Interim Results

India Capital Growth Fund Limited
12 September 2006




INDIA CAPITAL GROWTH FUND LIMITED
CHAIRMAN'S REPORT


Introduction


This is my first communication to shareholders since the listing of India
Capital Growth Fund in December of last year, and I would like to take this
opportunity to welcome all shareholders to the Company.


Activity


These are early days for the Fund, and the volatility of both equity and
currency markets have made the first six months of 2006 a difficult period, with
the net asset value per share declining by 13.6% since launch. During the same
period the BSE Sensex has risen on a sterling adjusted basis by 5.9% and the BSE
Small Cap Index has fallen on a sterling adjusted basis by 14.6%.


Our perception that the market was trading at excessive valuations made us
cautious investors in the first quarter, so we did not participate in the
initial bull run in the large cap sector of the market. Subsequently the
portfolio was marked down heavily by the market in the sell off in small caps
after 10 May 2006. We had also taken an early position in the banking sector,
which turned out to be a call against the market, and have seen significant
falls in the value of these investments, both absolute as well as in Sterling
terms.

On the positive side we have built up significant shareholdings in a range of
companies that we believe will deliver above average returns over the medium
term. The portfolio is broadly spread and offers exposure both to the growing
domestic market as well as to India's increasing share of international trade.


Outlook


While the market, especially for small and mid cap companies has gone through an
extremely difficult phase, we have concentrated on investing in companies that
in our opinion have strong management, good growth prospects and strong returns
on invested capital, and where we can invest at reasonable prices. We are
confident about the future prospects for the Indian economy and believe that our
portfolio will deliver exciting returns to the Fund.


The recent correction has offered us the opportunity to further invest at
attractive prices; we will continue to consolidate stakes in present small and
mid caps and add further listed and unlisted companies to the portfolio, and
cautiously to deploy liquidity in large cap stocks as these present themselves.


As stated in the Admission Document we expect to be predominantly invested in
listed or unlisted small and mid cap companies by the end of the year.


Extraordinary General Meeting


You will note that the Company has called an Extraordinary General Meeting in
order to cancel the share premium account, which was established when the fund
was initially launched, but is not required for the continued operation of the
Company. There is a requirement under Guernsey law to obtain shareholder
approval to cancel the account and I would therefore request on behalf of the
Company that you complete the enclosed proxy form and vote in favour of the
proposed resolution.


Micky Ingall
Chairman

12 September 2006


INVESTMENT MANAGER'S REPORT


Investment Strategy


The India Capital Growth Fund was launched to offer investors the opportunity of
long term capital appreciation through investing in Indian securities. While the
focus is on small and mid cap listed companies, the Fund can invest in unlisted
and in larger cap equities that offer the prospect of long term growth.


The Company was listed on 22 December 2005 and made its first investment on 4
January 2006.


In the period to 30 June 2006 we have closely followed the investment strategy
as stated in the Admission Document. In particular:


Investing for long term capital appreciation with a focus on small and mid cap
Indian companies:


'The Company's investment objective is to provide long-term capital appreciation
by investing predominantly in listed small to mid cap Indian companies with a
smaller proportion in unlisted Indian companies. Investment may also be made in
large cap listed Indian companies... where the Fund Manager believes long-term
capital appreciation will be achieved.'; and


Building up the portfolio steadily and holding cash pending long term
investments:


'The Fund Manager will follow an absolute return focus to investing rather than
'relative-performance' stock picking. While selecting target companies across
the Indian Market which the Fund Manager considers have potential to appreciate
in value without undue risks, the Company may hold liquid assets (including
cash) pending deployment in suitable investments.'; and


Investing through a bottom up evaluation of companies rather than using top down
sectoral limits:


'Investment evaluation and selection strategy will involve a disciplined
approach to investing by carrying out detailed and careful studies of
opportunities on a case by case basis in companies which the Fund Manager
believes have the potential for growth.'


Our aim is to build up a portfolio of companies that will outperform based on
their management strengths and business profile. Over time we anticipate holding
a portfolio of some 20 - 30 investments, each of a significant size, in
companies across a broad range of industries, where we see the prospects of
above average returns that translate into significant capital appreciation for
shareholders.


The Market Environment


The Indian stock market overall continued its 2005 bull run well into 2006, with
the broad market index, the BSE Sensex, rising some 34% from 1 January 2006 to
its peak on 10 May 2006, when it corrected sharply, in line with global market
sentiment. Large cap stocks recovered from this correction and the BSE Sensex
ended the half year showing a 13% gain over the period.


The picture for small cap stocks was somewhat different. A late rise in April
was followed by heavy falls in May and June, with the BSE Small Cap Index down
by a net 10% since 1 January.


