TIDMIGC
RNS Number : 1274N
India Capital Growth Fund Limited
21 September 2023
LEI: 213800TPOS9AM7INH846
INDIA CAPITAL GROWTH FUND LIMITED
Interim Results for the six months ended 30 June 2023
21 September 2023, London - India Capital Growth Fund ("ICGF" or
"the Company"), the LSE premium listed investment company
established to take advantage of long-term investment opportunities
in companies based in India, today reports results for the six
months ended 30 June 2023.
Highlights
Unaudited Audited 31 % change Unaudited
30 June 2023 December 30 June
2022 2022
Per Ordinary Share
Net Asset Value (NAV) 150.68p 140.06p 7.6% 115.00p
Share price 144.00p 129.00p 11.6% 96.00p
Share price discount
to NAV 4.4% 7.9% 16.5%
FX impact
Indian Rupee / Sterling 103.51 99.74 -3.5% 95.96
-- The NAV steadily increased in the six months to 30 June 2023,
up 7.6% in the period. Additionally the NAV continued to increase
by almost 10% in the last two months to 31 August 2023 to 165.38
pence
-- The discount narrowed from 7.9% at the 31 December 2022 to
4.4% at 30 June 2023. The Board monitors the discount closely and
has the necessary permissions to repurchase stock if the Board
decides it is in the best interests of the Company and its
shareholders
-- The second Redemption Point will be on 31 December 2023 when
the exit discount will be no more than 3% for shareholders
registered as at 29 September 2023
-- The Rupee depreciated against Sterling in the six months to
30 June 2023 but remained relatively stable throughout the period.
Lower currency volatility is predominantly a consequence of India's
much improved external account.
Elisabeth Scott, Chair of India Capital Growth Fund, said:
"There have been a number of positive economic data points
during the period. Inflation is under control, despite some signs
of rising food prices; there are signs that the consumer sector is
picking up and India is continuing to benefit from the
diversification of supply chains away from China. As a consequence
of this positive news, there has been a revival of interest in
Indian equities from international investors which, added to
inflows from the domestic market, has contributed to the rise in
the market. The Board is confident that the Investment Manager's
strategy and positioning of the portfolio will stand us in good
stead."
ENQUIRIES
Robin Sellers
Lucy Draper
Ocean Dial Asset Management
+44 20 7068 9870
robin.sellers@oceandial.com
lucy.draper@oceandial.com
William Clutterbuck
Rachael Cohen
H/Advisors Maitland PR
+44 (0) 20 7379 5151
william.clutterbuck@h-advisors.global
rachel.cohen@h-advisors.global
Robert Finlay
Shore Capital
+44 (0) 20 7408 4050
Matt Lihou
Apex Fund and Corporate Services (Guernsey) Limited
+44 (0) 20 3530 3687
matt.lihou@apexgroup.com
About India Capital Growth Fund
India Capital Growth Fund Limited the LSE premium listed
investment company registered and incorporated in Guernsey, was
established to take advantage of long-term investment opportunities
in companies based in India. ICGF predominantly invests in listed
mid and small cap companies, although investments may also be made
in large cap and private Indian companies where the Fund Manager
believes long-term capital appreciation will be achieved.
www.indiacapitalgrowth.com
CHAIR'S STATEMENT
Interim Report
Broad based accelerating growth in India has led to strong
earnings growth for many Indian companies, large and small. Equity
markets in India have reflected this positive news, with an
increase of 10.2% in the BSE Midcap Total Return Index (the
Benchmark) over the first six months of 2023.
There have been a number of positive economic data points during
the period. Inflation is under control, despite some signs of
rising food prices; there are signs that the consumer sector is
picking up and India is continuing to benefit from the
diversification of supply chains away from China. As a consequence
of this positive news, there has been a revival of interest in
Indian equities from international investors which, added to
inflows from the domestic market, has contributed to the rise in
the market.
Performance
The Net Asset Value (NAV) of the shares in your Company rose by
7.6%, underperforming the benchmark index, which increased by
10.2%. As the Investment Manager's report explains in detail, the
portfolio's underweight position in non-bank financials was a drag
on performance, while a number of individual names, such as
Ramkrishna Forgings, Neuland Laboratories and Finolex Cables, were
strong performers and are long term holdings for the Company. The
Company's share price increased by 11.6% over the period.
Additionally the NAV continued to increase by almost 10% in the
last two months to 31 August 2023 to 165.38 pence.
Discount and Redemption Facility
The discount of the share price to NAV narrowed from 7.9% at the
31 December 2022 to 4.4% at 30 June 2023. The Board monitors the
discount closely and has the necessary permissions to repurchase
stock if the Board decides it is in the best interests of the
Company and its shareholders.
Shareholders should be aware that the redemption facility will
take place once again on 31 December 2023. Holders of India Capital
Growth Fund shares as at 30 September 2023 will have the ability to
request the redemption of part or all of their shareholding at an
exit discount of a maximum of 3% to NAV as at that redemption
point. The Company will publish a further announcement on 4
December 2023 reminding shareholders of their right to request
redemptions, together with the exit discount applicable.
The Investment Manager
In the Annual Report, I informed shareholders that AssetCo PLC,
had acquired the Company's Investment Manager, Ocean Dial Asset
Management Limited, subject to regulatory approvals. I am pleased
to tell you that the Financial Conduct Authority (FCA) approved the
acquisition in late July. Indian regulatory clearance has been
confirmed and the process of transferring Ocean Dial's business to
AssetCo is well advanced.
The Board is working closely with the team at AssetCo to ensure
that the handover works smoothly. We have found the AssetCo team to
be professional and engaged and they share the Board's enthusiasm
for the outlook for India Capital Growth and the Indian equity
markets.
Investor Relations
The Board wants to ensure that all shareholders and prospective
shareholders have access to the information that they need about
the Company. Over the first half of 2023, the Company has hosted a
series of online events, which included not only Ocean Dial's own
webinars but also a Citywire Big Broadcast, titled "Why India is
stacked with growth". I encourage shareholders who have not yet
taken advantage of these webinars to sign up for updates on the
India Capital Growth website www.indiacapitalgrowth.com .
As interest in India has increased, so has interest from the
press and the Company has benefited from extensive coverage across
major trade publications and the national press. Efforts to promote
the Company via the press and in investor seminars sponsored by
wealth managers and others will continue during the second half of
the year. The Board believes that these are effective methods to
create interest in the Company from prospective shareholders.
Fred Carr
I am sorry to inform shareholders that Fred Carr, who chaired
India Capital Growth between 2009 and 2017, died in June this year.
He was responsible for putting in place many of the elements of the
Company's success and his guidance and kindness were greatly
appreciated by Ocean Dial staff and Directors.
Looking Forward
The war in Ukraine still overshadows Europe and the rest of the
world, affecting food, energy and other commodity prices and
contributing to geopolitical tensions. In this uncertain
geopolitical environment, the Board expects India to go on
demonstrating its economic resilience. While the Indian stock
market has performed strongly in recent months, valuations are not
overly extended and we expect the market to be driven by earnings
growth.
Thank you for your support. The Board is confident that the
Investment Manager's strategy and positioning of the portfolio will
stand us in good stead.
