Net Asset Value(s)

RNS Number : 4422X

India Capital Growth Fund Limited

06 December 2010

 



India Capital Growth Fund Limited

06 December 2010



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

30 November 2010 NAV Statement

Net Asset Values

The Company announces its net asset values per share as at 30 November 2010:

Net asset value per share - undiluted   72.15 pence

Net asset value per share - fully diluted   72.15 pence

Portfolio Update

Alongside mainstream equity markets globally, India's indices also fell in November. This was felt most keenly in the midcaps which corrected 6.5%. Against this the net asset value of the portfolio fell 5.6% in INR terms.  This was further compounded by weakness in the Rupee which fell 1% against sterling leaving the portfolio down 6.6% in sterling. Overall the portfolio outperformed the mid cap index by 0.9%.

The Indian domestic market mood turned negative abruptly mid-month as a number of political and business related scandals shook the market. This coincided with global sentiment once again switching from "risk-on" to "risk-off" as markets sweated over the Irish financial support package the implications for loftier European countries and the common currency as a whole.  The sentiment switch was caused by a sequence of negative news in the telecom and financial sectors which brought to light allegations of corruption and bribery at the highest level of Indian affairs. In the telecom sector it emerged that senior politicians had granted 2G spectrum licences to ineligible applicants at reduced prices back in 2005. In the financial space the Central Bureau of Investigation arrested several high ranking public sector banking employees for allegedly accepting illegal payments from financial intermediaries to facilitate loans to companies principally in the property and infrastructure sectors.  It appears that these are sporadic instances of employees acting for their own profit within their organisations rather than corruption at an institutional level.

On the basis of lower liquidity, poorer corporate governance and lower levels of transparency the mid cap stocks were punished harder than the main board, particularly in these sectors. The portfolio did not escape from the rout with Unitech Ltd, India Infoline Ltd and Arihant Foundations and Housing Ltd down 27%, 29% and 25% respectively. Of these Unitech's subsidiary Uninor, a telecom joint venture with Telenor of Norway is involved, but we believe the fall in the share price to have factored this in. The portfolio's exposure to the infrastructure sector was also affected although none of the companies in the portfolio is currently implicated. IVRCL fell 20% on the back of disappointing quarterly numbers and a raft of analysts' downgrades whilst Pratibha (down 17%) and Elecon (down 12%) fell in sympathy with the market and on thin volumes.  Exposure has been reduced here as it is likely that these matters may take time to unravel. In spite of these setbacks we are still positive on the investment case for these sectors of the economy and the portfolio remains exposed to sound companies which we believe have excellent prospects.

The negative attribution was offset by strong performance in the consumer discretionary, telecom and material sectors.  Portfolio heavyweight S Kumars Nationwide Limited finished up 8% for the month, whilst Bharti Airtel was up 10.6% and Rain Commodities closed up 6%. The cash weighting and the unlisted Marwadi Shares and Finance Limited also helped steady the portfolio.

Market Outlook.

On a positive note macro-economic data continued to reflect the strength of economic activity. In particular second quarter FY11 GDP registered 8.6% growth year on year comfortably beating market expectations and reflecting the strength of economic activity. Fears of an over- heating economy are likely to resurface as are inflationary concerns; however we remain confident that the Reserve Bank of India is not behind the curve and further rate rises are expected. Indeed in a world of excessive global liquidity and with many emerging economies whose monetary policies are effectively pegged to the United States, India stands out as a country that is able to set interest rates independently of the US and at a level required to suit domestic economic conditions. This may not considered relevant today but in due course could well become highly significant. A tactical switch out of India has already occurred but while the era of easy global liquidity remains, provided Indian GDP growth continues to surprise on the upside and clean corporates deliver on earnings, then the switch will remain tactical.

Analysis of holdings at 30 November 2010

Sector Summary	No. of Companies	% of Portfolio
Financials	12	28.7%
Industrials	9	16.0%
Consumer Discretionary	2	15.6%
Health Care	3	10.4%
Materials	5	10.0%
Telecom Services	2	4.9%
Energy	1	2.1%
Consumer Staples	1	2.1%
IT	2	1.8%
Total Equity Investment	37	91.6%
Net Cash		8.4%
Total Portfolio		100.0%

Top 10 equity holdings at 30 November 2010

Holding	Sector	% of Portfolio
Marwadi Shares and Finance	Financials	8.3%
Prime Focus	Consumer Discretionary	7.8%
S. Kumars Nationwide	Consumer Discretionary	7.8%
Bilcare	Health Care	5.8%
United Phosphorus	Materials	4.3%
Jyoti Structures	Industrials	2.8%
Bharti Airtel	Telecom Services	2.8%
Federal Bank	Financials	2.6%
Opto Circuits	Health Care	2.5%
Shriram Transport Finance	Financials	2.5%

Portfolio breakdown by size at 30 November 2010  

Size	No. of Companies	% of Portfolio
Small Cap  (M/Cap <INR 15bn)	11	30.4%
Mid Cap (INR 15bn <M/Cap<INR 100bn)	16	37.5%
Large Cap (M/Cap > INR 100bn)	7	15.4%
Unlisted	3*	8.3%
Cash/Cash Equivalent		8.4%
Total	37	100.0%

* including one arising from a demerger, pending listing.

 

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