In January 2006 the BSE Sensex was trading at an average PE of around 18 times,
which we already considered demanding. Nevertheless, foreign and domestic
investors invested around US$ 4.9 billion net into the Indian stock market
between 1 January 2006 and 10 May 2006, pushing the BSE Sensex average PE to 22
at its peak. The subsequent correction reduced this to 19.4 as at 30 June 2006.
Despite the strong earnings growth reported by companies for the first quarter,
the market overall remains in our view expensive and we continue to believe that
small caps, trading at significantly lower multiples, offer better value for
long term investors.


The Company follows a declared policy of not hedging Rupee based investments
against Sterling and the depreciation of the Indian Rupee (INR) against Sterling
(GBP) during the first six months of 2006 has had a further major impact on the
Company's performance. For the first three months of the year the INR/GBP rate
remained within the range -1.9% to + 0.9% of its rate on 2 January 2006 (as
measured by the Reserve Bank of India Reference Rates). However, between 31
March 2006 and 31 May 2006 the Rupee depreciated by over 12% against Sterling,
and while it came back somewhat in June, it ended the period some 8.95% below
its 2 January 2006 value. The fact that the Fund was not fully invested and has
been holding cash in Sterling has mitigated the effect of the currency movement,
but Sterling's continued strength into the second half of the year continues to
affect adversely the value of the portfolio.


The Invested Portfolio


As at 30 June 2006, 47% of the portfolio was invested in the core small and mid
cap listed segment, with 19% in large cap stocks and the balance in cash in
Sterling.


Through the recent bull and bear market phases we have focused on our bottom up
approach and have steadily bought into target companies where we believe there
is a difference between our fundamentals based valuations and current market
perceptions.


We have used a variety of structures to invest into our target companies, both
in terms of instruments (GDRs, convertible debentures) and purchasing method
(IPOs, secondary market purchases and preferential issues). In many cases we
have negotiated and structured investment opportunities directly with promoters
and vendors to achieve the desired size of holding in otherwise illiquid stocks.
Secondary market purchases have inevitably been gradual in order to seek to
minimize the buying pressure on stocks with limited liquidity.


The Small and Mid Cap Portfolio


As at 30 June 2006 the Portfolio contained 29 small and mid cap investments
making up 46.9% of the total by value.


Table 1: Top 5 small and mid cap investments as at 30 June 2006

Holding                             Sector          % of Portfolio % of Company

Varun Shipping Company Limited      Shipping                 3.4%          2.3%
Mahindra Ugine Steel Company        Auto Components          3.2%          4.0%
Limited
Mawana Sugars Limited               Sugar                    3.0%          4.7%
JSW Steel Limited                   Steel                    2.9%          0.4%
Kirloskar Ferrous Industries        Auto Components          2.6%          4.5%
Limited


Our aim is to hold between 5% and 15% of the equity of small cap investee
companies. As a significant shareholder we are able to develop a close dialogue
with management, which gives us considerable comfort in the investment process
and ongoing monitoring of investee companies. Where practical we will assist
management in meeting challenges such as raising capital or acquisitions.


Where it is not possible to build meaningful stakes of an appropriate size
within our price parameters in target companies we have divested our
shareholding.


Principal small and mid cap holdings (with data as at 30 June 2006)


Varun Shipping Company Limited

Valuation: GBP 2.1Mn 3.4% of portfolio; 2.3 % of company


The Company is the largest Indian carrier (76% share) and second largest
globally (18% share) in the mid-sized Liquified Petroleum Gas (LPG)
semi-refrigerated shipping segment. The Company has a market cap of INR 7,870 Mn
(GBP 93 Mn) and is currently trading at a P/E of 4.6 times (trailing twelve
months). In the financial year 2006, the Company registered turnover growth of
65% and net profit growth of 122%. Stable freight rates and its attractive
position in the Indian LPG market will drive its future growth.


Mahindra Ugine Steel Company Limited

Valuation: GBP 2.0Mn 3.2% of portfolio; 4.0% of company


The Company manufactures tool, alloy and special steels for auto and
auto-component companies. The Company's current market cap is INR 4,366 Mn (GBP
52 Mn) and is currently trading at a P/E of 6.51 times (trailing twelve months).
In the financial year 2006, the Company registered a turnover growth of 18% and
net profit growth of 35%. The Mahindra & Mahindra Group, a major tractor and
auto-component company, is the major shareholder and Mahindra Ugine is expected
to play an important role in the Group's rapid growth in auto-components.


Mawana Sugars Limited

Valuation: GBP 1.9Mn; 3.2% of portfolio; 4.7% of company


The Company manufactures sugar. It has a current installed capacity of 21,000
Tonnes Crushed per Day (TCD) and expanding its capacity to 29,500 TCD from the
next sugar season (October 2006 to March 2007). The Company's current market cap
is INR 3,456 Mn (GBP 41 Mn) and is trading at a P/E of 10.3 times (trailing
twelve months). In the financial year September 2005 (the financial year for the
Company ends 30 September each year) the Company registered a turnover growth of
46% and net profit growth of 864%. The Company has build capacity for
manufacturing Ethanol and Power through cogeneration which are both expected to
further improve the Company's revenues.