Elisabeth Scott
Chair
20 September 2023
INVESTMENT MANAGER'S REPORT
The Indian Economy
Over the past year, the focus of the Government has been on
accelerating growth in the Indian economy. The result of this was
evident in the first half of 2023, with many data points reflecting
improved momentum in the economy. It is important to highlight that
while the initial growth was driven by Government led investments
in infrastructure, it has now become more broad based and is also
visible in the private sector spending. Both positive corporate
earnings and uplift in business confidence are reflective of
this.
We have increasing comfort that this is not a short term trend
but appears more sustainable. Some factors which give us this
confidence are highlighted below:
-- Credit growth is trending at a 7-year high. This is not being
driven solely by the retail sector, as corporate credit and credit
to small and medium enterprises has picked up to reach double digit
figures.
-- The order books of Capital Goods and Infrastructure companies
have reached new highs. These are not being driven by large orders
from the Metal and Power sector as earlier, but more by smaller
sized orders across sectors. Most companies that we speak to in
this segment highlight that they see this trend sustaining for at
least the next three to four years.
-- The Real Estate sector has also registered all time high
sales. The sector has come out of a 7-year slump, a period when
prices were flat. Inventories have corrected and affordability has
improved. Thus we are seeing the beginning of a bullish real estate
cycle.
Furthermore, inflation is under control and well within the
Reserve Bank of India's (RBI) target range of 2-6%. The RBI has
paused rate hikes since the March 2023 monetary policy meeting and
we believe it is a matter of time before rates start trending
downwards. This peaking of rates is helping the industry plan
better and is accelerating decision making.
The moderation in inflation should also help improve consumer
demand. The consumer sector has been the weak link in the domestic
growth story, something we have highlighted in the past. Incomes in
rural India were hit the hardest due to covid followed by
inflation. Hence, while premium products and urban India continued
to see improving demand, overall consumption has remained weak.
There are initial signs of this trend reversing with many companies
informing us of modest growth returning to rural India.
Importantly, the two-wheeler sector, which is a bellwether for
rural demand, has seen growth rates turn positive.
What continues to pull down growth is exports, which declined by
13% in the first half of the year. This seems to have been
primarily driven by slowdown in developed markets, inventory
correction and currency depreciation in select markets. There is
still no visible sign of this trend reversing. Even Indian IT
services exports, which until last year were benefiting from the
increased digital spending, is beginning to see weaker growth as
customers push back on spending.
A silver lining to exports is that India is emerging as a
beneficiary of supply chain rebalancing out of China. We are
beginning to see a visible impact of this at ground level. Most
prominent amongst these being Apple, where all three of its global
manufacturers are setting up plants in India. Apple is already
exporting over US$1bn of iPhones from India each month, with plans
for 25% of global manufacturing shifting to India. Many of our own
portfolio companies in diverse sectors such as Auto Ancillary,
Textiles, Tiles and Industrials are seeing new business from
customers who typically sourced from China. Geopolitics is
favouring India and this could be a potentially big opportunity for
Indian companies over time.
All the above factors have led to the Indian economy exhibiting
remarkable resilience. This is reflected in corporate earnings
growth with many companies surprising on the positive, leading to
earnings upgrades. Even the IMF has revised India's growth forecast
upwards in its latest estimated released in June 2023. India
continues to be the fastest growing large economy in the world.
The momentum in the economy is also reflected in the performance
of the equity market. After a strong 2022, the positive momentum
has sustained in 2023 as well. Our three key observations on the
market performance are:
-- Valuation multiples have remained stable despite the broad
market (BSE Sensex) running up 6.4%. This is because earnings are
seeing upgrades. Market valuations, however, remain above
historical averages, though lower than previous peaks.
-- There has been a return of inflows from Foreign Institutional
Investors (FIIs). FIIs registered net outflows of US$17bn in
CY2022, while the first half of 2023 has already seen net inflows
of US$11bn. Domestic institutions too have seen net inflows of
US$10.5bn during this period. In the case of domestic institutions,
inflows through systematic investment plans, largely by retail
investors including tier 3-4 towns, continues to remain strong at
US$10bn during this period. This is despite markets at near
all-time highs. This increases our conviction that these stable
flows will reduce volatility in the Indian market for the
foreseeable future.
-- Finally, the small and mid-cap segment of the market has
performed better than the large caps. The sustained inflows in
domestic mutual funds (some of which are in dedicated small/mid-cap
funds), valuation mispricing and better earnings growth have
supported this performance.
ESG considerations
We believe the integration of ESG factors in our investment
decision making will help to improve the Company's long term risk
adjusted returns. Consequently, ESG measurement and risk impact
scoring have become an integral part of our investment process
facilitated by the ongoing development of our bespoke internal ESG
scoring model which compares and rates each company within our
portfolio. In order to truly understand the direction of travel and
the actions being taken by portfolio investment companies in
respect of ESG and the sustainability of their business,
constructive engagement with management is at the core of our
investment process. Our investment advisers in India meet and
interact regularly with both investee companies and potential
portfolio holdings. They meet onsite where possible and will take
the opportunity of visiting manufacturing facilities as well as
corporate headquarters in order to build a clearer picture. In
addition, they also endeavour to meet employees outside of the
senior management team, as this also helps to strengthen the
overall understanding of the business and better establish if the
ESG and sustainability ethos projected by senior management filters
down through the business.
Fund performance
India Capital Growth Fund (ICGF) is also benefiting from all the
above factors. In Sterling, ICGF returned 7.6%, (8.1% before Indian
capital gains tax provision) in the six months ended June 2023. The
INR returns were stronger as the currency depreciated 3.5% against
the pound during this period. The absolute performance can be
attributed to strong earnings delivery by individual portfolio
companies along with an improved business outlook commentary. This
has also led to a re-rating for some of these companies,
particularly in the small cap space.
However ICGF underperformed the BSE Midcap TR Index (the
Benchmark) which returned 10.2% (in GBP) in the same period. This
underperformance can be attributed to the Financial sector
exposure. Financials is the portfolio's largest exposure (24.6%)
and an overweight position, yet unlike the Benchmark, which had
almost 50% exposure to companies in the non-banking finance space
(NBFC), the portfolio financials exposure was largely through
banks. With the RBI pausing the rate hike cycle, NBFC's saw a sharp
positive rerating in anticipation of a sharper decline in the cost
of borrowing due to their dependence on high-cost wholesale
deposits for liabilities. Though some of our banks like IDFC First
(6.2% weight, up 30%) and IndusInd Bank (5% weight, up 10%) did
perform well, City Union Bank (3.3% weight, down 32%) and Federal
Bank (6.8% weight, down 13%), dragged down overall performance.
Both of the banks registered good operating performance, though in
the case of City Union, weaker growth than the industry average led
to its de-rerating.
Elsewhere, it was individual stock selection which led to the
positive portfolio performance. Ramkrishna Forgings (4.4% weight,
up 64%), an auto ancillary company which supplies forged components
to commercial vehicles in domestic and global markets. Its
performance has seen an uptick driven by industry growth, new
client wins, new value-added products, as well as a successful
foray into new categories like components for railways and
passenger vehicles.
