment and funds industry in operations and management in Guernsey for nearly 30 years.  Patrick Firth is a non-executive Director of ICG Longbow Senior Secured UK Property Debt Investments Limited, Riverstone Energy Limited and NextEnergy Solar Fund Limited and chairman of AIM traded GLI Finance Limited.

Elisabeth Scott, Chairman of India Capital Growth Fund, said:

“I am pleased that Patrick Firth is joining the board.  He has deep experience of the fund industry, and of quoted investment funds.  We look forward to welcoming him as we say thank you to John Whittle for his significant contribution over the years.”

The AGM will be held on 25 September 2020 at 10.00 a.m. at the registered office of the company at 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey, GY1 2HL.   A copy of the Shareholder Circular incorporating the Notice of the 2020 AGM is being sent to shareholders today and will shortly be available for inspection on the company’s website www.indiacapitalgrowth.com.

ENDS

AGM Arrangements

In light of the Covid 19 restrictions, shareholders are encouraged to vote by proxy instead of attending the AGM in person. Should this position change, the company will release an announcement prior to the AGM to confirm the position.

11:30: Net Asset Value

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India Capital Growth Fund Limited (the “Company” or “ICGF”)

Net Asset Value statement at 30 April 2020

The Company announces its Net Asset Value per share as at 30 April 2020 was 64.52 pence.

In April the Net Asset Value (NAV) was up 12.1% in Sterling terms, whilst the BSE MidCap TR Index was up 13.0%, delivering an under performance against the notional benchmark of 0.9%. In local currency terms, the NAV was up 12.8% for the month.

 

Portfolio analysis by sector as at 30 April 2020

Sector

No. of Companies

% of Portfolio

Materials

7

21.2%

Financials – Banks

5

15.1%

Consumer Staples

5

12.8%

Consumer Discretionary

4

11.8%

Industrials

4

10.3%

Health Care

3

9.5%

Information Technology

2

4.0%

Utilities

1

3.6%

Financials – Diversified

1

3.0%

Energy

1

2.5%

Financials – Insurance

1

1.1%

Real Estate

1

0.1%

Communication Services

0

0.0%

Total Equity Investment

35

95.1%

Net Cash

4.9%

Total Portfolio

35

100.0%

 

Top 20 holdings as at 30 April 2020

Holding

Sector

% of Portfolio

PI Industries

Materials

6.7%

Divi’s Laboratories

Health Care

6.2%

Federal Bank

Financials – Banks

5.4%

Jyothy Laboratories

Consumer Staples

4.2%

Bajaj Consumer Care

Consumer Discretionary

3.8%

Berger Paints India

Materials

3.8%

Gujarat Gas

Utilities

3.6%

City Union Bank

Financials – Banks

3.6%

Tech Mahindra

Information Technology

3.6%

Emami

Consumer Staples

3.5%

Kajaria Ceramics

Industrials

3.4%

Balkrishna Industries

Consumer Discretionary

3.1%

Multi Commodity Exchange

Financials – Diversified

3.0%

Finolex Cables

Industrials

2.9%

Exide Industries

Consumer Discretionary

2.8%

JK Lakshmi Cement

Materials

2.7%

Radico Khaitan

Consumer Staples

2.7%

The Ramco Cements

Materials

2.6%

Aegis Logistics

Energy

2.5%

IndusInd Bank

Financials – Banks

2.3%

 

Portfolio analysis by market capitalisation size as 30 April 2020

 

Market capitalisation size

No. of Companies

% of Portfolio

Small Cap (M/Cap < US$2bn)

26

63.1%

Mid Cap (US$2bn < M/Cap < US$7bn)

6

21.1%

Large Cap (M/Cap > US$7bn)

3

10.9%

Total Equity Investment

35

95.1%

Net Cash

4.9%

Total Portfolio

35

100.0%

 

16:35: Holding(s) in Company

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TR-1: Standard form for notification of major holdings

 

NOTIFICATION OF MAJOR HOLDINGS (to be sent to the relevant issuer and to the FCA in Microsoft Word format if possible)i

1a. Identity of the issuer or the underlying issuer of existing shares to which voting rights are attachedii:

India Capital Growth Fund Ltd

1b. Please indicate if the issuer is a non-UK issuer  (please mark with an “X” if appropriate)

Non-UK issuer

2. Reason for the notification (please mark the appropriate box or boxes with an “X”)

An acquisition or disposal of voting rights

X

An acquisition or disposal of financial instruments

An event changing the breakdown of voting rights

Other (please specify)iii:

3. Details of person subject to the notification obligationiv

Name

Lazard Asset Management LLC

City and country of registered office (if applicable)

New York, United States of America

4. Full name of shareholder(s) (if different from 3.)v

Name

Bank of New York, Inc – Dir Personal

Bank of New York, Inc – Global Custody

BNY Mellon Wealth MGMT

Northern Trust Co

State Street Bank – Master ETC

State Street Bank-Custody Master Trust    

 

City and country of registered office (if applicable)

5. Date on which the threshold was crossed or reachedvi:

20th April 2020

6. Date on which issuer notified (DD/MM/YYYY):

21-04-2020

7. Total positions of person(s) subject to the notification obligation

% of voting rights attached to shares (total of 8. A)

% of voting rights through financial instruments
(total of 8.B 1 + 8.B 2)

Total of both in % (8.A + 8.B)

Total number of voting rights of issuervii

Resulting situation on the date on which threshold was crossed or reached

15.029%

N/A

15.029%

112,502,182

Position of previous notification (if

applicable)

14.774%

N/A

14.774%

 

8. Notified details of the resulting situation on the date on which the threshold was crossed or reachedviii

A: Voting rights attached to shares

Class/type of
shares

ISIN code (if possible)

Number of voting rightsix

% of voting rights

(Art 9 of Directive 2004/109/EC) (DTR5.1)

(Art 10 of Directive 2004/109/EC) (DTR5.2.1)

(Art 9 of Directive 2004/109/EC) (DTR5.1)

(Art 10 of Directive 2004/109/EC) (DTR5.2.1)

GB00B0P8RJ60

16,908,435

15.029%

SUBTOTAL 8. A

16,908,435

15.029%

 

 

B 1: Financial Instruments according to Art. 13(1)(a) of Directive 2004/109/EC (DTR5.3.1.1 (a))

Type of financial instrument

Expiration
date
x

Exercise/
Conversion Period
xi

Number of voting rights that may be acquired if the instrument is

exercised/converted.

% of voting rights

SUBTOTAL 8. B 1

 

 

B 2: Financial Instruments with similar economic effect according to Art. 13(1)(b) of Directive 2004/109/EC (DTR5.3.1.1 (b))

Type of financial instrument

Expiration
date
x

Exercise/
Conversion Period 
xi

Physical or cash

settlementxii

Number of voting rights

% of voting rights

SUBTOTAL 8.B.2

 

 

 

9. Information in relation to the person subject to the notification obligation (please mark the

applicable box with an “X”)

Person subject to the notification obligation is not controlled by any natural person or legal entity and does not control any other undertaking(s) holding directly or indirectly an interest in the (underlying) issuerxiii

Full chain of controlled undertakings through which the voting rights and/or the
financial instruments are effectively held starting with the ultimate controlling natural person or legal entity
xiv (please add additional rows as necessary)

X

Namexv

Lazard Asset Management LLC

15.029%

15.029%

10. In case of proxy voting, please identify:

Name of the proxy holder

N/A

The number and % of voting rights held

The date until which the voting rights will be held

11. Additional informationxvi

Contact name: Legal & Compliance Department

Contact telephone number: 0207 448 2069

Place of completion

Lazard Asset Management Limited

Date of completion

21 April 2020

08:27: Holding(s) in Company

Comments Off on 08:27: Holding(s) in Company

TR-1: Standard form for notification of major holdings

 

NOTIFICATION OF MAJOR HOLDINGS (to be sent to the relevant issuer and to the FCA in Microsoft Word format if possible)i

1a. Identity of the issuer or the underlying issuer of existing shares to which voting rights are attachedii:

India Capital Growth Fund Ltd

1b. Please indicate if the issuer is a non-UK issuer  (please mark with an “X” if appropriate)

