Net Asset Value(s)
India Capital Growth Fund Limited
04 March 2011
India Capital Growth Fund Limited (the "Company" or "ICGF")
28 February 2011 NAV Statement
Net Asset Values
The Company announces its net asset values per share as at 28 February 2011:
Net asset value per share - undiluted: 56.00 pence
Net asset value per share - fully diluted: 56.00 pence
Portfolio Update
Fund Performance
The recent poor price performance of Indian equities continued in February with the BSE Sensex index falling 2.7% for the month. The mid cap index continued to underperform the larger grouping, falling by 7.2% for the month. Against this backdrop, the Company's NAV fell 7%, in line with its nominal benchmark. If any positive observations can be made from this data it is that in absolute terms the intensity of the correction has eased, as has the relative underperformance of India versus its Asian peer group. The weakness of the Rupee against Sterling also slowed, falling 0.2% in February, compared to a 5.4% fall in January. Amidst a sea of negative news predominately focused on the risk to the health of the Indian economy from of a sudden spike in crude oil prices, the Finance Minister announced a non-contentious Budget for fiscal year 2012. This was a significant hurdle to cross in a fraught political environment and so low were the expectations that the market took the news well.
The performance of the portfolio against this backdrop was frustrating. The combined weight of the fund's exposure to cash and unlisted securities is close to 17% and this provides valuable protection in uncertain markets such as these. It is disappointing therefore that the benefit of this protection was entirely eroded by the continued poor performance of two stocks in the portfolio S. Kumars Nationwide Limited (SKNL) and Prime Focus, which fell 16% and 20% respectively. In the case of SKNL the market is currently pricing into the stock the fact that the key short term catalyst, namely the IPO of its subsidiary Reid and Taylor, is unlikely to happen with the market environment as it is. Since the beginning of 2010 to date the stock has outperformed the mid cap benchmark by 33%. Into this strength the fund's exposure has been reduced from 10.6% average weight in 2010 to 6.4% average weight in 2011 to date. The operating outlook and recent quarterly numbers both look decent and the stock's valuations are looking extremely attractive again on 3x next year's earnings (based on our estimates) for a growth in earnings of 40%. Nevertheless until confidence in the timing of the listing of the subsidiary returns, we see little chance of a re-rating. We have thus trimmed the exposure further, whilst continuing to maintain a core position.
In the case of Prime Focus the stock has fallen on low volumes and we see this as a consequence of retail activity in the market driving the stock lower on broader macro concerns. Our regular dialogues with the management continue to reassure us that the operating outlook is developing very positively and we are confident that this will be reflected in the market in due course. The stock trades on a price to forward earnings of 6x for growth of 40% and the weighting here remains unchanged at 6.5%
Elsewhere the portfolio's performance was satisfactory - outperforming the notional benchmark in energy, financials, telecoms, materials and utilities, while performing in line in industrials and consumer staples. Outside consumer discretionary, which, as described above, was responsible for the bulk of the under -performance, the portfolio disappointed in IT and healthcare.
Outlook
For the moment "it is all about oil", as India's macro economy remains vulnerable to rising crude prices, and this is well understood by the market. With the combined pressure of quantitative easing in the US and geo political concerns in the Middle East, oil is likely to remain "well bid". The price rise needed before there is a meaningful impact on the global economy is debatable, however the effect on India is more transparent. With that in mind we continue to remain cautious, particularly as mid cap stocks are likely remain under more pressure.
There is some comfort from the positive operating data coming through from the recently reported third quarter results. Aggregating the numbers across the mid cap space, rising interest and depreciation costs are pointing to a recovery in investment, while staff costs are also rising, indicating an increase in hiring and in wages. As well as off-setting fears that inflation pressure will lead to slower consumption, improving operating margins on a quarterly basis indicate that these cost increases are broadly being passed on. Bloomberg consensus estimates indicate a forward PE ratio (FY2012) of 9.7 for the BSE Midcap with expected earnings growth of 25%. This rating is at a 30% discount to that for the BSE Sensex, for which the projected earnings growth is lower at 19%. When the glass starts to look half full as opposed to half empty the market should find these numbers very compelling.
Analysis of holdings at 28 February 2011
|
Sector Summary |
No. of Companies |
% of Portfolio |
|
Financials |
12 |
33.3% |
|
Industrials |
8 |
14.9% |
|
Consumer Discretionary |
2 |
12.4% |
|
Materials |
4 |
10.6% |
|
Health Care |
3 |
8.9% |
|
Telecom Services |
2 |
5.3% |
|
Energy |
1 |
2.9% |
|
IT |
2 |
2.3% |
|
Consumer Staples |
1 |
2.1% |
|
Total Equity Investment |
35 |
92.7% |
|
Net Cash |
|
7.3% |
|
Total Portfolio |
|
100.0% |
Top 10 equity holdings at 28 February 2011
|
Holding |
Sector |
% of Portfolio |
|
|
Marwadi Shares and Finance |
Financials |
10.5% |
|
|
Prime Focus |
Consumer Discretionary |
6.5% |
|
|
S. Kumars Nationwide |
Consumer Discretionary |
5.9% |
|
|
Bilcare |
Health Care |
5.0% |
|
|
United Phosphorus |
Materials |
4.0% |
|
|
Bharti Airtel |
Telecom Services |
3.3% |
|
|
Indian Bank |
Financials |
2.9% |
|
|
Shriram Transport Finance |
Financials |
2.9% |
|
|
Cairn India |
Energy |
2.9% |
|
|
Opto Circuits |
Health Care |
2.8% |
|
Portfolio breakdown by size at 28 February 2011
|
Size |
No. of Companies |
% of Portfolio |
|
Small Cap (M/Cap <INR 15bn) |
15 |
39.5% |
|
Mid Cap (INR 15bn <M/Cap<INR 100bn) |
13 |
29.2% |
|
Large Cap (M/Cap > INR 100bn) |
5 |
13.5% |
|
Unlisted |
2 |
10.5% |
|
Cash/Cash Equivalent |
|
7.3% |
|
Total |
35 |
100.0% |
This information is provided by RNS