Neuland Laboratories (3.6% weight, up 64%), a healthcare
company, also delivered strong performance. The company specialises
in manufacturing complex Active Pharmaceutical Ingredients (APIs)
for Pharma companies. It also partners with global innovators in
their R&D for development of new molecules. Investments over
the past few years are bearing fruit with the business moving to a
higher revenue growth trajectory along with operating leverage
driving margins. Both earnings upgrades and valuation re-rating is
driving its performance.
Finolex Cables (2.2% weight, up 51%) is India's leading brand of
electrical wires and also the price leader. The company is a
beneficiary of the pick-up in demand from the growth in
infrastructure and real estate sectors. As this is just the
beginning of the cycle, the growth momentum is expected to sustain
for the next few years. Likewise, Skipper (2.9% weight, up 28%), a
manufacturer of transmission & telecom towers, is benefiting
from the increased infrastructure spending in India. Being amongst
the lowest cost manufacturers globally, Skipper is also seeing an
expanding export order book as companies de-risk their sourcing
from China.
Besides financials, it was two of the portfolio companies in the
cement sector, JK Lakshmi Cement and Sagar Cements that dragged
upon relative performance. While the demand for cement remains
strong, profitability for the industry has suffered due to high
input prices. Valuations are quite compelling at this level, and we
believe Cement remains a key sector to participate in the demand
arising from infrastructure and real estate investments.
Portfolio Activity
We bought VIP Industries (VIP), India's largest manufacturer of
luggage with a 45% market share in the organised market. VIP is
seeing double-digit revenue growth because of rising domestic
tourism. VIP is also gaining share as the unorganised market (45%
of the industry) is dependent on imports from China and is
struggling for survival due to supply chain issues. Reduced
competitive intensity is driving topline numbers and margin
expansion for VIP.
We also added to Uniparts India, an auto ancillary company which
listed through an IPO in December 2022. Uniparts manufacturers
niche components and assemblies for Tractors and other off-road
vehicles. It supplies to leading original equipment manufacturers
in the US, Europe and India. The components are small by volume but
large in number of stock keeping units, and hence preferred by
customers as they prefer sourcing from one entity. Consequently
customers are sticky and Uniparts is also able to attract better
pricing leading to high return ratios.
The other stocks where the portfolio added to its weight are
Dixon Technologies, Sona BLW, Affle India, EPL, Aarti Industries
and JK Lakshmi Cement.
During the period, the portfolio used the volatility in price
movements to book profits across several companies and keep
individual stock weights aligned with risk. These include
Ramkrishna Forgings, Finolex Cables, Neuland, MCX, IDFC First,
Balkrishna Industries and Persistent Systems. The portfolio also
completely exited Coforge, an IT services company as it achieved
its price target.
Overall, the number of stocks in the portfolio has reduced by
one to thirty four.
Ocean Dial Asset Management
20 September 2023
INVESTMENT POLICY
The Company's investment objective is to provide long-term
capital appreciation by investing in companies based in India. The
investment policy permits the Company to make investments in a
range of Indian equity and equity linked securities and
predominantly in listed mid and small cap Indian companies with a
smaller proportion in unlisted Indian companies. Investment may
also be made in large cap listed Indian companies and in companies
incorporated outside India which have significant operations or
markets in India. While the principal focus is on investment in
listed equity securities or equity linked securities, the Company
has the flexibility to invest in bonds (including non-investment
grade bonds), convertibles and other types of securities. The
Company may, for the purposes of hedging and investing, use
derivative instruments such as financial futures, options and
warrants. The Company may, from time to time, use borrowings to
provide short-term liquidity and, if the Directors deem it prudent,
for longer term purposes. The Directors intend to restrict
borrowings on a longer-term basis to a maximum amount equal to 25%
of the net assets of the Company at the time of the drawdown. It is
the Company's current policy not to hedge the exposure to the
Indian Rupee.
SUSTAINABILITY AND ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG")
REPORT
The Board recognises its responsibilities for reporting on ESG
and intends to progress towards compliance with the Listing
Requirements to report on the four pillars of Governance, Strategy,
Risk Management and Metrics & Targets with the assistance and
support of the Investment Manager, upon whom the Board is reliant
to deliver this ESG reporting of the Company.
In setting and reporting on our ESG policies, we have considered
the impacts of our activities and followed the relevant regulatory
guidance including the requirements of section 172(1) of the
Companies Act 2006 and, in so far as they apply, the non-financial
reporting requirements in sections 414CA and 414CB of the Companies
Act 2006. Although India Capital Growth Fund does not fall within
the scope of these two sections, we believe that these disclosures
will provide shareholders and stakeholders with a greater level of
insight and transparency. We have also reported under the UK
Corporate Governance Code ("UK Code").
A successful future for the Company and our investors depends on
the sustainability of the environment, communities and economies in
which the Company, its service providers and portfolio investment
companies operate, particularly in India. The Board and its
Investment Manager seek to understand the impact that environmental
and social factors have on the business environment, clients,
portfolios and operations. With this understanding, the Board is
better positioned to make informed strategic decisions.
Consequently, we believe in engagement and long-term ownership both
in respect of our own shareholders and the investment approach
adopted by our Investment Manager, to drive investment performance
and to contribute to positive change to build a sustainable future.
We and our Investment Manager believe that companies with strong
management focus on ESG have the potential to reduce risks facing
their business, thereby delivering sustainable performance and
enhanced returns over the longer term.
Investment management approach to sustainability & ESG
The management of sustainability risks forms an important part
of the due diligence process implemented by the Investment Manager.
When assessing the sustainability risks associated with underlying
investments, the Investment Manager is assessing the risk that the
value of such underlying investments could be materially negatively
impacted by an environmental, social or governance event or
condition. Sustainability risks are generally incorporated into the
Investment Manager's evaluation of an issuer's investment risk or
return, across all asset classes, sectors, and markets in which the
Company invests.
The Investment Manager believes that sound governance is an
essential element of a Company's long-term sustainability and
growth, and that detailed analysis beyond financial data is
required to understand the true characteristics of a potential
underlying investment. This includes, but is not limited to,
conviction in the alignment of interest between the owners,
managers and minority shareholders of a business, the nature and
extent of the true independence of the Board and its specialist
sub-committees, capital allocation and dividend policies, tax
treatment, key man risk and succession planning. Governance plays a
central role in the investment philosophy of the Investment
Manager, and it naturally veers away from certain sectors where
practical issues of "getting business done" within India can
undermine good governance. These sectors, including those such as
Real Estate, Public Sector Banks and Infrastructure Projects, tend
to be capital intensive, rely on multiple bureaucratic approvals
for authorisation and are often cash flow negative. The Investment
Manager also will not consider investments in industries that are
considered harmful to the wellbeing of society not least because
they may not demonstrate adequate compliance with regulations and
tax considerations may create unforeseen financial uncertainty.
These include tobacco, alcohol, gambling and defence equipment
manufacturers of all descriptions.
The Investment Manager gives equal importance to the
non-financial elements of environmental and social issues of a
business and its financial modelling when considering a company for
an underlying investment. These include, but are not restricted to,
topics such as gender diversity, environmental impact on
production, carbon footprint, workplace health and local community
engagement. Where the sustainability risks associated with a
particular investment have increased beyond the ESG risk appetite
of the Company, the Investment Manager will consider selling or
reducing that exposure to the relevant investment, taking into
account the best interests of the shareholders of the Company. The
Investment Manager does not use third party ESG ranking tools but
has integrated the systematic and explicit inclusion of material
ESG factors into its investment analysis process from which it is
developing its own bespoke ESG scoring model.