Non-UK issuer

2. Reason for the notification (please mark the appropriate box or boxes with an “X”)

An acquisition or disposal of voting rights

X

An acquisition or disposal of financial instruments

An event changing the breakdown of voting rights

Other (please specify)iii:

3. Details of person subject to the notification obligationiv

Name

Lazard Asset Management LLC

City and country of registered office (if applicable)

New York, United States of America

4. Full name of shareholder(s) (if different from 3.)v

Name

Bank of New York, Inc – Dir Personal

Bank of New York, Inc – Global Custody

BNY Mellon Wealth MGMT

Northern Trust Co

State Street Bank – Master ETC

State Street Bank-Custody Master Trust    

 

City and country of registered office (if applicable)

5. Date on which the threshold was crossed or reachedvi:

16 April

6. Date on which issuer notified (DD/MM/YYYY):

17-04-2020

7. Total positions of person(s) subject to the notification obligation

% of voting rights attached to shares (total of 8. A)

% of voting rights through financial instruments
(total of 8.B 1 + 8.B 2)

Total of both in % (8.A + 8.B)

Total number of voting rights of issuervii

Resulting situation on the date on which threshold was crossed or reached

14.774%

N/A

14.774%

112,502,182

Position of previous notification (if

applicable)

13.034%

N/A

13.034%

 

8. Notified details of the resulting situation on the date on which the threshold was crossed or reachedviii

A: Voting rights attached to shares

Class/type of
shares

ISIN code (if possible)

Number of voting rightsix

% of voting rights

(Art 9 of Directive 2004/109/EC) (DTR5.1)

(Art 10 of Directive 2004/109/EC) (DTR5.2.1)

(Art 9 of Directive 2004/109/EC) (DTR5.1)

(Art 10 of Directive 2004/109/EC) (DTR5.2.1)

GB00B0P8RJ60

16,621,103

14.774%

SUBTOTAL 8. A

16,621,103

14.774%

 

 

B 1: Financial Instruments according to Art. 13(1)(a) of Directive 2004/109/EC (DTR5.3.1.1 (a))

Type of financial instrument

Expiration
date
x

Exercise/
Conversion Period
xi

Number of voting rights that may be acquired if the instrument is

exercised/converted.

% of voting rights

SUBTOTAL 8. B 1

 

 

B 2: Financial Instruments with similar economic effect according to Art. 13(1)(b) of Directive 2004/109/EC (DTR5.3.1.1 (b))

Type of financial instrument

Expiration
date
x

Exercise/
Conversion Period 
xi

Physical or cash

settlementxii

Number of voting rights

% of voting rights

SUBTOTAL 8.B.2

 

 

 

9. Information in relation to the person subject to the notification obligation (please mark the

applicable box with an “X”)

Person subject to the notification obligation is not controlled by any natural person or legal entity and does not control any other undertaking(s) holding directly or indirectly an interest in the (underlying) issuerxiii

Full chain of controlled undertakings through which the voting rights and/or the
financial instruments are effectively held starting with the ultimate controlling natural person or legal entity
xiv (please add additional rows as necessary)

X

Namexv

Lazard Asset Management LLC

14.774%

14.774%

10. In case of proxy voting, please identify:

Name of the proxy holder

N/A

The number and % of voting rights held

The date until which the voting rights will be held

11. Additional informationxvi

Contact name: Legal & Compliance Department

Contact telephone number: 0207 448 2069

Place of completion

Lazard Asset Management Limited

Date of completion

17 April 2020

14:41: Net Asset Value

Comments Off on 14:41: Net Asset Value

6 April 2020

India Capital Growth Fund Limited (the “Company” or “ICGF”)

Net Asset Value statement at 31 March 2020

Net Asset Value

The Company announces its Net Asset Value per share as at 31 March 2020 was 57.54 pence.

In March the Net Asset Value (NAV) was down 30.7% in Sterling terms, whilst the BSE MidCap TR Index was down 27.5%, delivering an under performance against the notional benchmark of 3.2%. In local currency terms, the NAV was down 30.7% for the month.

Portfolio update

None of the stocks positively contributed to the portfolio’s performance. The negative contribution mainly stemmed from Federal Bank (down 52.2%), DCB Bank (down 41.4%) and City Union Bank (down 39.8%).

Market and economic update

Indian Equity markets corrected sharply in March with the S&P BSE Sensex down 23.1% and the BSE Midcap down 27.4% (total return, in Indian Rupees). The sell-off was driven by foreign institutional investors who pulled out US$7.9bn over the month compared to domestic institutions who were net buyers of US$7.5bn. The Indian Rupee depreciated 4.8% against the US Dollar and 0.1% against Pound Sterling.

 

The Indian Government announced a 21 day lockdown to stem infections of COVID-19 and followed this with a US$22bn relief package, targeted at the economically weaker sections of society. This involves a number of direct cash transfers and food security through the public distribution system. It also involves insurance cover for medical workers at the frontline. The Reserve Bank of India preponed its policy meeting and cut the repo rate by 75 bps to 4.4%. It also undertook measures to infuse liquidity, including reducing Cash Reserve Ratio for banks by 100bps for a year. Furthermore it has permitted all lending institutions to allow a moratorium of three months on the payment of instalments for term loans outstanding on 1 March 2020 and allowed the deferment of three months’ payment of interest with respect to working capital facilities.

The impact of the lockdown on the economy is difficult to quantify and will be dependent on the extent of the coronavirus spread (currently 2,586 confirmed positive with the pace of spread increasing daily which is a concern) and how quickly India resumes its economic activity. The consensus is that GDP growth will slow down to the range of 2%-3% against a pre-outbreak prediction of 5% for FY21. The main positive for India has come from the sharp collapse of crude oil prices translating into a lower oil import bill, thereby in turn lowering the current account deficit and inflation. There will also be a fiscal benefit from the oil price collapse as the Government is not likely to pass on the full impact to the consumer. The windfall gains from higher indirect taxation is also likely to play a part in any revival in growth going forwards.

 

Portfolio analysis by sector as at 31 March 2020

Sector

No. of Companies

% of Portfolio

Materials

7

21.9%

Financials – Banks

5

16.3%

Consumer Discretionary

4

11.5%

Consumer Staples

4

11.1%

Industrials

4

10.2%

Health Care

3

8.9%

Information Technology

2

4.7%

Utilities

1

3.6%

Financials – Diversified

1

3.6%

Energy

1

1.9%

Financials – Insurance

1

0.6%

Real Estate

1

0.1%

Communication Services

0

0.0%

Total Equity Investment

34

94.5%

Net Cash

5.5%

Total Portfolio

34

100.0%

Top 20 holdings as at 31 March 2020

Holding

Sector

% of Portfolio

Divi’s Laboratories

Health Care

5.9%

PI Industries

Materials

5.5%

Berger Paints India

Materials

5.2%

Federal Bank

Financials – Banks

5.1%

Tech Mahindra

Information Technology

4.2%

DCB Bank

Financials – Banks

4.0%

Bajaj Consumer Care

Consumer Discretionary

4.0%

Kajaria Ceramics

Industrials

3.8%

Jyothy Laboratories

Consumer Staples

3.8%

Radico Khaitan

Consumer Staples

3.7%

City Union Bank

Financials – Banks

3.7%

Gujarat Gas

Utilities

3.6%

Multi Commodity Exchange

Financials – Diversified

3.5%

Emami

Consumer Staples

3.0%

JK Lakshmi Cement

Materials

3.0%

Balkrishna Industries

Consumer Discretionary

2.9%

The Ramco Cements

Materials

2.7%

Exide Industries

Consumer Discretionary

2.7%

Finolex Cables

Industrials

2.6%

IDFC Bank

Financials – Banks

2.4%

Portfolio analysis by market capitalisation size as 31 March 2020

Market capitalisation size

No. of Companies

% of Portfolio

Small Cap (M/Cap < US$2bn)

25

63.6%

Mid Cap (US$2bn < M/Cap < US$7bn)

8

26.7%

Large Cap (M/Cap > US$7bn)

1

4.2%

Total Equity Investment

34

94.5%

Net Cash

5.5%

Total Portfolio

34

100.0%

 

07:00: Final Results

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INDIA CAPITAL GROWTH FUND LIMITED

 

Annual Results for the year ended 31 December 2019

 

20 March 2020, London – India Capital Growth Fund (“ICGF” or “the Company”), the LSE premium listed investment company established to take advantage of long-term investment opportunities in companies based in India, today reports results for the year ended 31 December 2019.