JSW Steel Limited

Valuation: GBP 1.9Mn; 2.9% of portfolio; 0.4% of company


JSW Steel is a fully integrated carbon steel manufacturer. The Company's current
market cap is INR 40,456 Mn (GBP 479 Mn) and is currently trading at a P/E of
5.23 times (trailing twelve months). The Company has concentrated on
manufacturing value added steel and is increasing its steel production capacity
from 2.5 to 6.8 million tonnes per annum.


Kirloskar Ferrous Industries Limited

Valuation: GBP 1.7Mn; 2.6% of portfolio; 4.5 % of company


The Company manufactures castings serving to the automotive sector and has a pig
iron plant. It has a market cap of INR 3,142 Mn (GBP 37 Mn) and is trading at a
P/E of 11.54 times (trailing twelve months). In the financial year 2006, the
Company registered a net profit growth of 19.5%. The Company recently purchased
the castings division of Kirloskar Oil Engines (another Kirloskar Group company)
at an attractive price thus augmenting capacity and its ability to move into
machined components, an area that is expected to drive value-added growth in the
future.


Unlisted Investment


The only unlisted investment held at 30 June was a holding of warrants to
subscribe for Ordinary Shares in Viceroy Hotels, a listed company, which were
acquired as part of a preferential issue in which we also subscribed for listed
Ordinary Shares. No investments had been made in unlisted companies at 30 June
2006, although the first such investment was completed shortly after the period
end.


Large Cap Investments


During the first six months we invested in 7 large cap stocks.


These include three large cap banks (making up in total 9.6% of portfolio),
which along with the banking sector as a whole have significantly
under-performed the market despite trading at an average Price to Book ratio of
0.87 (as at 30 June 2006). We continue to believe that the banking sector offers
an attractive exposure to the growing domestic economy and that the prospects
for the banking sector (low NPAs and continued corporate and retail lending
growth) remain sound.


Two other large cap investments made during the first quarter of this year are
Infosys Technologies Limited (5.7% of the portfolio) and Hindalco Industries
Limited (3.4% of the portfolio). Both these companies have strong fundamentals
and the investment was at prices that it is believed offer attractive upside.
Our intention is to reduce our holdings in these companies as funds are deployed
into the core small and mid cap portfolio.


The balance of large cap stocks were sold prior to 30 June 2006.

Sectoral Risk Controls


While our investment selection is primarily based on bottom up analysis, the
exposure of the portfolio to any one sector is regularly monitored. Table 2
shows the range of sectors represented in the portfolio:


Table 2: Sectoral analysis of portfolio as at 30 June 2006

Sector                                              % Total Net Assets

Cash                                                       34.4%
Banks                                                       9.6%
Engineering / Other Manufacturing                           8.1%
IT                                                          6.2%
Auto Components                                             5.8%
Housing & Construction                                      5.0%
Steel / Iron Ore                                            4.9%
Textiles                                                    3.9%
Shipping                                                    3.4%
Non Ferrous Metals                                          3.4%
Sugar                                                       3.0%
Cement                                                      2.4%
Electricals / Lighting Systems                              2.4%
Agro Chemicals                                              2.3%
Airlines                                                    1.9%
Hotels                                                      1.4%
Housing Finance                                             1.2%
Other                                                       0.7%


Outlook


Since 30 June our primary focus has been a continued build up of stakes in our
core small cap companies. We have also selectively added new investee companies,
including, as noted above, an investment in one unlisted company. Companies have
reported good quarterly results; the monsoon has been just sufficient; and with
the economy remaining strong we believe the outlook for the near future is
positive.


India Investment Partners Limited

12 September 2006




PRINCIPAL GROUP INVESTMENTS
AS AT 30 JUNE 2006

Holding                              Type      Sector           Value          % of
                                                                £000's    Portfolio

Infosys Technologies Limited      Large Cap     IT              3,614        5.7%

Industrial Development Bank
of India Limited                  Large Cap     Banking         3,421        5.4%

Hindalco Industries               Large Cap     Non ferrous     2,155        3.4%
                                                metals

Varun Shipping Company Limited    Small Cap     Shipping        2,139        3.4%

Mahindra Ugine Steel Company
Limited                           Small Cap     Auto components 2,039        3.2%

Mawana Sugars Limited             Small Cap     Sugar           1,911        3.0%

JSW Steel Limited                 Mid Cap       Steel           1,865        2.9%

Kirloskar Ferrous Industries
Limited                           Small Cap     Auto components 1,659        2.6%