Social factors considered in the ESG assessment include:
-- Fulfilment of responsibilities under Corporate Social Responsibility requirements
-- Human capital: employee turnover, health & safety,
training & diversity, treatment of blue collar workers
-- Human rights and community relations
-- Customer privacy and data security
-- Access and affordability
-- Product quality and safety
-- Supply chain management
-- Customer welfare
-- Selling practices and product labelling
Additionally, as part of its commitment to ESG &
sustainability in its investment approach, the Investment Manager
is a signatory to the UN Principles of Responsible Investing and
has appointed a dedicated ESG co-ordinator to implement its ESG
investment strategy.
Engagement
In order to truly understand the direction of travel and the
actions being taken by portfolio investment companies in respect of
ESG and the sustainability of their business, constructive dialogue
with management is at the core of the investment process of the
Investment Manager. The investment advisers in India meet and
interact regularly with both investee companies and potential
portfolio holdings. They meet onsite where possible and will take
the opportunity of visiting manufacturing facilities as well a
corporate headquarters in order to build a clearer picture. In
addition, they also endeavour to meet employees outside of the
senior management team, as this also helps to strengthen the
overall understanding of the business and better establish if the
ESG and sustainability ethos projected by senior management filters
down through the business.
Voting on portfolio investments
The Investment Manager has been empowered to exercise discretion
in the use of its voting rights in respect of portfolio
investments. Where practicable, all shareholdings were voted at all
investment company meetings which backs up and reinforces
engagement and integrates sustainability issues into the voting
process.
Holdings in individual companies are not large and ICGF votes
are not likely to carry weight. However as responsible investors,
and due to our remit to invest in small and mid-cap Indian equities
supported by a long term investment approach, management teams do
look to the ICGF Investment team for guidance on aspects of best
practice. In turn the team looks to influence their thinking
positively in respect of ESG matters.
PRINCIPAL INVESTMENTS
As at 30 June 2023
Value % of Portfolio
Holding Market cap size Sector GBP000
----------------------------- ------------------- ------------------------ ---------- -----------------
IDFC Bank M Financials 9,270 6.1%
Federal Bank M Financials 8,786 5.8%
Indusind Bank L Financials 7,948 5.3%
Ramkrishna Forgings S Materials 7,511 5.0%
Neuland Laboratories S Health Care 5,935 3.9%
PI Industries M Materials 5,439 3.6%
Skipper S Industrials 5,367 3.6%
Persistent Systems M Information Technology 5,255 3.5%
Dixon Technologies M Consumer Discretionary 5,056 3.3%
Emami M Consumer Staples 4,953 3.3%
Sona BLW Precision Forgings M Consumer Discretionary 4,848 3.2%
Ccl Products India S Consumer Staples 4,673 3.1%
Affle India S Communication Services 4,554 3.0%
JK Lakshmi Cement S Materials 4,328 2.9%
Kajaria Ceramics M Industrials 4,224 2.8%
Balkrishna Industries M Consumer Discretionary 4,076 2.7%
Jyothy Laboratories S Consumer Staples 4,067 2.7%
City Union Bank S Financials 4,014 2.7%
Bajaj Electricals S Consumer Discretionary 3,841 2.5%
Welspun India S Consumer Discretionary 3,606 2.4%
Total top 20 portfolio investments 107,751 71.4%
========== =================
Investments may be held by the Company and its Mauritian
subsidiary, ICG Q Limited.
Market capitalisation
size definitions:
L: Large cap - companies with a market
capitalisation above US$8bn
M: Mid cap - companies with a market capitalisation
between US$2bn and US$8bn
S: Small cap - companies with a market
capitalisation below US$2bn
UNAUDITED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
For the six months to 30 June 2023
Unaudited Unaudited Audited
Six months Six months Year to
to 30.06.23 to 30.06.22 31.12.22
Total Total Total
Notes Revenue GBP000 Capital GBP000 GBP000 GBP000 GBP000
------------------------------------- ------ --------------- --------------- ------------ ------------ ---------
Income
Dividend income 33 - 33 26 113
Other income - - - 5 -
Foreign exchange (loss)/gain (258) - (258) 63 65
Net gain/(loss) on financial assets
at fair value through profit or
loss 5 - 10,894 10,894 (20,403) 4,374
Total income (225) 10,894 10,669 (20,309) 4,552
--------------- --------------- ------------ ------------ ---------
Expenses
Operating expenses 3 (256) - (256) (289) (534)
Transaction costs (23) - (23) (12) (22)
Total expenses (279) - (279) (301) (556)
--------------- --------------- ------------ ------------ ---------
Profit/(loss) for the period/year
before taxation (504) 10,894 10,390 (20,610) 3,996
Taxation 6 (7) (133) (140) 193 (223)
Total comprehensive income/(loss)
for the period/year after taxation (511) 10,761 10,250 (20,417) 3,773
=============== =============== ============ ============ =========
Earnings/(loss) per Ordinary Share
(pence) 4 10.62 (20.84) 3.88
============ ============ =========
Fully diluted earnings/(loss) per
Ordinary Share (pence) 4 10.62 (20.84) 3.88
============ ============ =========
The total column of this statement represents the Company's
statement of comprehensive income, prepared in accordance with IFRS
as adopted by the EU. The supplementary revenue and capital columns
are both prepared under guidance published by the Association of
Investment Companies, as disclosed in the Basis of Preparation in
note 1.
The profit /(loss) after tax is the "total comprehensive income
/(loss) " as defined by IAS 1. There is no other comprehensive
income as defined by IFRS and all the items in the above statement
derive from continuing operations.