 

Highlights

2019

% change

   Per Ordinary Share

   Net Asset Value (NAV)

88.50p

-12.9%

   Share price discount to NAV

20.4%

   FX impact

   Indian Rupee / Sterling

93.48

-5.6%

 

·      2019 was another difficult year for Indian equity markets and for Indian small and mid-cap stocks in particular       

    

·      The NAV declined by 13% during the year, underperforming the Company’s benchmark, the BSE Midcap TR Index which fell 7%        

 

·      Positive contributions to the portfolio came from Berger Paints (+57%), PI Industries (+68%), NIIT Technologies (+18%) and Essel Propack (+30%)

 

·      Portfolio turned over 9% (2017: 13%) during the year

 

·      The Company’s NAV, and correspondingly its share price, has fallen 28% and 50% respectively since the year end and in particular since the coronavirus pandemic outbreak which has caused unprecedented falls on global markets

 

Indian investment environment

·      In 2019 the broader economic slowdown and heightened risk aversion led to a substantial divergence between the top ten stocks (by market capitalisation) and the rest of the Indian stock markets

 

·      Economic growth in India has continued to slow as businesses are continuing to adapt to a new operating environment driven by the BJP Government

 

·      Whilst oil prices increased in 2019 and the Indian Rupee weakened accordingly, the recent sharp fall in oil prices will benefit the Indian economy once the significant negative impact of the coronavirus pandemic has receded   

 

Elisabeth Scott, Chairman of India Capital Growth Fund, said: The global economy is grappling with a worldwide pandemic, an oil price war, and unprecedented extreme volatility in capital markets. The situation is rapidly evolving on a daily basis and as such taking a view as to the likely near term impact on the Indian economy is a challenging task.  The Mumbai based Investment Management team is in regular touch with the companies in which your Company is invested, monitoring corporate developments closely. They are hopeful that, when concerns about COVID19 are allayed, Indian equities will be able to recover and that businesses will return to growth. 

 

Additionally, India is in the midst of moving from a patronage based to a rules-based system. Whilst the transition period may result in short-term setbacks, the long-term impact of this change will be to improve governance and, in turn, to open up new opportunities for investment in India”

 

ENQUIRIES

 

David Harris

Frostrow Capital

+44 20 3427 3835

david.harris@frostrow.com

William Clutterbuck

MaitlandAMO PR

+44 20 7379 5151

wclutterbuck@maitland.co.uk

David Cornell

Ocean Dial Asset Management

+44 20 7068 9870

david.cornell@oceandial.com

 

Robert Finlay

Shore Capital

+44 20 7408 4090

Nick Robilliard

Apex Fund and Corporate Services (Guernsey) Limited

+44 1481 735827

nick.robilliard@apexfs.com

 

About India Capital Growth Fund

India Capital Growth Fund Limited (“ICGF”), the LSE premium listed investment company registered and incorporated in Guernsey was established to take advantage of long-term investment opportunities in companies based in India. ICGF predominantly invests in listed mid and small cap companies, although investments may also be made in large cap and private Indian companies where the Fund Manager believes long-term capital appreciation will be achieved. www.indiacapitalgrowth.com

 

CHAIRMAN’S STATEMENT

Following on from a challenging end to 2018, 2019 offered little respite for the Indian small and mid-cap equity markets, where your Company is predominantly invested. In a flight to safety, both foreign and domestic investors continued to favour a small handful of large cap stocks, which caused a sharp divergence in performance between the favoured few and the rest of the market.

Disappointingly, Narendra Modi’s landslide victory in the May elections failed to provide the reassurance to investors that had been anticipated. An underwhelming Union Budget from Finance Minister, Nirmala Sitharaman, meant that the BJP’s second term in office got off to a rocky start. A slowdown in consumption and an ongoing liquidity squeeze sparked further nervousness.

In this environment, your Company’s Net Asset Value declined in value by 12.9%, while the share price declined by 19.4%, both falling further than the notional benchmark, the BSE Mid Cap Total Return Index, which fell 7.2% (both in Sterling terms). As the Investment Manager’s Report describes in more detail, five stocks contributed the majority of this underperformance.  These were Yes Bank, Dewan Housing Finance, Motherson Sumi Systems, Skipper and Manpasand Beverages.

Discount and Investor Relations

Over the period, the share price discount to Net Asset Value widened to 20.4% (from 14.0% at the start of 2019).  Your Board believes that it is in the interests of shareholders to actively promote the Company and its investment strategy to as wide an audience as possible, and that this activity can help to narrow the discount in the future.  To that end, the Investment Manager has conducted numerous meetings across the UK, along with a number of portfolio update calls for investors and analysts.

Your Company and the investment team have been regularly featured in the media.  Our PR agency, MaitlandAMO PR, looks for opportunities for representatives of the Investment Manager and the Investment Adviser to comment on events in India and the Board believes that this brings added recognition and credibility to your Company, backing up the sales efforts of the Ocean Dial team. Our broker, Shore Capital, facilitates liquidity in the shares of your Company and helps the Company to broaden its reach through the production and dissemination of research notes. 

Due Diligence visit to India

In March, the Board travelled to India on a due diligence visit.  The Board met members of Ocean Dial’s investment and research team in Mumbai along with representatives from Avendus, Ocean Dial’s parent company.  We accompanied Gaurav Narain and other members of the investment team on a number of company visits in Mumbai and Delhi.  Amongst the companies that we met were PI Industries, NIIT Technologies, Balkrishna Industries, Radico Khaitan and Kajaria Ceramics, giving us a view across the spectrum of the Indian economy.  We also met a number of commentators and market specialists.

The trip offered us an opportunity to see Ocean Dial’s investment process in action, to see first-hand the quality of management of our portfolio companies, the opportunities for growth and some of the challenges they face.

Changes at the Investment Manager

A key focus for Ocean Dial in 2019 was strengthening the investment team. The Board was pleased to note that in October, Ocean Dial appointed a new co-Head of Equities, Tridib Pathak, and more recently, a Data Analyst. These additions will allow the team to focus more thoroughly on a select universe of stocks. Your Board is encouraged by these developments and hopes that these changes will result in improving performance.

Shareholders can visit our website  to read more about the evolution of Ocean Dial’s investment process and examples of the rationale behind investee companies (www.indiacapitalgrowth.com).

Life of the Company

The Listing Prospectus and Continuation Resolution published in December 2017 outlined the following undertaking:

“The Company will undertake that in 2017 (and every three years thereafter) the Board will carry out an assessment of the Company’s performance (the Three-Yearly Assessment) and will thereafter propose an ordinary continuation resolution only in the event that either of the following criteria are met:

i.          The Company’s monthly average market capitalisation being less on average than £30 million over the one-year period preceding the date of the relevant Three Yearly Assessment taking the market capitalisation as at the last trading day of each month; or

ii.          The Company’s published diluted NAV per Ordinary Share (adjusted, if appropriate, for any dividends payable to Shareholders) underperforming the BSE Mid Cap Total Return Index by in excess of a cumulative 5 per cent. over the three-year period preceding the relevant Three Yearly Assessment.”

While the Company has comfortably exceeded the average market capitalisation requirement, NAV performance relative to the BSE Mid Cap Total Return Index over the past three years has to date not met the requirement laid out in the Prospectus.  The Board will consult with Shareholders as we approach the end of the current Three Yearly Assessment period, which ends on 6 August 2020, to determine the best way forward.

Succession Planning

Details of the Board’s approach to succession planning appears in the Directors’ Report. As part of the Board’s programme of refreshment, John Whittle will stand down from the Board and as Chairman of the Audit Committee at the end of December 2020. The Board would like to express their sincere gratitude to John for his nine years’ service and will begin their search for his successor later in the year.

 

Outlook

The global economy is grappling with a worldwide pandemic, an oil price war, and unprecedented extreme volatility in capital markets. The situation is rapidly evolving on a daily basis and as such taking a view as to the likely near term impact on the Indian economy is a challenging task.  The Mumbai based Investment Management team is in regular touch with the companies in which your Company is invested, monitoring corporate developments closely. They are hopeful that, when concerns about COVID19 are allayed, Indian equities will be able to recover and that businesses will return to growth.

