Net Asset Value(s)

RNS Number : 0447I

India Capital Growth Fund Limited

03 March 2010

 



India Capital Growth Fund Limited

03 March 2010

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

28 February 2010 NAV Statement

Net Asset Values

The Company announces its net asset values per share as at 28 February 2010:

Net asset value per share - undiluted                           60.07p

Net asset value per share - fully diluted                       60.07p

Portfolio Update

In February the Net Asset Value per share rose 2.9%. The Company benefitted from the strength of the Indian Rupee which rallied 5.5% against Sterling over the period. The performance of the underlying portfolio was a little disappointing particularly given the high levels of cash. The main cause of the negative attribution arose from two stocks. ICSA (India) Limited (5.7% weight, down 18%), a company that produces software to monitor transmission and distribution losses in the power sector. It has fallen 26% year to date. This stock is (or at least was) well owned by foreign investors and analysts continue to cut the company's earnings forecasts due to an ongoing slowdown in new order growth and uncertainty over the company's ability to maintain superior margins. We believe these fears are overdone; we expect new orders to pick up in the next one to two quarters which should be a catalyst for better performance.  In the results for the quarter to 31 December 2009 Prime Focus (6.3% weight, down 12%) reported margin pressure in its domestic business as competition intensified. This is a concern (and a surprise) to us and the international business has not yet stabilised sufficiently to absorb weakness on the home front. We have a meeting planned with the company imminently and we will reassess on our return. Elsewhere the portfolio performed adequately with new entrants Jain Irrigation rallying 15% and Hindustan Dorr Oliver continuing to perform well rising 5% for the month.  The strong performance of the shares in Spice Jet has been used as an opportunity to reduce our holding ahead of anticipated further equity dilution. The Company continues to add to new positions, in particular Yes Bank and Sobha Developers.

Outlook.

From a market perspective uncertainty in February was reflected by low volumes and a lack of clear direction as concerns over tighter global liquidity and Greek woes dominated investors' minds. Inflation surprised on the upside with wholesale prices up 8.6% year-on-year to 31 January, higher than the 8.2% consensus forecast. Noticeably it was driven less by food and more by manufactured products, machinery and textiles in particular, as well as fuel. It reinforces our view that the economy is showing clear signs of ongoing recovery as further indicated by Industrial Production up 16.8% (yoy in December), bank credit to the non food sector up by an annualised 15% in the first half of February , and strong auto and cement sales. Inflation may continue to dominate the headlines for some months to come but our sense is that with a strong winter cereal crop, some operating slack still in the economy and a sensible if unadventurous budget, bond yields should not move much higher than here.  Although on a tightening path, there should be no surprises from the Reserve Bank of India on monetary policy at least for the time being.

A recently published broker survey covering Small and Medium size companies (SMEs) conducted in late 2009 highlighted some positive trends which are worth noting. In particular order flow from the domestic market continues to improve, export orders are showing signs of stabilisation and 81% of respondents expect further improvement in their order flow over the next six months. SMEs continued to defer capital investment plans, but with rising utilisation levels and a better outlook we are expecting this to change. Crucially too we are hearing from both companies and banks that financing for expansion and working capital needs is back "on the anvil" again.

The recent portfolio addition, Yes Bank, is expected to be a major beneficiary of this increase in demand for credit from the SME sector, as they look to gain market share from their larger rivals.  Margins for the SME's however may come under some pressure as they experience rising labour costs and raw material price pressure, not all of which they will be able to pass on.

No negatives in the budget was a reason for optimism, and although this budget  went some way to addressing the key issue of the reducing the fiscal deficit whilst remaining supportive of growth, our feeling was it could have been more opportunistic. In that sense there were no surprises.

03 March 2010

Analysis of holdings at 28 February 2010

Sector Summary	No. of Companies	% of Portfolio
Textiles	2	15.3%
Financial Services	2	12.1%
Engineering / Manufacturing	3	10.9%
Transport	2	10.8%
Pharma	1	8.2%
Housing & Construction	3	7.7%
Media	2	7.6%
Metals	1	2.1%
Telecom	1	2.0%
Consumer Discretionary	1	1.0%
IT	2	0.8%
Total Investment	20	78.5%
Net Cash and Debt Mutual Funds		21.5%
Total Portfolio		100.0%

Top 10 equity holdings at 28 February 2010

Holding	Sector	% of Portfolio
S. Kumars Nationwide	Textiles	13.4%
Marwadi Shares and Finance	Financial Services	10.1%
Bilcare	Pharmaceuticals	8.2%
Prime Focus	Media	6.3%
Varun Shipping Co	Shipping	6.2%
ICSA India	Engineering / Manufacturing	5.7%
Spicejet	Airlines	4.6%
Hindustan Dorr-Oliver	Engineering / Manufacturing	3.1%
MSK Projects India	Housing and Construction	2.9%
Arihant Foundations & Housing	Housing and Construction	2.8%

Portfolio breakdown by size at 28 February 2010  

Size	No. of Companies	% of Portfolio
Small Cap	11	40.2%
Mid Cap	3	19.9%
Large Cap	4	8.3%
Unlisted	2	10.1%
Cash/Cash Equivalent		21.5%
Total	20	100.0%

 

END

 

 

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