UNAUDITED CONDENSED STATEMENT OF FINANCIAL POSITION
As at 30 June 2023
Unaudited Unaudited Audited
30.06.23 30.06.22 31.12.22
Notes GBP000 GBP000 GBP000
----------------------------------- ------ ----------- ----------- -----------
Non-current assets
Financial assets designated
at fair value through profit
or loss 5 139,934 109,794 134,986
Current assets
Cash and cash equivalents 6,091 1,270 646
Other receivables and prepayments 173 152 158
----------- ----------- -----------
6,264 1,422 804
Current liability
Payables and accruals (239) (227) (214)
----------- ----------- -----------
Net current assets 6,025 1,195 590
----------- ----------- -----------
Non-current liabilities
Deferred Taxation 6 (530) - (397)
----------- ----------- -----------
Net assets 145,429 110,989 135,179
=========== =========== ===========
Equity
Share capital 8 965 965 965
Reserves 144,464 110,024 134,214
----------- ----------- -----------
Total equity 145,429 110,989 135,179
=========== =========== ===========
Number of Ordinary Shares
in issue 8 96,515,653 96,515,653 96,515,653
=========== =========== ===========
Net Asset Value per Ordinary Share
(pence)
* Undiluted and diluted 150.68 115.00 140.06
=========== =========== ===========
UNAUDITED CONDENSED STATEMENT OF CHANGES IN EQUITY
For the six months to 30 June 2023
Other
Share Capital Revenue Distributable
Capital Reserve Reserve Reserve Total
Notes GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------ --------- --------- --------- ---------- --------------- --------
Balance as at 1 January
2023 965 71,583 (10,524) 73,155 135,179
Gain on investments 5 - 10,761 - - 10,761
Revenue loss for the period
after taxation - - - (511) (511)
Balance as at 30 June
2023 965 82,344 (10,524) 72,644 145,429
========= ========= ========== =============== ========
For the six months to 30 June 2022
Other
Share Capital Revenue Distributable
Capital Reserve Reserve Reserve Total
Notes GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------ --------- --------- --------- ---------- --------------- ---------
Balance as at 1 January
2022 1,121 67,408 (10,524) 93,026 151,031
Loss on investments 5 - (20,403) - - (20,403)
Share repurchase 8 (156) - - (19,469) (19,625)
Revenue loss for the period
after taxation - - - (14) (14)
Balance as at 30 June 2022 965 47,005 (10,524) 73,543 110,989
========= ========= ========== =============== =========
For the year ended 31 December 2022
Share Capital Revenue
Capital Reserve Reserve Other Distributable Total
Notes GBP000 GBP000 GBP000 Reserve GBP000 GBP000
---------------------------- --------- --------- --------- ---------- -------------------- ---------
Balance as at 1 January
2022 1,121 67,408 (10,524) 93,026 151,031
Gain on investments 5 - 4,175 - - 4,175
Share repurchase 8 (156) - - (19,469) (19,625)
Total revenue loss
for the year - - - (402) (402)
Balance as at 31 December
2022 965 71,583 (10,524) 73,155 135,179
========= ========= ========== ==================== =========
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
For the six months to 30 June 2023
Unaudited Unaudited Audited
30.06.23 30.06.22 31.12.22
GBP000 GBP000 GBP000
---------------------------------------------- ---------- ---------- ----------
Cash flows from operating activities
(20, 412
Operating profit/(loss) 10,390 ) 3,996
Adjustment for:
Net (gain)/loss on financial asset
at fair value through profit or loss (10,894) 20,403 (4,374)
Foreign exchange loss/(gain) 258 (63) (65)
Dividend income (33) (26) (113)
(Increase)/decrease in other receivables
and prepayments (15) 28 22
Increase/(decrease) in payables and
accruals 25 (218) (33)
---------- ---------- ----------
Cash used in operations (269) (288) (567)
Withholding tax deducted (7) (5) (24)
---------- ---------- ----------
Net cash flow used in operating
activities (276) (293) (591)
---------- ---------- ----------
Cash flows from investing activities
Dividend received 33 26 113
Acquisition of investments (6,824) (3,044) (5,441)
Disposal of investments 12,770 21,633 23,615
---------- ----------
Net cash flow from investing activities 5,979 18,615 18,287
---------- ---------- ----------
Cash flows from financing activity
Redemption of shares - (19,625) (19,625)
Net cash used in financing activity - (19,625) (19,625)
Net increase/(decrease) in cash
and cash equivalents during the period/year 5,703 (1,303) (1,929)
---------- ---------- ----------
Cash and cash equivalents at the
start of the period/year 646 2,510 2,510
Foreign exchange (loss)/gain (258) 63 65
Cash and cash equivalents at the
end of the period/year 6,091 1,270 646
========== ========== ==========
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
For the six months to 30 June 2023
1. Accounting policies
The unaudited condensed financial statements have been prepared
in accordance with International Financial Reporting Standard
('IFRS') as adopted by the EU, IAS 34 'Interim Financial Reporting'
and, except as described below, the accounting policies set out in
the statutory accounts of the Company for the year ended 31
December 2022.
The unaudited condensed financial statements do not include all
of the information required for a complete set of IFRS financial
statements and should be read in conjunction with the consolidated
financial statements of the Company for the year ended 31 December
2022, which were prepared under full IFRS requirements.
Changes in accounting policies
New and revised standards
The following standards and interpretations (some of which are
amendments to existing standards) are effective for the first time
for the financial period beginning 1 January 2023:
-- Amendments to IAS 37 Provisions, Contingent Liabilities and
Contingent Assets: Onerous Contracts - Cost of Fulfilling a
Contract (applicable for annual periods beginning on or after 1
January 2022)
-- Annual Improvements to IFRS Standards 2018-2020 (applicable
for annual periods beginning on or after 1 January 2022)
Other changes to accounting standards in the current year had no
material impact.
Standards and interpretations published, but not yet applicable
for the annual period beginning
on 1 January 2023:
-- IFRS 17 Insurance Contracts (including the June 2020 and
December 2021 Amendments to IFRS 17)
-- Amendments to IAS 1 Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current (applicable
for annual periods beginning on or after 1 January 2023, but not
yet endorsed in the EU)
-- Amendments to IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2: Disclosure of Accounting Policies
(applicable for annual periods beginning on or after 1 January
2023)
-- Amendments to IAS 8 Accounting policies, Changes in
Accounting Estimates and Errors: Definition of Accounting Estimates
(applicable for annual periods beginning on or after 1 January
2023)
-- Amendments to IAS 12 Income Taxes: Deferred Tax related to
Assets and Liabilities arising from a Single Transaction
(applicable for annual periods beginning on or after 1 January
2023, but not yet endorsed in the EU)
Other standards in issue, but not yet effective, are not
expected to have a material effect on the financial
statements of the Company in future periods and have not been
disclosed.
Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which
it introduces a definition of 'accounting estimates'. The
amendments clarify the distinction between changes in accounting
estimates and changes in accounting policies and the correction of
errors. Also, they clarify how entities use measurement techniques
and inputs to develop accounting estimates.
Changes in accounting policies
The amendments are effective for annual reporting periods
beginning on or after 1 January 2023 and apply to changes in
accounting policies and changes in accounting estimates that occur
on or after the start of that period. Earlier application is
permitted as long as this fact is disclosed.
The amendments are not expected to have a material impact on the
Company.
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS
Practice Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS
Practice Statement 2 Making Materiality Judgements, in which it
provides guidance and examples to help entities apply materiality
judgements to accounting policy disclosures. The amendments aim to
help entities provide accounting policy disclosures that are more
useful by replacing the requirement for entities to disclose their
'significant' accounting policies with a requirement to disclose
their 'material' accounting policies and adding guidance on how
entities apply the concept of materiality in making decisions about
accounting policy disclosures.
Going concern
The Board made an assessment of the Company's ability to
continue as a going concern for the twelve months from the date of
approval of these unaudited condensed financial statements taking
into account all available information about the future including
the liquidity of the investment portfolio held both by the Company
and its subsidiary, ICG Q Limited (80.2% of the portfolio can be
liquidated within 5 days); the performance of the investment
portfolio (the NAV of the Company increased 18.1% year to date);
the overall size of the Company and its impact on the Ongoing
Charges of the Company (the NAV of the Company exceeded GBP100m
throughout the year); the level of operating expenses covered by
highly liquid investments held in the portfolio (operating expenses
are 59 times covered by highly liquid investments); and the length
of time to remit funds from India to Mauritius and Guernsey to
settle ongoing expenses (no more than 10 days to have investments
liquidated and sterling funds in Guernsey).