 

Your Company’s investment objective is to provide long-term capital appreciation by investing in companies based in India.  The Board is hopeful that key reforms introduced in Modi’s first term (2014-2019) are now starting to come to fruition and that investors will start to see long term structural improvements from these.   The Goods & Services Tax, the newly reconfigured Insolvency & Bankruptcy Code, Demonetisation, amongst others, are all expected to improve efficiency and transparency in India’s economy. These factors, combined with the overhaul of India’s labour laws that is currently underway, should provide a push that helps to improve ease of doing business and attract foreign investment.  The corporate tax rate cuts, announced in September, were welcomed by Indian companies, with the reduction from 30% to 22% (and from 25% to 15% for new investment in manufacturing) making them globally competitive. As the Trade Wars between China and the US continue, India is positioned to increase its market share in some manufacturing industries.

Finally, India is in the midst of moving from a patronage based to rules-based system. Whilst the transition period may result in short-term setbacks, the long-term impact of this change will be to improve governance and, in turn, to open up new opportunities for investment in India.  Despite the recent setbacks in performance, your Board believes that India Capital Growth Fund is well positioned to deliver returns to shareholders as these changes take effect.  We thank shareholders for their patience and believe that changes being implemented by the manager will deliver improved relative performance.

Elisabeth Scott

Chairman

19 March 2020

 

 

INVESTMENT POLICY

 

The Company’s investment objective is to provide long-term capital appreciation by investing in companies based in India. The investment policy permits the Company to make investments in a range of Indian equity and equity linked securities and predominantly in listed mid and small cap Indian companies with a smaller proportion in unlisted Indian companies. Investment may also be made in large-cap listed Indian companies and in companies incorporated outside India which have significant operations or markets in India. While the principal focus is on investment in listed equity securities or equity linked securities, the Company has the flexibility to invest in bonds (including non-investment grade bonds), convertibles and other types of securities. The Company may, for the purposes of hedging and investing, use derivative instruments such as financial futures, options and warrants. The Company may, from time to time, use borrowings to provide short-term liquidity and, if the Directors deem it prudent, for longer term purposes. The Directors intend to restrict borrowings on a longer term basis to a maximum amount equal to 25% of the net assets of the Company at the time of the drawdown. It is the Company’s current policy not to hedge the exposure to the Indian Rupee.

 

The portfolio concentration ranges between 30 and 40 stocks; however, to the extent the Company grows, the number of stocks held may increase over time. The Company is subject to the following investment limitations: No more than 10% of Total Assets may be invested in the securities of any one Issuer or invested in listed closed-ended funds.

 

 

INVESTMENT MANAGER’S REPORT

 

This was a disappointing year for investors in the India Capital Growth Fund. Over twelve months the share price fell by 19% driven by an 8% fall in the NAV in Indian Rupees which was in turn compounded by a 6% depreciation in the currency against the Pound Sterling. As such the NAV fell by 13% which led to a 6% underperformance relative to the BSE Mid Cap Total Return Index over the same period which fell by 7% in Pound Sterling.

 

The portfolio analysis later in this report examines this underperformance but in summary the main cause was a more pronounced combination of lower than expected aggregate portfolio profitability and a de-rating in the valuation of the majority of the holdings. Additionally, stock specific issues have caused a permanent loss of capital value that should not be repeated.

 

Macro-Environment

Before delving into portfolio performance and characteristics, it is important to highlight the deterioration of the macro environment over the year and the consequent impact on corporate and investor sentiment:

§ A liquidity squeeze in the non-banking financial system following the default of IL&FS – an AAA-rated quasi-Government owned lending institution – in September 2018 (discussed at length in 2018’s Annual Report and in 2019’s interim report), the aftershock of which is still being felt. 

§ Excess capacity in the private sector and a fiscally constrained Government leading to anaemic investment growth in the economy. Consumption had become the core contributor to GDP, which has now in turn slowed sharply. 

§ Muted lending from Public sector banks (65% of the market) during an extended period of stressed assets and balance sheet repair, leaving the economy capital constrained, and forcing companies to pare back on growth. 

§ Consistent, year-on-year downgrades to earnings expectations, as economic growth has slowed. 

§ A poorly received inaugural Union Budget from the new BJP Government that required major U-turns in policy in order to address the market’s disappointment. 

§ Businesses which are continuing to adapt to a new operating environment. For example: new currency notes in circulation (Demonetisation), the Goods & Services Tax (a nationwide VAT), the Real Estate Regulation Act, the Insolvency and Bankruptcy Code, and stricter emissions standards for the auto sector (45% of India’s manufacturing) as examples.

This combination of structural reform, a default of a major financial institution, and ongoing balance sheet repair in the banking system drove a collapse in market confidence. Capital availability became scarce being restricted to only those which didn’t require it, as evidenced in Chart 1. Companies sector wide, and in particular smaller domestic facing names, were forced to limit their ambitions. Consumption growth slowed abruptly, as did trade, the latter being affected by disruptions to the global economy. Even businesses with strong order books put a foot on the brake amid concerns that the environment was not right to “push sales”. A fear of counterparty risk ensured that liquidity and working capital management took priority. As such GDP growth fell from 8.2% in 2017 to (an estimated) 4.7% for the current financial year (FY20), ending on 31 March.

The portfolio

Four holdings worked well for the portfolio over the year. Both Berger Paints (manufacturer of paint, which rose 57%) and PI Industries (agrochemicals which rose 68%) delivered healthy earnings growth in 2019 leading to a sharp rerating in those stocks. Other outperformers were NIIT Technologies (IT Services, up 18%) and Essel Propack (consumer packaging, which rose 30%). Private equity funds bid handsome premia to the market price for part ownership of these companies and in both cases the Company’s stock holding was tendered. The portfolio exited NIIT Technologies completely but post the tender, a decision was made to buy back a part of the holding in Essel Propack at compelling valuations.

Turning to the contributors to poor performance, the fall in the Company’s Net Asset Value (NAV) can be attributed to two interlinked drivers; first from a de-rating in aggregate value of the portfolio and second from a deceleration in earnings growth. The causes of these two drivers can in turn be placed into two distinct camps; companies whose stock price de-rating (from lower earnings) is a temporary phenomenon that creates a potential buying opportunity and second where there are structural concerns that have resulted in a permanent loss of capital.

Temporary disruption

From a top down context, the broader economic slowdown and heightened risk aversion that was summarised earlier led to a substantial divergence between the top ten stocks (by market capitalisation) and the rest of the market. This is a trend seen across global markets but somewhat accentuated by events specific to India.

Due to the portfolio’s exposure to the lower capitalised area of the market, which by default is more sensitive and vulnerable to disruptions in the domestic economy, this divergence was keenly felt, but in valuation terms the portfolio now appears as cheap as it has been since 2013 at the time of the “taper tantrum”, and an upward correction is expected as the market “bottoms out” and the first signs of confidence (and thus liquidity) return to customary levels.

However, the de-rating cannot solely be attributed to a broader stock market divergence. The slowdown of earnings growth across the portfolio also played its part. In particular, the portfolio’s exposure to consumer businesses (28% of portfolio) and private sector banks (25% of portfolio). Both sectors have traditionally been steady earnings compounders, and this will revert in due course. The consumer businesses have been hit by a sharp slowdown in spending particularly from rural communities, where historically growth rates have been two times their urban counterparts but slipped to just half that in 2019. The private sector banking stocks were affected by asset quality issues (as economic growth slowed) and were obliged to provision accordingly at the expense of shareholder returns. The portfolio’s exposure to the auto-ancillary sector (Motherson Sumi Systems, Exide Industries, Ramkrishna Forgings totalling 12% of portfolio) have suffered both due to slower demand in the auto sector (both global and domestic) as well as the ongoing disruption caused by the US tariff war.

Two companies in the portfolio hit the spotlight for governance related issues. Both Emami (consumer discretionary) and Jain Irrigation (micro irrigation) saw persistent stock price pressure resulting from major shareholders pledging stock as collateral for investments unrelated to the core business. In Emami’s case the business generates strong cash flow and these pledges have now been reduced, and this combination of stable cash flow, proactive governance changes and weak stock price performance provided an opportunity to top up. In addition, the family has already initiated the process of selling other assets in order to release the equity collateral further, which in turn has lifted pressure from the stock price.

