Net Asset Value(s)

RNS Number : 2282S

India Capital Growth Fund Limited

06 September 2010

 

India Capital Growth Fund Limited

06 September 2010

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

31 August 2010 NAV Statement

Net Asset Values

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

Net asset value per share - undiluted                  71.23 pence

Net asset value per share - fully diluted              71.23 pence

Portfolio Update

The net asset value (NAV) rose 2.6% in August to 71.2 pence per share.  In local currency terms the NAV rose 2.8% for the month outperforming the 2.6% rise in the BSE Midcap index. The main board (Sensex) rallied 0.6%.  The Rupee continued its three month downward correction versus Sterling falling a further 0.2% this month continuing to offset gains made in the portfolio locally. Having risen 13% to a high of 65.35 against the pound in mid-May the Rupee has given back much of these gains falling 10.5% to 72.24 from the peak.  The cause of the weakness has been a combination of the deterioration in the outlook of the current account deficit in India and an improvement in the fortunes of Sterling.  The portfolio ended the month with 34 stocks and an invested position of 84.5%.  The high weighting of cash and cash equivalents continues to be a drag on the overall performance in the current market environment and consequently the invested portfolio has to work even harder to keep up.   We have used the strength in the market to top slice weightings in stocks that have performed well and are trading close to our assessment of fair value, whilst initiating on three new positions.  At current levels the portfolio p/e stands at 9.68 for FY11 (ends March 2011) falling to 7.59 for FY12. This compares to a BSE Midcap p/e of 14.3x FY11 and 11.2x FY12 and a Sensex p/e of 17.4x and 14.5x.

The robust performance of the portfolio this month can be attributed to the healthcare, TMT and consumer discretionary sectors specifically.  Bilcare Limited (innovative pharmaceutical packaging, 6.5% weight) rose 21% driven by an end to a period of technical selling pressure and by news of an acquisition by their German based subsidiary of a leading polymer films business.  Recent portfolio entrants KPIT Cummins Infosystems Ltd (a supplier of technological solutions for the auto component sector, 2% weight) and OnMobile Global Limited (an aggregator of value added services for mobile telephony, 2.5% weight) rose 17% and 15% respectively.  We have used the recent strength in the former two to top slice the exposure.  The biggest move however came from Prime Focus Ltd (post production and visual effects for the film and advertising markets, 6.5% weight) which rose 51% in August.  The company is benefitting from the huge pick up in the production of 3D films in Hollywood.  Prime Focus USA's leading ViewD product provides 2D to 3D conversion technology faster and at lower cost than the competition.  The order backlog from the major Hollywood studios is growing as profits achieved on 3D movies are far superior to the traditional format.   Much of this work can be out sourced directly to India generating impressive returns for Prime Focus.  We are also expectant that the growth in supply of 3D television may create additional demand for Prime Focus' ViewD technology in the future.  We have been in regular contact with the management both in India and in the UK and are re-working our numbers.

In addition to the high cash weighting, the hindrance to performance arose from two areas. S Kumars Nationwide Limited (a manufacturer of consumer textiles, 9.5% weight and about which we have commented frequently) fell 7.9% in the month giving back some recent gains.  In the financials space the portfolio is struggling to perform.  Three "half" positions have been initiated in this area since the last report and whilst we are committed to increasing the exposure to this sector we will do so only when decent opportunities present themselves.

In previous months we have analysed investments into large, mid and small cap segments based on Sterling equivalent market caps.  These had become out of line with general market practice, and accordingly we have amended our definitions, details of which are in the relevant table below.

Outlook

Real GDP in India grew at 8.8% year-on-year in the first quarter of the current financial year (to 30 June 2010) with all areas of the economy contributing to the healthy growth. For a brief moment the market was confused by a subsequent release of the GDP data (measured at market prices as opposed to factory cost) showing growth of just 3.7% for the quarter.  This number was subsequently revised upwards by the government to 10%.  Industrial activity grew 12.4% whilst service related sectors grew 12.2%.  Agriculture grew 2.8% on the back of healthy monsoon rains. Looking ahead we expect the pace of industrial activity to moderate as the year-on-year numbers become harder to beat whilst the opposite may occur in agriculture.  Key to the Reserve Bank of India's thinking with regard to the pace of monetary tightening will be industrial production data for August and WPI data for July which will be released shortly.  Whilst global growth concerns continue to dominate the market's thinking, cyclical Asia remains much more at risk than the domestically fuelled Indian economy.

Analysis of holdings at 31 August 2010

Sector Summary	No. of Companies	% of Portfolio
Financials	10	22.3%
Consumer Discretionary	3	15.8%
Industrials	8	15.3%
Materials	4	10.1%
Health Care	3	9.8%
Telecom Services	2	6.4%
Energy	1	3.1%
IT	3	1.6%
Total Equity Investment	34	84.4%
Net Cash and Debt Mutual Funds		15.6%
Total Portfolio		100.0%

Top 10 equity holdings at 31 August 2010

Holding	Sector	% of Portfolio
S. Kumars Nationwide	Consumer Discretionary	8.5%
Marwadi Shares and Finance	Financials	8.3%
Prime Focus	Consumer Discretionary	7.2%
Bilcare	Health Care	6.1%
United Phosphorus	Materials	4.2%
Bharti Airtel	Telecom Services	3.6%
Cairn India	Energy	3.1%
Onmobile Global	Telecom Services	2.8%
Sterlite Industries	Materials	2.7%
Jubilant Organosys	Health Care	2.6%

Portfolio breakdown by size at 31 August 2010  

Size	No. of Companies	% of Portfolio
Small Cap  (M/Cap <INR 15bn)	12	27.3%
Mid Cap (INR 15bn <M/Cap<INR 100bn)	13	33.0%
Large Cap (M/Cap > INR 100bn)	7	15.8%
Unlisted	2	8.3%
Cash/Cash Equivalent		15.6%
Total	34	100.0%

 

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