Given the Company's previous performance, the Directors proposed
a continuation ordinary resolution at the Extraordinary General
Meeting held on 12 June 2020, at which the Shareholders approved
that the Company continue as currently constituted and introduce a
redemption facility which gives the ordinary shareholders the
ability to redeem part or all of their shareholding at a Redemption
Point every two years. The first Redemption Point was on 31
December 2021 when valid redemption requests were received in
respect of ordinary shares which were subsequently redeemed under
the redemption facility in accordance with the announced
timetable.
The next date at which shareholders will be able to request the
redemption of some or all of the shares will be 31 December 2023.
There is therefore a possibility that redemption requests may
impair the future viability of the Company. This creates material
uncertainty which may cast significant doubt on the Company's
ability to continue as a going concern. Based upon the investment
performance of the Company to date and the increase in the
proportion of retail and institutional shareholders on the share
register seeking long term growth since the last Redemption
Facility on 31 December 2021, the Board believes shareholder
redemptions at the forthcoming Redemption Facility on 31 December
2023 are likely to be at such a level not to impact the going
concern of the Company. The Directors derive further comfort from
the absolute growth in the NAV of the company to GBP145.4m at the
end of June 2023.
The Directors are satisfied that the Company has sufficient
liquid resources to continue in business for the next twelve
months, therefore the unaudited condensed financial statements have
been prepared on a going concern basis.
Outlook
Whilst the ongoing conflict between Russia and Ukraine is having
an impact on the supply and cost of energy and agricultural
commodities for many of the world's economies, the Indian economy
has been less impacted than most others: India's dependency on
imported oil remains but the overall economic impact has been
offset by the increasing value of India's IT exports and the
government no longer directly absorbs the cost of rising oil costs.
Indeed, India has been the beneficiary of a global corporate trend
to diversify supply chains, with many corporates having realised
the risk of been overly dependent upon Chinese manufacturers.
India's inflation is not driven by weak monetary policy, wage
pressure or the expectation of wage increases, and India is
self-sufficient in agricultural commodities meaning the risk of
high inflation having a detrimental impact upon the Indian economy
is much less than in many other countries.
The investment philosophy of the Company is that in India,
optimal returns will be generated over time by investing in
companies that are well placed to benefit from the structural
growth potential of the Indian economy. Whilst uncertainties remain
the future outlook for the portfolio investee companies remains
generally strong. This is reflected in the fact that the NAV of the
Company increased by 9.8% over the two months since the period
end.
2. Critical accounting judgements and key sources of estimation
uncertainty
Directors make judgements, estimates and assumptions that affect
the application of policies and the reported amounts of assets and
liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making judgements about the
carrying value of assets and liabilities that are not readily
apparent from other sources. The Company makes estimates and
assumptions concerning the future. The resulting accounting
estimates will, by definition, seldom equate to the related actual
results.
Critical accounting judgements
IFRS 10 defines an investment entity and requires a reporting
entity that meets the definition of an investment entity not to
consolidate its subsidiaries, but instead to measure its
subsidiaries at fair value through profit or loss in its financial
statements.
An investment entity is defined as an entity that:
-- Obtains funds from one or more investors for the purpose of
providing them with professional investment
management services.
-- Commits to its investor(s) that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both.
-- Measures and evaluates performance of substantially all of
its investments on a fair value basis.
The board has concluded that the Company is an investment entity
as it satisfies more than one of the typical characteristics of an
investment entity as noted above.
Key sources of estimation uncertainty
The Company invests in listed shares to which no estimation is
required to determine the closing values. The underlying
investments in ICG Q are all listed securities thus no estimation
is required.
3. Operating expenses
Unaudited Unaudited Audited
Six months Six months Year
to 30.06.23 to 30.06.22 to 31.12.22
GBP000 GBP000 GBP000
Administration and secretarial
fees 39 22 77
Audit fee 34 28 66
Broker fee 8 16 31
Directors' fees and
expenses 57 57 120
D&O insurance 4 5 10
General expenses 22 45 63
Other professional fees 22 34 36
Marketing expenses 47 63 94
Registrar fee 4 5 12
Regulatory fees 19 14 25
256 289 534
============ ============ ============
4. Earnings per share
Earnings per Ordinary Share and the fully diluted profit per
share are calculated on the profit for the period of GBP10,249,475
(30 June 2022 - loss of GBP20,417,000) divided by the weighted
average number of Ordinary Shares of 96,515,653 (30 June 2022 -
97,976,136).
5. Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss comprise
of investments in securities listed on Indian stock markets, namely
the National Stock Exchange or the Bombay Stock Exchange, as well
as investment in the wholly-owned subsidiary, ICG Q Limited.
A summary of movements is as follows:
Unaudited Unaudited Audited
Six months Six months Year to
to 30.06.23 to 30.06.22 31.12.22
Total Total Total
GBP000 GBP000 GBP000
Fair value at beginning
of year 134,986 148,786 148,786
Disposal of investments (12,770) (21,633) (23,615)
Acquisition of investments 6,824 3,044 5,441
Realised gain on disposal of investments 7,930 15,127 15,787
Unrealised gain/(loss) on
revaluation 2,964 (35,530) (11,413)
Fair value at end of period/year 139,934 109,794 134,986
============ ============ =========
The net realised and unrealised gain/(loss) totalling
GBP10,894,000 (30 June 2022: loss of GBP20,403,000) on financial
assets at fair value through profit and loss comprise of gains on
the Company's holding in ICG Q Limited to the extent of
GBP10,098,000 (30 June 2022: loss of GBP18,949,000) and gains of
GBP796,000 (30 June 2022: loss of GBP1,454,000) arising from
investments in securities listed on Indian stock markets. The
movement arising from the Company's holding in ICG Q Limited is
driven by the following amounts within the financial statements of
ICG Q Limited, as set out below:
Unaudited Unaudited Audited
Six months Six months Year to
to 30.06.23 to 30.06.22 31.12.22
Total Total Total
GBP000 GBP000 GBP000
Dividend income 337 172 950
Unrealised gain/(loss) on financial
assets at fair value through profit
and loss 6,556 (34,435) (14,289)
Realised gain on disposal of investments 5,206 14,038 17,935
Investment management fee (760) (650) (1,370)
Other Operating expenses (45) (46) (79)
Withholding tax on dividend income (70) (36) (199)
Taxes (150) (139) (55)
Transaction costs (25) (67) (98)
Foreign exchange gain/(loss) 3 (53) (442)
Deferred taxation for Indian Capital
Gains Tax (954) 2,267 201
Net gain/(loss) of ICG Q Limited 10,098 (18,949) 2,554
============ ============ =========
The equity investment represents holdings in listed securities
in India and in ICG Q Limited, the Company's wholly owned
subsidiary. ICG Q Limited is incorporated and has its principal
place of business in the Republic of Mauritius. The Company holds
Participating Shares in ICG Q Limited, which confer voting rights
to the Company, hence controlling interests. As described in the
statutory accounts of the Company for the year ended 31 December
2022, the Company qualifies as an investment entity under IFRS 10.
It therefore does not consolidate its investment in ICG Q
Limited.
6. Taxation
Guernsey
India Capital Growth Fund Limited is exempt from taxation in
Guernsey on non-Guernsey sourced income. The Company is exempt
under The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as
amended) and paid the annual exemption fee of GBP1,200. For the
period ended 30 June 2023, the Company had a tax liability of
GBPnil (2022: GBPnil).