Structural issues

In the case of Jain Irrigation (NAV loss of 1%) the combination of pledged collateral and elevated working capital costs increased the risk reward ratio beyond comfort and the position was sold. In the public sector banking space both Indian Bank and Jammu & Kashmir Bank (-1.0% and -0.6% contribution to portfolio returns respectively) were impacted by unforeseen regulatory events. Indian Bank was among the best performing public sector banks, being one of the few that did not seek capital infusion from the Government. This ultimately proved its undoing, being merged with a weaker entity, as the resultant combined entity’s balance sheet was weaker than the standalone. Likewise, the portfolio’s exposure to Jammu & Kashmir Bank, whilst fundamentally a strong franchise, was impacted by the recent Government actions in Kashmir, removing visibility on its future outlook and leading to a gradual reduction in exposure. The portfolio’s NAV suffered from a rump holding in Dewan Housing, a mortgage finance company which was directly impacted by the default of IL&FS in September of last year. The portfolio had benefitted significantly from the appreciation of this stock price over the time it was held, and although it fell precipitously from the highs, the final position was sold at approximately cost price.  We also erred in our call on Yes Bank (-2.1% contribution to portfolio). Following the change in management and a revamp of the board of directors, it was expected that the strong franchise (given its leadership in digital transactions and a strong customer franchise) would prevail. However prolonged delays in raising capital has diminished the risk reward equation sufficiently for us to decide to reduce the weighting.

Following the tender of the Company’s stock in both NIIT Technologies and Essel Propack, as well as trimming weights in other areas of the portfolio, the portfolio’s cash weighting reached a high of 13% in August. On the back of poor sentiment in small and midcap stocks and weakness across the broader market, this cash position was gradually put to the last quarter of the year. A 5% position has been built in DCB Bank. This is a mid-sized private sector bank, that has the Aga Khan Foundation as its largest shareholder (14%), that focuses on lending to small and medium sized enterprises across the country. Asset quality standards have been maintained through the recent banking crisis due to its “best in class” risk management systems and is attractively valued relative to its peer group.  Temporary weakness in the share price of Bajaj Consumer Care (BCC), as a result of majority shareholders using stock as pledging collateral, enabled the portfolio to build a 4% position weight. BCC is the market leader in the hair oil segment which enjoys high gross margins, high returns on capital employed with a dividend yield of 4%. The market volatility provided an opportunity to invest at a significant discount to the company’s historic valuation and based on some conservative assumptions it has significant upside potential. As at the end of December, the cash weighting has been reduced to 5% of the portfolio.

The Government is listening to the feedback from corporate India and is responding to the short-term challenges brought about by its reform initiatives. Spending on infrastructure has been accelerated alongside incentives to generate private sector investment spending, as well as addressing individual “sectoral” issues. Most encouraging was the progressive cuts to corporate taxes now making India better able to compete for Foreign Direct Investment alongside its Asian peer group. Indirect tax rates have been cut across many sectors, public sector banks have been recapitalised and the flagging real estate sector has been given a major boost. Moreover, the Reserve Bank of India has cut lending rates to 5.15%, their lowest level since 2010. Transmission into the real economy is slow but the trend is favourable.

Looking ahead

 

The Company’s NAV, and correspondingly its share price, have fallen 28% and 50% respectively since the year-end, and in particular since the coronavirus pandemic outbreak, which has caused unprecedented falls in global and Indian markets. However we continue to assess business fundamentals in India, relative to the prices on offer in the equity markets, on an ongoing basis and expect the Indian economy to recover when this period of significant uncertainty eventually passes.

 

Ocean Dial Asset Management

19 March 2020

 

 

TOP 20 PORTFOLIO INVESTMENTS

 

Holding

Market cap size

Sector

Value

£000

% of Company NAV

Federal Bank

M

Financials

7,046

7.1%

City Union Bank

M

Financials

5,698

5.7%

Berger Paints India

L

Materials

5,405

5.4%

PI Industries

M

Materials

4,877

4.9%

Bajaj Consumer Care

S

Consumer Discretionary

4,546

4.6%

Tech Mahindra

L

IT

4,444

4.5%

Motherson Sumi Systems

M

Consumer Discretionary

4,012

4.0%

Jyothy Laboratories

S

Consumer Staples

3,892

3.9%

Divi’s Laboratories

M

Healthcare

3,554

3.6%

Emami

S

Consumer Staples

3,481

3.5%

IDFC Bank

M

Financials

3,357

3.4%

Balkrishna Industries

M

Consumer Discretionary

3,179

3.2%

Indusind Bank

L

Financials

3,069

3.1%

Finolex Cables

S

Industrials

2,858

2.9%

Kajaria Ceramics

S

Industrials

2,809

2.8%

Welspun India

S

Consumer Discretionary

2,765

2.8%

Radico Khaitan

S

Consumer Staples

2,754

2.8%

Ramkrishna Forgings

S

Materials

2,694

2.7%

The Ramco Cements

M

Materials

2,583

2.6%

Exide Industries

M

Consumer Discretionary

2,425

2.4%

75,448

75.90%

 

 

PRINCIPAL GROUP INVESTMENTS

AS AT 31 DECEMBER 2019

 

Holding

Market cap size

Nominal

Value

£000

% of Company NAV

Listed securities

Consumer discretionary

Bajaj Consumer Care

S

1,800,000

4,546

4.6%

Balkrishna Industries

M

300,000

3,179

3.2%

Exide Industries

M

1,215,336

2,425

2.4%

Motherson Sumi Systems

M

2,558,999

4,012

4.0%

Welspun India

S

5,384,105

2,765

2.8%

16,927

17.0%

Consumer staples

Emami

S

1,050,000

3,481

3.5%

Jyothy Laboratories

S

2,475,000

3,892

3.9%

Manpasand Beverages

S

1,722,085

217

0.2%

Radico Khaitan

S

821,236

2,754

2.8%

10,344

10.4%

Financials

City Union Bank

M

2,277,000

5,698

5.7%

DCB Bank

S

1,600,000

2,942

3.0%

Federal Bank

M

7,488,862

7,046

7.1%

IDFC Bank

M

6,950,000

3,357

3.4%

Indusind Bank

L

190,000

3,069

3.1%

Jammu & Kashmir Bank

S

4,249,504

1,357

1.4%

Yes Bank

S

2,000,000

1,004

1.0%

24,473

24.7%

Healthcare

Aurobindo Pharma

M

420,000

2,053

2.1%

Divi’s Laboratories

M

180,000

3,554

3.6%

Neuland Laboratories

S

250,000

1,118

1.1%

6,725

6.8%

Industrials

Finolex Cables

S

720,000

2,858

2.9%

Kajaria Ceramics

S

500,000

2,809

2.8%

PSP Projects

S

373,875

1,972

2.0%

Skipper

S

2,654,310

1,455

1.4%

9,094

9.1%

IT

BLS International Services

S

1,000,000

708

0.6%

Tech Mahindra

L

545,000

4,444

4.5%

5,152

5.1%

Materials

Berger Paints India

L

980,000

5,405

5.4%

Essel Propack

S

735,075

1,393

1.4%

JK Lakshmi Cement

S

880,207

2,636

2.6%

PI Industries

M

315,320

4,877

4.9%

Ramkrishna Forgings

S

661,230

2,694

2.7%

Sagar Cements

S

365,000

2,093

2.1%

The Ramco Cements

M

320,000

2,583

2.6%

21,681

21.7%

Real Estate

Arihant Foundations & Housing

S

592,400

126

0.1%

126

0.1%

Total equity investments

94,522

94.9%

Cash less other net current liabilities

5,040

5.1%

Total Net Assets

99,562

100.0%

Notes:-

Large cap (L) – companies with a market capitalisation above US$7bn

12.9%

Mid cap (M) – companies with a market capitalisation between US$2bn and US$7bn

39.0%

Small cap (S) – companies with a market capitalisation below US$2bn

43.0%

94.9%

 

AUDITED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2019

2019

2018

Revenue £000

Capital £000

Total
£000

Total
£000

Income

Net loss on financial assets at fair value through profit or loss

(14,220)

(14,220)

(27,989)

Total income

(14,220)

(14,220)

(27,989)

Expenses

Operating expenses

(431)

(431)

(422)

LSE Main Board listing expense

(155)

Foreign exchange loss

(129)

(129)

(1)

Investment management fees

(13)

(13)

Transaction costs

(9)

(9)

Total expenses

(582)

(582)

(578)

Loss for the year before taxation

(582)

(14,220)

(14,802)

(28,567)

Taxation

Total comprehensive loss for the year

(582)

(14,220)

(14,802)

(28,567)

Loss per Ordinary Share (pence)

(13.16)

(25.39)

 

Fully diluted loss per Ordinary Share (pence)

(13.16)

(25.39)

 

The total column of this statement represents the Company’s statement of comprehensive income, prepared in accordance with IFRS as adopted by the EU. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies, as disclosed in the Basis of Preparation.