Bank of India                     Large Cap     Banking         1,647        2.6%

Madras Cements Limited            Mid Cap       Cement          1,540        2.4%
                                                              -------      --------

Total top 10 investments                                       21,990       34.6%
Other Large Cap (1 company)                                     1,025        1.6%
Other Small and Mid Cap (23
companies)                                                     18,651       29.4%
                                                               -------     --------
Total invested assets                                          41,666       65.6%
Cash and other net current
assets                                                         21,857       34.4%
                                                              -------     --------
Total Portfolio                                               63,523       100.0%
                                                              -------     --------



UNAUDITED CONSOLIDATED INCOME STATEMENT
FOR THE PERIOD FROM 11 NOVEMBER 2005 TO 30 JUNE 2006

                                                  Revenue  Capital       Total
                                                    £000       £000       £000
Income
Fixed deposit interest                               655          -        655
Bank interest income                                 395          -        395
Investment income                                    281          -        281
                                                   1,331          -      1,331

Net losses on financial assets at fair value
through profit or loss
Market movements                                       -     (8,184)    (8,184)
Foreign exchange movements                             -     (2,116)    (2,116)
Total income                                       1,331    (10,300)    (8,969)

Expenses
Management fee                                      (560)         -       (560)
Cost of acquisitions and disposal of investments       -       (244)      (244)
Other expenses                                      (315)         -       (315)
Total expenses                                      (875)      (244)    (1,119)

Profit/(loss) for the period before taxation         456    (10,544)   (10,088)
Taxation                                             (10)         -        (10)

Profit/(loss) for the period after taxation          446    (10,544)   (10,098)

Earnings per Ordinary Share - Basic (pence)         0.59     (14.06)    (13.46)


The total column of this statement represents the Group's Income Statement,
prepared in accordance with IFRS. The supplementary revenue and capital columns
are both prepared under guidance published by the Association of Investment
Trust Companies.


All the items in the above statement derive from continuing operations.



UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD FROM 11 NOVEMBER 2005 TO 30 JUNE

                   Share    Share     Capital Reserve        Revenue
                   Capital  Premium   Realised  Unrealised   Reserve    Total
                     £000      £000      £000         £000     £000      £000
Gain on
realisation of
investments             -         -       281            -        -       281

Unrealised loss
on investments          -         -         -       (8,465)       -    (8,465)

Total recognised
income and
expense for the
period
(excluding
foreign exchange
losses)                 -         -       (48)        (196)     446       202

Realised losses
on foreign
currency                -         -      (112)           -        -      (112)

Unrealised
losses on

foreign currency        -         -         -       (2,004)       -    (2,004)

Issue of shares       750    74,250         -            -        -    75,000

Issue costs

relating to the
issue of shares         -    (1,379)        -            -        -    (1,379)
                    -------   -------   -------     --------  -------   -------
Balance as at 30
June 2006             750    72,871       121      (10,665)     446    63,523
                    -------   -------   -------     --------  -------   -------




UNAUDITED CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
AS AT 30 JUNE 2006

                                                           £000           £000
Non-current assets
Financial assets at fair value through profit or loss                   41,666

Current assets
Cash and cash equivalents                                22,128
Receivables                                                 237
                                                         22,365

Current liabilities
Payables                                                   (508)

Net current assets                                                      21,857
Total assets less current liabilities                                   63,523

EQUITY
Ordinary share capital                                                     750
Share premium                                                           72,871
Reserves                                                               (10,098)
Total equity                                                            63,523

Number of Ordinary Shares in issue                                  75,000,000

Net Asset Value per Ordinary Share (pence)                               84.70




UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
FOR THE PERIOD FROM 11 NOVEMBER 2005 TO 30 JUNE 2006

                                                                          £000
Cashflows from operating activities
Investment income received                                                  54
Fixed deposit interest                                                     655
Bank interest received                                                     388
Investment management fee paid                                            (481)
Other cash payments                                                       (382)
Net cash inflow from operating activities                                  234

Cashflows from investing activities
Purchase of investments                                                (57,753)
Sale of investments                                                      6,068
Net cash outflow from investing activities                             (51,685)

Cashflows from financing activities
Proceeds from issue of shares                                           75,000
Issue costs                                                             (1,371)
Net cash inflow from financing activities                               73,629

Net increase in cash and cash equivalents during the period             22,178

Cash and cash equivalents at the beginning of the period                     -
Exchange losses on cash and cash equivalents                               (50)

Cash and cash equivalents at the end of the period                      22,128



The full unaudited interim report and consolidated financial statements for the
period 11 November 2006 to 30 June 2006 will shortly be despatched to
shareholders and will also be available on the company web-site
www.indiacapitalgrowth.com



                      This information is provided by RNS
            The company news service from the London Stock Exchange