India
Capital gains arising from equity investments in Indian
companies are subject to Indian Capital Gains Tax Regulations.
Consequently, with effect from April 2020, the Company and its
subsidiary, ICGQ Limited, have been subject to both short and long
term capital gains tax in India on the growth in value of their
investment portfolios at the rate of 15% and 10% respectively.
Although this additional tax only becomes payable at the point at
which the underlying investments are sold and profits crystallised,
the Company and its subsidiary must accrue for this additional cost
as a deferred taxation liability, notwithstanding that they seek to
minimise the impact of these taxation rates applicable to capital
gains by maintaining its investment strategy of investing in a
concentrated portfolio for long term capital appreciation, The
deferred taxation liability relating to Indian capital gains tax
for the Company was GBP530,000 at 30 June 2023 (30 June 2022:
GBPnil) (2022: GBP397,000) and for its subsidiary was GBP5,136,000
at 30 June 2023 (30 June 2022: GBP2,065,000) (2022:
GBP4,187,000).
Dividend withholding tax
The Company and its subsidiary are also subject to withholding
tax on their dividend income in India. The withholding tax charge
for the Company for the period ended 30 June 2023 was GBP7,000 (30
June 2022: GBP5,000) and for its subsidiary was GBP70,000 (30 June
2022: GBP36,000).
7. Segmental information
The Board has considered the provisions of IFRS 8 in relation to
segmental reporting and concluded that the Company's activities are
from a single segment under the standard. From a geographical
perspective, the Company's activities are focused in a single area
- India. The subsidiary, ICG Q Limited, focuses its investment
activities in listed securities in India. Additional disclosures
have been provided in this Interim Report as elaborated in the
Directors' Report to disclose the underlying information.
8. Share Capital
Authorised Share Capital
Unlimited number of Ordinary Shares of GBP0.01 each
Number Share
Issued share capital of shares capital
GBP000
At 30 June 2023 96,515,653 965
=========
At 30 June 2022 96,515,653 965
=========
At 31 December
2022 96,515,653 965
=========
The Ordinary Shares of the Company carry the following
rights:
(i) The holders of Ordinary Shares have the right to receive in
proportion to their holdings all the revenue profits of the Company
(including accumulated revenue reserves) attributable to the
Ordinary Shares as a class available for distribution and
determined to be distributed by way of interim and/or final
dividend at such times as the Directors may determine.
(ii) On winding-up of the Company, after paying all the debts
attributable to and satisfying all the liabilities of the Company,
holders of the Ordinary Shares shall be entitled to receive by way
of capital any surplus assets of the Company attributable to the
Ordinary Shares as a class in proportion to their holdings.
(iii) Subject to any special rights or restrictions for the time
being attached to any class of shares, on a show of hands every
member present in person has one vote. Upon a poll every member
present in person or by proxy has one vote for each share held by
him.
Treasury shares
Treasury shares are equity instruments which are created when
the Company reacquires its own ordinary shares. Treasury shares are
recognised at the consideration paid, including any attributable
transaction costs net of income taxes. Where such shares are
subsequently sold or reissued, any consideration received, net of
transaction costs, is included in the shareholders' equity. No gain
or loss is recognised on the purchase, sale, issue or cancellation
of the Company's own ordinary shares.
There was a total buy back of 15,574,076 ordinary shares during
the period ended 31 December 2022. These shares were transferred
from Issued Share Capital Account to Treasury Shares Account and
were purchased at a discount to the NAV per share. There were no
share buy backs for the first half of 2023.
Number Treasury
Ordinary shares held in treasury of shares shares
GBP000
Ordinary shares held in treasury
as at 30 June 2023 15,986,520 160
Activity up to 30 June
2022 15,574,076 156
==========
Activity up to 31 December
2021 412.444 4
==========
9. Fair value of financial instruments
The following tables show financial instruments recognised at
fair value, analysed between those whose fair value is based
on:
-- Quoted prices in active markets for identical assets or liabilities (Level 1);
-- Those involving inputs other than quoted prices included in
Level 1 that are observable for the asset or liability, either
directly (as prices) or indirectly (derived from prices) (Level 2);
and
-- Those with inputs for the asset or liability that are not
based on observable market data (unobservable inputs) (Level
3).
The analysis as at 30 June 2023 is as follows:
Level Level
Level 1 2 3 Total
----------- --------- ------- ---------
GBP000 GBP000 GBP000 GBP000
Listed securities 19,122 - - 19,122
Unlisted securities - 120,812 - 120,812
----------- --------- ------- ---------
19,122 120,812 - 139,934
=========== ========= ======= =========
The analysis as at 30 June 2022 is as follows:
Level 1 Level 2 Level 3 Total
----------- -------- -------- --------
GBP000 GBP000 GBP000 GBP000
Listed securities 10,042 - - 10,042
Unlisted securities - 99,752 - 99,752
----------- -------- -------- --------
10,042 99,752 - 109,794
=========== ======== ======== ========
The analysis as at 31 December 2022 is as follows:
Level 1 Level 2 Level 3 Total
----------- --------- -------- ---------
GBP000 GBP000 GBP000 GBP000
Listed securities 14,038 - - 14,038
Unlisted securities - 120,948 - 120,948
----------- --------- -------- ---------
14,038 120,948 - 134,986
=========== ========= ======== =========
The Company's investment in ICG Q Limited, the Company's wholly
owned unlisted subsidiary, is priced based on the subsidiary's net
asset value as calculated as at the reporting date. The Company has
the ability to redeem its investment in ICG Q Limited at the net
asset value at the measurement date therefore this is categorised
as Level 2. All the underlying investments of ICG Q Limited are
categorised as Level 1 at 30 June 2023 and 2022. There have been no
transfers between levels during the period. The period-end fair
value of those investments, together with cash held in ICG Q
Limited, comprise all but an insignificant proportion of the net
asset value of the subsidiary.
The Board has agreed with the Manager, a gradual reduction in
Company holdings in ICG Q in order to streamline the structure and
reduce overall costs.
10. Financial instruments and risk profile
The primary objective of the Company is to provide long-term
capital appreciation by investing predominantly in companies based
in India. The investment policy permits making investments in a
range of equity and equity linked securities of such companies. The
portfolio of investments comprises listed Indian companies,
predominantly mid cap and small cap.
The specific risks arising from exposure to these instruments
and the Investment Manager's policies for managing these risks,
which have been applied throughout the period, are summarised
below:
Capital management
The Company is a closed-ended investment company and thus has a
fixed capital for investment. It has no legal capital regulatory
requirement. The Board has the power to purchase shares for
cancellation thus reducing capital and the Board considers on a
regular basis whether it is appropriate to exercise such powers. In
the period ended 30 June 2023, the Board determined that it was
inappropriate to exercise such powers, although continuation of
these powers will be sought at the next Annual General Meeting.
The Board also considers from time to time whether it may be
appropriate to raise new capital by a further issue of shares. The
raising of new capital would, however, be dependent on there being
genuine market demand.
Market Risk
Market price risk arises mainly from the uncertainty about
future prices of the financial instrument held by the Company and
its subsidiary, ICG Q Limited ("the Group"). It represents the
potential loss the Group may suffer through holding market
positions in the face of price movements.