 

The profit after tax is the “total comprehensive income” as defined by IAS 1. There is no other comprehensive income as defined by IFRS and all the items in the above statement derive from continuing operations.

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE YEAR ENDED 31 DECEMBER 2019

 

2019

2018

£000

£000

Non-current assets

Financial assets designated at fair value through profit or loss

95,887

114,357

Current assets

Cash and cash equivalents

3,716

13

Other receivables and prepayments

153

206

3,869

219

Current liabilities

Payables and accruals

(194)

(212)

Net current assets

3,675

7

Net assets

99,562

114,364

Equity

Ordinary share capital

1,125

1,125

Reserves

98,437

113,239

Total equity

99,562

114,364

Number of Ordinary Shares in issue

112,502,173

112,502,173

 

Net Asset Value per Ordinary Share (pence)

– Undiluted and diluted

 

88.50

101.57

 

 

AUDITED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2019

 

Share Capital £000

Capital Reserve £000

 Revenue Reserve £000

Other Distributable Reserve £000

Total   £000

Balance as at 1 January 2019

1,125

28,413

(10,524)

95,350

114,364

Loss on investments

(14,220)

(14,220)

Revenue loss for the year after taxation

(582)

(582)

Balance as at 31 December 2019

1,125

14,193

(10,524)

94,768

99,562

 

 

For the year ended 31 December 2018

 

Share Capital £000

Capital Reserve £000

 Revenue Reserve £000

Other Distributable Reserve £000

Total   £000

Balance as at 1 January 2018

1,125

56,402

(9,946)

95,350

142,931

Gain on investments

(27,989)

(27,989)

Revenue loss for the year after taxation

(578)

Balance as at 31 December 2018

1,125

28,413

(10,524)

95,350

114,364

 

 

AUDITED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2019

 

2019

2018

£000

£000

Cash flows from operating activities

Operating loss

(14,802)

(28,567)

Adjustment for:

Net loss on financial asset at fair value through profit or loss

14,220

27,989

Foreign exchange losses

129

1

Decrease/(increase) in receivables

53

(17)

Decrease in payables

(18)

(253)

Net cash flows used in operating activities

(418)

(847)

Cash flows from investing activities

Acquisition of investments

(3,650)

Partial redemption of investment in ICG Q Limited

7,900

785

Net cash flows generated from investing activities

4,250

785

Net increase/(decrease) in cash and cash equivalents during the year

3,832

(62)

Cash and cash equivalents at the start of the year

13

76

Foreign exchange losses

(129)

(1)

Cash and cash equivalents at the end of the year

3,716

13

 

 

 

                              

ACCOUNTING POLICIES

 

Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and interpretations adopted by the International Accounting Standards Board (IASB).

 

Basis of preparation

The financial statements for the year ended 31 December 2019 have been prepared under the historical cost convention adjusted to take account of the revaluation of the Company’s investments to fair value. Where presentational guidance set out in the Statement of Recommended Practice (SORP) for Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies (AIC) in November 2014, and subsequently revised in November 2019, is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. In particular, supplementary information which analyses the statement of comprehensive income between items of a revenue and capital nature has been presented alongside the statement of comprehensive income.

 

Going concern

Given the Company’s relative performance, in particular over the last 12 months, as discussed in the Chairman’s Statement, the Directors may be required to propose a continuation ordinary resolution at the Company’s Annual General Meeting scheduled for September 2020, which if not passed by simple majority, would put the future of the Company at risk. The Directors are considering options to present to shareholders. Due to the above, there is a material uncertainty which may cast significant doubt as to the company’s ability to continue as a going concern. Notwithstanding the uncertainty over the continuation of the Company, the Directors are satisfied that the Company has sufficient resources to continue in business

for the foreseeable future therefore the financial statements have been prepared on a going concern basis.

Impact of IFRS 10 ‘Consolidated Financial Statements’

As set out under IFRS 10, a parent entity that qualifies as an investment entity should not consolidate its subsidiaries. The Company meets all the following criteria to qualify as an investment entity:-

i.          Obtaining funds from one or more investors for the purpose of providing those investors with investment management services – the Board of Directors of the Company has delegated this function to its investment manager, Ocean Dial Asset Management Limited;

ii.          Commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both – funds are invested in ICG Q Limited for the sole purpose of achieving capital appreciation via further placements in Indian listed securities; and

iii.         Measures and evaluates the performance of substantially all of its investments on a fair value basis – on a monthly basis, the Company’s investment in ICG Q Limited is revalued at the prevailing Net Asset Value (“NAV”) at the corresponding valuation date.

 

The IFRS 10 Investment Entity Exemption requires investment entities to fair value all subsidiaries that are themselves investment entities. As the subsidiary meets the criteria of an investment entity, it has not been consolidated.

 

On the basis of the above, these financial statements represent the stand-alone figures of the Company.

 

Expenses

Expenses are accounted for on an accruals basis. Other expenses, including management fees and transaction costs, are allocated to the revenue column of the statement of profit or loss and other comprehensive income.

 

Taxation

Full provision is made in the statement of profit or loss and other comprehensive income at the relevant rate for any taxation payable in respect of the results for the year.

 

Investments

The Company’s investments are designated at fair value through profit or loss (“FVPL”) at the time of acquisition. It is initially recognised at fair value, being the cost incurred at acquisition. Transaction costs are expensed in the statement of comprehensive income. Gains and losses arising from changes in fair value are presented in the statement of comprehensive income in the period in which they arise.

 

The investment is designated at fair value through profit or loss at inception because it is managed and its performance evaluated on a fair value basis in accordance with the Company’s investment strategy as documented in the Prospectus and information thereon is evaluated by the management of the Company on a fair value basis.

 

The basis of the fair value of the investment in the underlying subsidiary, ICG Q Limited, is its Net Asset Value. ICG Q Limited’s investments are designated at fair value through profit and loss.

 

Purchases and sales are recognised on the trade date – the date on which the Company commits to purchase or sell the investment.

 

The financial asset is derecognised when the rights to receive cash flows from the investment have expired or the Company has transferred substantially all risks and rewards of ownership

 

Impairment of financial assets

The Company has chosen to apply the simplified approach for expected credit losses (“ECL”) under IFRS 9. Therefore, the Company does not track changes in credit risk, but instead, recognises a loss allowance based on lifetime ECLs at each reporting date. The Company’s approach to ECLs reflects a probability-weighted outcome, the time value of money and reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

 

The Company uses the provision matrix as a practical expedient to measuring ECLs on trade receivables, based on days past due for groupings of receivables with similar loss patterns. Receivables are grouped based on their nature. The provision matrix is based on historical observed loss rates over the expected life of the receivables and is adjusted for forward-looking estimates.

 

Receivables and Payables

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method (“EIR”), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in profit or loss. The losses arising from impairment are recognised in profit or loss.

 

Other financial liabilities include all financial liabilities, other than those classified as at FVPL. The Company includes in this category short-term payables.

 

Foreign currency translation

The Company’s shares are denominated in Sterling and the majority of its expenses are incurred in Sterling. Accordingly, the Board has determined that the functional currency is Sterling. Sterling is also the presentational currency of the financial statements.

