Net Asset Value(s)

RNS Number : 0431N

India Capital Growth Fund Limited

03 June 2010

 



India Capital Growth Fund Limited

03 June 2010



India Capital Growth Fund Limited (the "Company" or "ICGF")

31 May 2010 NAV Statement

Net Asset Values

The Company announces its net asset values per share as at 31 May 2010:

Net asset value per share - undiluted                          69.28 p

Net asset value per share - fully diluted                      69.28 p

Portfolio Update.

The net asset value per share fell 4.9% in May whilst the underlying NAV in local currency terms fell 6.3%, as once again the weakness in Sterling helped to offset the collapse in share prices.  The BSE Midcap index fell 4.9% underperforming the main board by 1.5%. On the back of rising risk aversion prompted by events in Europe, foreign institutional investor flows turned negative in May to the tune of USD 2.2bn, reversing approximately one third of the inflows the market has enjoyed since the start of the year. Some cash had been raised in the portfolio in expectation of weaker markets at the start of the month but in these instances it is never enough. Furthermore, until the restructuring is complete, the portfolio remains somewhat hostage to the movements of a few key stocks.  Bilcare (weight 6.9%), Prime Focus (weight 4.5%) and Varun Shipping (weight 4.1%) fell 14.6%, 14.0% and 12.1% respectively in the month. The concentration risk in less liquid names has been substantially reduced but there is still more to do. Given the enormous uncertainty that pervades financial markets currently we feel the need to up the pressure here somewhat. Of course, the concentration risk works in our favour on the upside, as has been the case with the portfolio's largest holding S Kumars Nationwide Limited in recent months. Although the stock fell 1.1% in May it continues to outperform the BSE midcap market (down 4.9%), and it is reassuring that after such a strong run (up 68% ytd) it held up so well in the recent sell off.  The largest contributors to positive performance this month came from new entrants United Phosphorus (up 7%), a manufacturer of off-patent agro-chemicals, Pratibha Industries (up 2.7%), a mid cap engineering and construction company and Jubilant Life Sciences (up 1.4%) a custom research and manufacturer of pharmaceuticals for the global innovators. Elsewhere the Company suffered from its exposure to the materials sector through Sterlite (down 20%), and to property via Arihant Foundations (down 23.3%).

Outlook

There is no doubt that India's future prospects would be adversely affected by downward revisions to global growth prompted by events in Southern Europe and/or slower growth in China - although less so than many other export dependant emerging market economies. India is reliant on foreign capital to fund its growth and global turmoil causes disruption to the cost and availability of these flows. In reality though, the outflows witnessed in May are more to do with a flight to the relative safety of US Treasuries and gold in particular from a market that has performed well, and hence we remain for the time being "firmly coupled". This is the key spoiler in our story as Indian equities are still perceived as risky assets.  What must not be ignored or forgotten as a result of the current mayhem is that in May alone Areva made an open offer to shareholders of their Indian subsidiary worth approximately USD 300m at a 22% premium to the prevailing market price. The offer took place as a consequence of the Schneider Electric and Alstom's bid to buy Areva's transmission and distribution assets. In addition Asea Brown Boveri made an open offer to buy 22.9% in the Indian subsidiary ABB India Ltd to take their holding to 75% at a premium to the market close of 34%, an investment of close to USD 1bn. More positive news from the fiscal perspective came from India's 3G auctions which concluded this month. Auction receipts, budgeted at USD 8bn, came in at closer to USD 15bn with a further USD 2bn expected from additional spectrum costs in the 2G space.  We are hopeful that the recent fall in crude oil to below USD 70 a barrel has given an opportunity to the Government to cut its oil subsidy bill by raising the domestic price of motor fuel and kerosene. Fourth quarter GDP growth came in in line with estimates at 8.6% whilst the Indian Government officially upgraded full year GDP growth for 2010 to 7.4%. A further key point in the GDP data was the 17.7% increase in fixed capital investment on a quarter on quarter basis. These are not only extremely encouraging signs from both the private and the public sector, but also make a significant difference to the Indian coffers.

Although India's direct exposure to Southern Europe is minimal, the Indian stock market in the near term will be as much a bet on Western GDP growth as on India's current economic virility.  But given the strong positive correlation between India's Index of Industrial production ("IIP") and the stock market over the last four years and the expectation of strong  IIP growth this year and next, any further sell offs as a result of European issues will be a another great buying opportunity.

Analysis of holdings at 31 May 2010

Sector Summary	No. of Companies	% of Portfolio
Industrials	9	24.9%
Financials	7	20.6%
Consumer Discretionary	3	15.6%
Health Care	2	9.4%
Materials	2	5.7%
Telecom Services	1	3.2%
Energy	1	2.1%
IT	3	1.8%
Total Investment	28	83.3%
Net Cash and Debt Mutual Funds		16.7%
Total Portfolio		100.0%

Top 10 equity holdings at 31 May 2010

Holding	Sector	% of Portfolio
S. Kumars Nationwide	Consumer Discretionary	10.4%
Marwadi Shares and Finance	Financials	9.2%
Bilcare	Health Care	6.9%
Prime Focus	Consumer Discretionary	4.5%
Varun Shipping Co	Industrials	4.1%
Jain Irrigation	Industrials	4.1%
IVRCL	Industrials	3.4%
United Phosphorus	Materials	3.3%
Bharti Airtel	Telecom Services	3.2%
Spicejet	Industrials	3.1%

Portfolio breakdown by size at 31 May 2010  

Size	No. of Companies	% of Portfolio
Small Cap	12	30.3%
Mid Cap	4	19.1%
Large Cap	10	24.7%
Unlisted	2	9.2%
Cash/Cash Equivalent		16.7%
Total	28	100.0%

 

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