The Group's investment portfolio is exposed to market price
fluctuations which are monitored by the Investment Manager in
pursuance of the investment objectives and policies and in
adherence to the investment guidelines and the investment and
borrowing powers set out in the Admission Document. The Group's
investment portfolio is concentrated and, as at 30 June 2023,
comprised investment in less than 35 companies. Thus, the Group has
higher exposure to market risk in relation to individual stocks
than more broadly spread portfolios.
The Group's investment portfolio consists predominantly of mid
cap and small cap listed Indian securities, and thus the effect of
market movements is not closely correlated with the principal
market index, the BSE Sensex. The BSE Mid Cap Total Return Index
provides a better (but not ideal) indicator of the effect of market
price risk on the portfolio. Assuming perfect correlation, the
sensitivity of the Group's investment portfolio to market price
risk can be approximated by applying the percentage of funds
invested (2023: 94.7%; 30 June 2022: 86.3%) to any movement in the
BSE Mid Cap Total Return Index. At 30 June 2023, with all other
variables held constant, this approximation would produce a
movement in the net assets of the Group's investment portfolio of
GBP14,303,000 (30 June 2022: GBP9,576,000) for a 10% (30 June 2022:
10%) movement in the index which would impact the Company via a
fair value movement of the same magnitude in its holding in ICG Q
Limited and its investments.
Foreign currency risk
Foreign currency risk arises mainly from the fair value or
future cash flows of the financial instruments held by the Group
fluctuating because of changes in foreign exchange rates. The
Group's investment portfolio consists predominantly of Rupee
denominated investments but reporting, and in particular the
reported NAV, is denominated in Sterling. Any appreciation or
depreciation in the Rupee would have an impact on the performance
of the Company. The underlying currency risk in relation to the
Group's investment portfolio is the Rupee. The Group's policy is
not to hedge the Rupee exposure.
The Group may enter into currency hedging transactions but
appropriate mechanisms on acceptable terms are not expected to be
readily available.
At 30 June 2023, if the Indian Rupee had strengthened or
weakened by 10% (30 June 2022: 10%) against Sterling with all other
variables held constant, pre-tax profit for the period would have
been GBP12,600,600 (30 June 2022: GBP10,164,000) higher or lower,
respectively, mainly as a result of foreign exchange gains or
losses on translation of Indian Rupee denominated financial assets
designated at fair value through profit or loss in ICG Q Limited,
the consequent impact on the fair value of the Company's investment
in ICG Q Limited and in the Company's investment portfolio.
Credit risk
Credit risk arises mainly from an issuer or counterparty being
unable to meet a commitment that it has entered into with the
Group. Credit risk in relation to securities transactions awaiting
settlement is managed through the rules and procedures of the
relevant stock exchanges. In particular settlements for
transactions in listed securities are affected by the custodian on
a delivery against payment or receipt against payment basis.
Transactions in unlisted securities are effected against binding
subscription agreements.
The principal credit risks are in relation to cash held by the
custodian. Kotak Mahindra Bank Limited ("Kotak") acts as the
custodian to the Group. The aggregate exposure to Kotak at 30 June
2023 was GBP5,498,841 (30 June 2022: GBP700,000).
Kotak acted as custodian of the Group's assets during the
period. The securities held by Kotak as custodian are held in trust
and are registered in the name of the Group. Kotak has a credit
rating of AAA.
Interest rate risk
Interest rate risk represents the uncertainty of investment
return due to changes in the market rates of interest. The direct
effect of movements in interest rates is not material as any
surplus cash is predominantly in Indian Rupees, and foreign
investors are not permitted to earn interest on Rupee balances.
Liquidity risk
Liquidity risk arises mainly from the Group encountering
difficulty in realising assets or otherwise raising funds to meet
financial commitments. The Group has no unlisted securities, and
its focus is to invest predominantly in mid and small cap listed
stocks, which may take time to realise. The Directors do not
believe that the market is inactive enough to warrant a discount
for liquidity risk on the Group's investment portfolio.
ICG Q Limited seeks to maintain sufficient cash to meet its
working capital requirements. The Directors do not believe it to be
appropriate to adjust the fair value of the Company's investment in
ICG Q Limited for liquidity risk, as it has the ability to effect a
disposal of any investment in ICG Q Limited's investment portfolio
at the prevailing market price and the distribution of proceeds
back to the Company should it so wish.
All liabilities are current and due on demand.
Taxation risk
Taxation risk arises mainly from the taxation of income and
capital gains of the Group increasing as a result of changes in the
tax regulations and practice in Guernsey, Mauritius and India. The
Company and ICG Q Limited are registered with the Securities and
Exchange Board of India ("SEBI") as a foreign portfolio investor
("FPI") with a Category I licence, and ICG Q Limited holds a
Category 1 Global Business Licence in Mauritius and has obtained a
Mauritian Tax Residence Certificate ("TRC") which have been factors
in determining its resident status under the India-Mauritius Double
Taxation Avoidance Agreement ("DTAA") and General Anti Avoidance
Rules ("GAAR") under the Income Tax Act 1961 ("ITA").
However, with effect from April 2017, the DTAA was amended such
that the advantages of investing in India via Mauritius were
removed and capital gains arising from investments in Indian
companies are subject to Indian Capital Gains Tax regulations.
Consequently, tax on short term capital gains (for investments held
less than 12 months) of 15% and long-term capital gains (for
investments held for 12 months or longer) of 10% apply to the
investment portfolio.
The Group seeks to minimise the impact of these changes in the
taxation rates applicable to its capital gains by maintaining its
investment strategy of investing in a concentrated portfolio for
long term capital appreciation.
11. Related party transactions and material contracts
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial or operational
decisions.
The Directors are responsible for the determination of the
investment policy and have overall responsibility for the Company's
activities. Directors' fees are disclosed fully in each Annual
Report.
The Investment Manager is entitled to receive a management fee
payable jointly by the Group equivalent to 1.25% per annum of
market capital value, calculated and payable monthly in arrears.
The Investment Manager earned GBP760,000 in management fees during
the six months ended 30 June 2023 (six months ended 30 June 2022:
GBP650,000 and year ended 31 December 2022: GBP1,370,000) of which
GBP136,000 was outstanding at 30 June 2023 (30 June 2022: GBP97,000
and 31 December 2022: GBP125,000).
Under the terms of the Administration Agreement, Apex Fund and
Corporate Services (Guernsey) Limited is entitled to a minimum
annual fee of US$41,000 or a flat fee of 5 basis points of the NAV
of the Company, whichever is greater.
The Administrator is also entitled to reimbursement of all out
of pocket expenses. The Administrator earned GBP39,000 for
administration and secretarial services during the six months ended
30 June 2023 (six months ended 30 June 2022: GBP22,000 and year
ended 31 December 2022: 77,000) of which GBP18,000 was outstanding
at 30 June 2023 (30 June 2022: GBP25,000 and 31 December 2022:
GBP19,000).
12. Contingent liabilities
The Directors are not aware of any contingent liabilities as at
30 June 2023 and the date of approving these unaudited condensed
financial statements.
13. Subsequent events
There have been no material events since the end of the
reporting period which would require disclosure or adjustment to
the unaudited financial statements for the period ended 30 June
2023.
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END
IR BRGDCDGDDGXG
(END) Dow Jones Newswires
September 21, 2023 02:00 ET (06:00 GMT)
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