India CapitalGrwthFd - Annual Results for the year ended 31 December 2022
30/03/2023 07:00
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RNS Number : 6815U India Capital Growth Fund Limited 30 March 2023
LEI: 213800TPOS9AM7INH846
INDIA CAPITAL GROWTH FUND LIMITED
Annual Results for the year ended 31 December 2022
30 March 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 year ended 31 December 2022.
Highlights
2022 2021 % change
Per Ordinary Share
Net Asset Value (NAV) 140.06p 134.74p 3.9%
Share price 129.00p 119.75p 7.7%
Share price discount to NAV 7.9% 11.1%
FX impact
Indian Rupee / Sterling 99.74 100.30 0.6%
· In 2022 the NAV rose 3.9%, outperforming the BSE Midcap TR Index,
which increased 3.2%.
· The NAV of the portfolio, before deferred tax provision relating
to potential Indian Capital Gains Tax, rose by 4.3% outperforming emerging
markets as a whole which fell 13% during the year
· The discount narrowed over the year to just over 7.9% at the year
end. The Board intends to continue to repurchase shares when the discount is
inappropriately wide, unless in volatile conditions
· The second Redemption Point will be at 31 December 2023 for
eligible shareholders on the register at 30 September 2023 when the Exit
Discount will be no more than 3%
· The Indian Rupee continued to remain relatively stable backed by
significant foreign currency reserves helped in part by the rising export of
IT services offsetting the cost of fluctuating oil imports
· On 6 March 2023 AssetCo PLC, founded and chaired by Martin
Gilbert, acquired the Company's investment manager, Ocean Dial Asset
Management Limited, subject to regulatory approvals from the FCA and
regulators in India. The successful investment team in India, led by Gaurav
Narain, continues unchanged
Elisabeth Scott, Chair of India Capital Growth Fund, said:
"Despite all the global uncertainties of 2022, it is clear that India and its
economy have been resilient and investors in emerging markets have favoured
India over the stock markets of other emerging markets. While it is
perfectly reasonable to expect that other emerging markets may catch up in
terms of relative performance, the outlook for the Indian economy is positive
and Indian companies will benefit from this and from the improvement in
governance standards.
The Board believes that, particularly in this uncertain environment, the
Company's focus on high quality companies with strong management capabilities
and a clear path to growth will generate positive investment returns over
time."
ENQUIRIES
David Cornell
Swati Jain
Ocean Dial Asset Management
+44 (0) 7917 461942
+44 (0) 7545 759267
david.cornell@oceandial.com
swati.jain@oceandial.com
William Clutterbuck
Rachel 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 (http://www.indiacapitalgrowth.com/)
CHAIR'S STATEMENT
After a very strong year for Indian equity markets in 2021, 2022 saw Indian
equities show a positive performance, contrasting with the negative returns
experienced in other global equity markets. While the global economy and
equity markets suffered from Russia's shock invasion of Ukraine and the
consequent increase in energy prices, India's economic momentum gained pace,
with capital expenditure growing, the real estate sector showing signs of
recovery and consumer demand continuing to rise. With healthy foreign exchange
reserves (the fourth largest in the world at USD560bn), the currency has been
resilient, compared with previous economic shocks despite the headwind of high
oil prices.
Performance
Your Company reported growth in its Net Asset Value (NAV) of 3.9% over the
year, which compared favourably to the benchmark index, the S&P BSE Midcap
Total Return Index, which rose by 3.2%. The share price rose by 7.7% as the
discount narrowed over the year. Key to this outperformance was the overweight
position in the financial sector, where the Company's long term holdings in
Federal Bank and IndusInd Bank performed well.
The Investment Manager's Report provides more information on the performance
of the companies held in the Company's portfolio. The Report illustrates how
the Manager's long term active style continues to benefit performance.
Environmental, Social & Governance ("ESG")
The Board is pleased that the Investment Manager has continued to build its
ESG capability. The bespoke in-house process allows the Manager to screen out
companies with corporate governance issues. One such example was the Manager's
decision to avoid all the Adani Group of companies, which hurt performance in
2021 and 2022, but, following the year end, has been justified by the recent
exposure of some alleged doubtful business practices resulting in a sharp fall
in the Adani Group companies' share prices.
The Manager continues to engage with the management of portfolio companies to
persuade them to improve their disclosures of their ESG practices. In an
example of this, JK Lakshmi Cement published its first detailed sustainability
report. It is probable that disclosure levels will improve in India. The
Securities Exchange of India has announced that the top 1000 companies by
market capitalisation will be required to make ESG disclosures.