 

Monetary foreign currency assets and liabilities are translated into Sterling at the rate of exchange ruling at the statement of financial position date. Investment transactions and income and expenditure items are translated at the rate of exchange ruling at the date of the transactions. Gains and losses on foreign exchange are included in the statement of comprehensive income.

 

Cash and cash equivalents

Cash comprises of Bank current accounts. Cash equivalents are short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant changes in value.

 

Share capital

The share capital of the Company comprises Ordinary Shares which have all the features and have met all the conditions for classification as equity instruments under IAS 32 (amended) and have been classified as such in the financial statements.

 

Standards, interpretations and amendments to published statements effective but not material

to the financial statements

The following standards and amendments have been issued and are mandatory for accounting periods beginning on or after 1 January 2019 but are not relevant or have no material effect on the Company’s operations or financial statements:

·      IFRS 16 Leases

·      IFRIC 23 Uncertainty over Income Tax Treatments

·      Prepayment Features with negative compensation (Amendments to IFRS 9)

·      Annual Improvements to IFRSs 2015-2017 Cycle

 

Other standards in issue, but not yet effective, are not expected to have a material effect on the financial statements of the Company in future periods and have not been disclosed.

 

SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

 

IFRS require management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equate to the related actual results.

a)   Critical accounting estimate: Financial asset designated at fair value through profit or loss The main use of accounting estimates and assumptions occurs in the calculation of the sensitivity analysis in note 11. In relation to the valuation of the unlisted investment, actual results may differ from the estimates. It is management’s judgement that the Net Asset Value of ICG Q Limited is an appropriate proxy for fair value as the Company can control the sale of the subsidiary’s investments which are all listed on stock exchanges in India and therefore are mostly regarded as highly liquid.

b)   Significant judgment: consolidation of entities

 

The Company, under the investment entity exemption rule, holds its investments at fair value

 

The Company meets the definition of an investment entity per IFRS 10 as detailed in note 1.

 

OPERATING EXPENSES

 2019

£000

Administration and secretarial fees

43

Audit fees

30

Broker fee

31

D&O insurance

6

Directors’ fees

88

88

General expenses

84

55

Marketing expenses

111

110

Other professional fees

12

36

Registrar fee

6

Regulatory fees

20

431

422

 

 

LOSS PER SHARE

 

Loss per Ordinary Share and the fully diluted loss per share are calculated on the loss for the year of £14,802,000 (2018: £28,567,000) divided by the weighted average number of Ordinary Shares of 112,502,173 (2018: 112,502,173).

 

FINANCIAL ASSET DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

 

Financial assets at fair value through profit or loss comprise of investments in securities listed on Indian stock markets, namely the National Stock Exchange or the Bombay Stock Exchange, as well as investment in the wholly-owned subsidiary, ICG Q Limited. A summary of movements is as follows:

2019

2018

£000

£000

Fair value at beginning of year

114,357

143,131

Reduction in share capital

(7,900)

(785)

Acquisition of investments

3,650

Realised gain on share capital reduction

4,683

328

Unrealised (loss)/gain on revaluation

(18,903)

(28,525)

Fair value at end of year

95,887

114,357

 

 

Financial asset designated at fair value through profit or loss (“continued”)

 

The net realised and unrealised losses totalling £14,220,000 (2018: £27,989,000) on financial assets at fair value through profit and loss comprise of losses on the Company’s holding in ICG Q Limited to the extent of £14,264,000 (2018: £27,989,000) and gains of £44,000 arising from investments in securities listed on Indian stock markets. The movement arising from the Company’s holding in ICG Q Limited is driven by the following amounts within the financial statements of ICG Q Limited, as set out below.

2019

2018

£000

£000

Dividend income

783

758

Other income

15

Unrealised loss on financial assets at fair value through profit and loss

(17,969)

(34,451)

Foreign exchange loss

(3)

Realised gain on disposal of investments

4,585

7,659

Investment management fees

(1,459)

(1,815)

Other operating expenses

(69)

(71)

Taxes

(38)

(19)

Transaction costs

(94)

(65)

Net loss of ICG Q Limited

(14,264)

(27,989)

 

The equity investment represents ICG Q Limited, the Company’s wholly owned subsidiary. ICG Q Limited is incorporated and has its principal place of business in the Republic of Mauritius. The Company holds Participating Shares in ICG Q Limited, which confer voting rights to the Company, hence controlling interests.

 

TAXATION

 

Guernsey

India Capital Growth Fund Limited is exempt from taxation in Guernsey on non-Guernsey sourced income. The Company is exempt under The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended) and paid the annual exemption fee of £1,200.

 

For the year ended 31 December 2019, the Company had a tax liability of £nil (2018: £nil).

 

SEGMENTAL INFORMATION

 

The Board has considered the provisions of IFRS 8 in relation to segmental reporting and concluded that the Company’s activities form two segments under the standard. From a geographical perspective, the Company’s activities are focused in two areas – Mauritius and India. The subsidiary, ICG Q Limited, focuses its investment activities in listed securities in India. Additional disclosures have been provided in note 9 to disclose the underlying information.

 

SHARE CAPITAL

 

Authorised Share Capital

 

Unlimited number of Ordinary Shares of £0.01 each

 

Issued Share Capital

Number of shares

Share capital

£000

Ordinary Shares of £0.01 each

At 31 December 2019

112,502,173

1,125

At 31 December 2018

112,502,173

1,125

 

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The following tables show via financial instruments recognised at fair value, analysed between those whose fair value is based on:

·      Quoted prices in active markets for identical assets or liabilities (Level 1);

·      Those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and

·      Those with inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

 

The analysis as at 31 December 2019 is as follows:

 

LEVEL 1

LEVEL 2

LEVEL 3

TOTAL

£000

£000

£000

£000

Listed securities

3,694

3,694

Unlisted securities

92,193

92,193

Total

3,694

92,193

95,887

 

The analysis as at 31 December 2018 is as follows:

 

LEVEL 1

LEVEL 2

LEVEL 3

TOTAL

£000

£000

£000

£000

Listed securities

Unlisted securities

114,357

114,357

Total

114,357

114,357

 

 

The Company’s investment in ICG Q Limited, the Company’s wholly owned subsidiary is priced based on the subsidiary’s net asset value as calculated as at the reporting date. The Company has the ability to redeem its investment in ICG Q Limited at the net asset value at the measurement date therefore this is categorised as level 2. The classification within the hierarchy does not necessarily correspond to the Investment Manager’s perceived risk of the investment, nor the level of the investments held within the subsidiary. All the underlying investments of ICG Q Limited are categorised as level 1 at 31 December 2019 and 2018. The year-end fair value of those investments, together with cash held in ICG Q Limited, comprise all but an insignificant proportion of the net asset value of the subsidiary.

 

FINANCIAL INSTRUMENTS AND RISK PROFILE

 

The primary objective of India Capital Growth Fund Limited is to provide long-term capital appreciation by investing predominantly in companies based in India directly and through its subsidiary. The investment policy permits making investments in a range of equity and equity linked securities of such companies. ICG Q Limited’s portfolio of investments is predominantly in listed mid cap and small cap Indian companies and did not hold any unlisted securities during the year ended 31 December 2019. While the principal focus is on investments in listed equity securities or equity-linked securities, ICG Q Limited has the flexibility to invest in bonds, convertibles and other type of securities.

 

The specific risks arising from the Company’s exposure to these instruments and the Investment Manager’s

policies for managing these risks, which have been applied throughout the year, are summarised below:

 

Capital management

The Company is a closed-ended investment company and thus has a fixed capital for investment. It has no

legal capital regulatory requirement. The Board has the power to purchase shares for cancellation thus reducing capital and the Board considers on a regular basis whether it is appropriate to exercise such powers. In the year ended 31 December 2019, the Board determined that it was inappropriate to exercise such powers, although continuation of these powers will be sought at the Annual General Meeting.

 

The Board also considers from time to time whether it may be appropriate to raise new capital by a further issue of shares. The raising of new capital would, however, be dependent on there being genuine market demand.

 

The Company directly holds 4 listed equity instruments, as well as an investment in ICG Q Limited, which holds an underlying portfolio of 32 listed equity instruments based in India. Below is an assessment of the various risks the Company may be exposed to via ICG Q Limited and its direct investments in listed equity instruments.

