Net Asset Value(s)

RNS Number : 7399A

India Capital Growth Fund Limited

04 February 2011

 



India Capital Growth Fund Limited

04 February 2011

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

31 January 2011 NAV Statement

Net Asset Values

The Company announces its net asset values per share as at 31 January 2011:

Net asset value per share - undiluted: 60.22 pence

Net asset value per share - fully diluted: 60.22 pence

Portfolio Update

Fund Performance

The negative momentum in Indian equities stepped up a gear in January as foreign investors continued to withdraw money from the market. The total outflow for the month was $1.3bn and the trickle of inflows from domestic mutual funds did little to stem the tide. The pressure continues to be felt most in the midcap space where lower liquidity accentuates stock price action. The net asset value of the portfolio fell 14.2% in local currency terms but further weakness in the Rupee accentuated the loss in Sterling to 18.5%. For the same period the Midcap Index fell 16.4% on a sterling adjusted basis, and whilst the main board fared relatively better falling a mere 15.1% (sterling adjusted), it is interesting to note there appeared to be little distinction in performance between the quality names and the riskier ones. This suggests that exchange traded funds were the predominant sellers in the market, indicating that we may yet see more pressure as active investors are forced to trim their weights.

Key stocks in the portfolio suffered heavily with S Kumars, Bilcare and Prime Focus down 24%, 20% and 18% respectively. There is no operational reason why these stocks fell further than the market this month; the sharp fall comes on the back of a strong run for each throughout last year and thus some profit booking is inevitable. We continue to like them and remain confident in their prospects for this year. The infrastructure sector also contributed significant negative attribution where IVRCL was down 38% and Jyoti Structures fell 17%. On a happier note the trust benefitted from its holding in KPIT which rose 12% over the period and Cairn Energy which fell a mere 1.3%.

The severe correction we have witnessed in the market is starting to create an opportunity to increase positions in stocks where we see significant value. We have added to Indian Bank and Sintex Industries this month in small size, and expect further opportunities to present themselves if the selling continues.  The cash weighting is currently 6.7%.

Market Outlook

The selling pressure is on account of three factors. The well documented switch from emerging markets to the developed is underway as the outlook in the West is apparently improving. In tandem with this it is the export focused economies of Asia that are the beneficiaries of an improving US economy and not domestic facing India, so from an Asian perspective India is also out of fashion. Finally, and most importantly, food inflation continues to surprise on the upside stoking broader inflationary fears and leading to a spike in the short end of the yield curve. Food inflation is a highly emotive subject because it affects the poor and those on fixed incomes the most. The Reserve Bank of India will be under huge pressure to find any means to contain it. This inflation scare is causing the market to review its assumptions for growth in 2012, as higher interest rates will negatively affect corporate profitability and delay future investment.

Where do we go from here?

The next important milestone is the budget at the end of February. It is likely that we will see some policy measures to try and tame inflation through the reduction in import duties on fuel and other products, as well as measures to help improve agricultural productivity. This ought to coincide with a softening of the food inflation data. This will provide some short term respite to the market. 

Through all the noise it is important to remember that the inflation problem is predominately a supply side issue. Demand in the economy remains healthy. Consumption trends are underpinned in the rural economy following strong agricultural growth in 2010 and better pricing of agricultural output currently.  In addition wages in the non-agricultural sectors are also rising and both of these trends provide confidence for spending in the months ahead. In addition we expect the government to ramp up the pace of investment in infrastructure which will further support growth. The export and the service sectors are showing healthy progress, and overall corporate cash balances remain in good shape. The conclusion therefore is that GDP growth is unlikely to be as adversely affected as the market currently believes and inflation data may start to soften a little. The recovery from this soft patch could be rapid. Valuations are looking more attractive and if the current pace of growth is maintained India will continue to be an attractive investment option for foreign investors, especially in an environment of sub-par growth in the advanced economies.

Analysis of holdings at 31 January 2011

Sector Summary	No. of Companies	% of Portfolio
Financials	12	30.3%
Industrials	10	16.2%
Consumer Discretionary	2	14.5%
Materials	5	10.2%
Health Care	3	10.0%
Telecom Services	2	5.0%
Energy	1	2.6%
IT	2	2.4%
Consumer Staples	1	2.1%
Total Equity Investment	38	93.3%
Net Cash		6.7%
Total Portfolio		100.0%

Top 10 equity holdings at 31 January 2011

Holding	Sector	% of Portfolio
Marwadi Shares and Finance	Financials	9.7%
Prime Focus	Consumer Discretionary	7.6%
S. Kumars Nationwide	Consumer Discretionary	6.9%
Bilcare	Health Care	5.4%
United Phosphorus	Materials	3.7%
Jyoti Structures	Industrials	3.0%
Bharti Airtel	Telecom Services	3.0%
Indian Bank	Financials	2.8%
Opto Circuits	Health Care	2.6%
Cairn India	Energy	2.6%

Portfolio breakdown by size at 31 January 2011  

Size	No. of Companies	% of Portfolio
Small Cap  (M/Cap <INR 15bn)	16	36.6%
Mid Cap (INR 15bn <M/Cap<INR 100bn)	13	33.4%
Large Cap (M/Cap > INR 100bn)	6	13.5%
Unlisted	3*	9.8%
Cash/Cash Equivalent		6.7%
Total	38	100.0%

* including one arising from a demerger, pending listing.

 

END

 

 

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