 

Market Risk

Market price risk arises mainly from the uncertainty about future prices of the investments in listed equity instruments and financial instruments held by ICG Q Limited. It represents the potential loss the Company and ICG Q Limited may suffer through holding market positions in the face of price movements.

 

The Company and ICG Q Limited’s investment portfolios are exposed to market price fluctuations which are monitored by the Investment Manager in pursuance of the investment objectives and policies and in adherence to the investment guidelines and the investment and borrowing powers set out in the Admission Document. ICG Q Limited’s investment portfolio is concentrated and, as at 31 December 2019, comprised investment in 32 companies. ICG Q Limited thus has higher exposure to market risk in relation to individual stocks than more broadly spread portfolios.

 

ICG Q Limited’s portfolio consists predominantly of mid cap and small cap listed Indian securities, and thus the effect of market movements is not closely correlated with the principal market index, the BSE Sensex. The BSE Mid Cap Total Return Index provides a better (but not ideal) indicator of the effect of market price risk on the portfolio. Assuming perfect correlation the sensitivity of the Company and ICG Q Limited to market price risk can be approximated by applying the percentage of funds invested (2019: 94.94%; 2018: 92.80%) to any movement in the BSE Mid Cap Total Return Index. At 31 December 2019, with all other variables held constant, this approximation would produce a movement in the net assets of the Company and ICG Q Limited of £18,904,000 (2018: £10,613,000) for a 20% (2018: 10%) movement in the index which would impact the Company via a fair value movement of the same magnitude in its holding in ICG Q Limited.

 

Foreign currency risk

Foreign currency arises mainly from the fair value or future cash flows of the financial instruments held by the Company and ICG Q Limited fluctuating because of changes in foreign exchange rates. ICG Q Limited’s portfolio comprises of predominantly Rupee denominated investments but reporting, and in particular the reported Net Asset Value, is denominated in Sterling. Any appreciation or depreciation in the Rupee would have an impact on the performance of the Company. The underlying currency risk in relation to ICG Q Limited’s investments is the Rupee. ICG Q Limited’s policy is not to hedge the Rupee exposure.

 

ICG Q Limited may enter into currency hedging transactions but appropriate mechanisms on acceptable terms are not expected to be readily available.

 

At 31 December 2019, if the Indian Rupee had strengthened or weakened by 10% (2018: 10%) against Sterling with all other variables held constant, pre-tax profit for the year would have been £9,923,000 (2018: £11,439,000) higher or lower, respectively, mainly as a result of foreign exchange gains or losses on translation of Indian Rupee denominated financial assets designated at fair value through profit or loss in ICG Q Limited and the consequent impact on the fair value of the Company’s investment in ICG Q Limited.

 

Credit risk

Credit risk arises mainly from an issuer or counterparty being unable to meet a commitment that it has entered into with ICG Q Limited and the Company. Credit risk in relation to securities transactions awaiting settlement is managed through the rules and procedures of the relevant stock exchanges. In particular settlements for transactions in listed securities are effected by the custodian on a delivery against payment or receipt against payment basis. Transactions in unlisted securities are effected against binding subscription agreements.

 

The principal credit risks for the Company are in relation to cash held by the custodian. Kotak Mahindra Bank Limited (“Kotak”) acts as the custodian to the Company and has a credit rating of AAA, as provided by CRISIL. The aggregate exposure to Kotak at 31 December 2019 was £5,182,000 (2018: £8,388,000).

 

Kotak acted as custodian of the Group’s assets during the period. The securities held by Kotak as custodian are held in trust and are registered in the name of ICG Q Limited.

 

Interest rate risk

Interest rate risk represents the uncertainty of investment return due to changes in the market rates of interest. The direct effect of movements in interest rates is not material as any surplus cash is predominantly in Indian Rupees, and foreign investors are not permitted to earn interest on Rupee balances.

 

Liquidity risk

Liquidity risk arises mainly from the Company and ICG Q Limited encountering difficulty in realising assets or otherwise raising funds to meet financial commitments. As the trading volume on the Indian stock markets is lower than that of more developed stock exchanges the Group may be invested in relatively illiquid securities. ICG Q Limited has no unlisted securities. ICG Q Limited’s focus is to invest predominantly in mid and small cap listed stocks. As noted in the Investment Manager’s Report, minimum liquidity criteria are utilised for new purchases. However there remain holdings where there is relatively little market liquidity, which may take time to realise. The Directors do not believe that the market is inactive enough to warrant a discount for liquidity risk on ICG Q Limited’s investments.

 

The Company and ICG Q Limited seek to maintain sufficient cash to meet its working capital requirements.

The Directors do not believe it to be appropriate to adjust the fair value of the Company’s investment in ICG Q Limited for liquidity risk, as it has the ability to effect a disposal of any investment in ICG Q Limited’s portfolio at the prevailing market price and the distribution of proceeds back to the Company should it so wish.

 

All liabilities are current and due on demand.

 

Taxation risk

Taxation risk arises mainly from the taxation of income and capital gains of ICG Q Limited and the Company

increasing as a result of changes in the tax regulations and practice in Guernsey, Mauritius and India. ICG Q Limited is registered with the Securities and Exchange Board of India (“SEBI”) as a foreign portfolio investor (“FPI”) with a Category II licence, holds a Category 1 Global Business Licence in Mauritius and has obtained a Mauritian Tax Residence Certificate (“TRC”) which have been factors in determining its resident status under the India-Mauritius Double Taxation Avoidance Agreement (“DTAA”) and General Anti Avoidance Rules (“GAAR”) under the Income Tax Act 1961 (“ITA”).

 

However, with effect from April 2017, the DTAA was amended such that the advantages of investing in India via Mauritius were removed and capital gains arising from investments in Indian companies are subject to Indian Capital Gains Tax regulations. Consequently, tax on short term capital gains (for investments held less than 12 months) of 15% and long-term capital gains (for investments held for 12 months or longer) of 10% will apply to the investment portfolio in future.

 

ICG Q Limited seeks to minimise the impact of these changes in the taxation rates applicable to its capital gains by maintaining its investment strategy of investing in a concentrated portfolio for long term capital appreciation. There is no capital gains tax accrual at 31 December 2019 (2018: Nil).

 

RELATED PARTY TRANSACTIONS AND MATERIAL CONTRACTS

 

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.

 

The Directors are responsible for the determination of the investment policy and have overall responsibility for the Company’s activities. Directors’ fees are disclosed in the unaudited Directors’ remuneration report. The Investment Manager is entitled to receive a management fee payable jointly by the Company and its subsidiaries equivalent to, effective 1 July 2019, 1.25 per cent per annum of the aggregate value of its assets less current liabilities, calculated and payable monthly in arrears. Management fee for the period from 1 January 2019 to 30 June 2019 was 1.5 per cent per annum of the Company’s Total Assets, calculated and payable monthly in arrears. The Investment Manager earned £1,472,000 in management fees during the year ended 31 December 2019 (2018: £1,815,000) of which £106,000 was outstanding at 31 December 2019 (2018: £146,000).

 

Under the terms of the Administration Agreement, Apex Fund and Corporate Services (Guernsey) Limited is entitled to a minimum annual fee of US$41,000 or a fee of 5 basis points of the NAV of the Company, whichever is greater. The Administrator is also entitled to reimbursement of all out of pocket expenses recoverable by way of a fixed disbursement charge of US$50 per month excluding all international calls and courier. The Administrator earned £43,000 for administration and secretarial services during the year ended 31 December 2019 (2018: £48,000) of which £16,300 was outstanding at 31 December 2019 (2018: £3,300).

 

CONTINGENT LIABILITIES

 

The Directors are not aware of any contingent liabilities as at 31 December 2019 and the date of approving these financial statements.

 

SUBSEQUENT EVENTS

 

Since the financial year-end, the global economy is grappling with a worldwide pandemic, an oil price war,

and unprecedented extreme volatility in capital markets. The situation is rapidly evolving on a daily basis and as such determining the likely near term impact on the Indian economy and the Company is a challenging task. The Company’s Net Asset Value and Share Price have fallen significantly since the year-end, and the discount widened. The Investment Manager continues to assess business fundamentals in India relative to the prices on offer in the Indian equity markets on an ongoing basis and expects the Indian economy to recover when this period of uncertainty passes.