Redemption Facility
The second redemption point at which shareholders in the Company can request
redemption of part or all of their shareholding on the record date of 30
September 2023 will be on 31 December 2023. The Board has agreed that the exit
discount at this redemption point will be no more than 3%. Shareholders will
be reminded of this in the interim report and again in market announcements
before the final notice date.
Further details of the Redemption Facility are available on our website
www.indiacapitalgrowth.com (http://www.indiacapitalgrowth.com)
Discount
The Company's share price discount to NAV began the year at 11.1% and closed
at 7.9% reaching a month end low of 6.8% during the year. This discount was
narrower than or in line with many other closed ended investment companies,
especially those investing in emerging markets.
Over the year the company bought back 165,204 of its shares in the market at
average price of 102.86p per share. The Board believes that it is in
shareholders' interests that the Company's share price should more closely
reflect the prospects of the Company. The Board also notes that the repurchase
of shares at a discount to NAV is accretive to the NAV of the Company. The
Board works with the Company's broker, Shore Capital, in this regard.
Corporate Governance
The Company is a member of the Association of Investment Companies (AIC) and
seeks to follow best practice regarding appropriate disclosures and
governance. The governance principles that the Board has adopted are designed
to ensure that the Company delivers long term value to its shareholders and
treats all shareholders equally. All shareholders are encouraged to have an
open dialogue with the Board throughout the year, and the Board can be
contacted via the Company's website or the Company Secretary.
We welcomed Nick Timberlake to the Board in July 2022. Nick has considerable
experience of the asset management sector and emerging markets in particular.
Investment Manager
On 6 March 2023 we announced that AssetCo PLC, founded and chaired by Martin
Gilbert, has acquired the Company's investment manager, Ocean Dial Asset
Management Limited, subject to regulatory approvals from the FCA and
regulators in India. The Board supports this transaction and welcomes the
change in ownership to a more fully resourced UK asset management group. Most
importantly, the successful investment team in India, led by Gaurav Narain,
continues unchanged.
Investor Relations
Ocean Dial has conducted a number of webinars for current and prospective
shareholders in India Capital Growth during the year and the Board has been
pleased with the level of engagement from shareholders. We have made
considerable efforts to get in touch with shareholders who hold their shares
via platforms and encourage any shareholder to contact us via the Company's
website or the Company Secretary if they would like to receive notice of
upcoming events.
The Company has presented at a number of investor events hosted by
publications, platforms and wealth management companies.
The Company retains the services of a PR agency. With their help, the Company
has appeared in more than 30 articles in the UK press, podcasts and webinars
during the year. The Board believes that this is an effective mechanism for
drawing attention to the Company, encouraging prospective shareholders to buy
shares and, in the long term, to improve the discount at which the Company's
shares trade.
Outlook
Despite all the global uncertainties of 2022, it is clear that India and its
economy have been resilient in the face of these challenges and that investors
in emerging markets have favoured India over the stock markets of other
emerging markets. While it is reasonable to expect that other emerging
markets may catch up in terms of relative performance, the outlook for the
Indian economy is positive and Indian companies will benefit from this and
from the improvement in governance standards.
The Board believes that, particularly in this uncertain environment, the
Company's focus on high quality companies with strong management capabilities
and a clear path to growth will generate positive investment returns over
time.
Thank you for your support over the past year.
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.
The portfolio concentration ranges between 30 and 40 stocks; however, to the
extent the Company grows, the number of stocks held may increase over time.
The Company is subject to the following investment limitations: No more than
10 per cent. of Total Assets may be invested in the securities of any one
Issuer or invested in listed closed-ended funds.
INVESTMENT MANAGER'S REPORT
Introduction
2022 may not have been as good as 2021 in terms of absolute performance for
Indian equities but it was a great year for India especially against other
emerging markets. India also stood out in terms of relative performance
against global equities which had their worst year since 2008.
The Company's net asset value (after deferred tax provisions for Indian CGT)
rose 3.9% (37.9% in 2021), whilst its index (S&P BSE Midcap Total Return)
rose 3.2%, (39.7% in 2021). Emerging Markets as a whole (MSCI EM GBP) fell 13%
in 2022, further highlighting India's comparative strength.
The performance is particularly gratifying as it comes on the back of a
challenging global environment - the Russia Ukraine War; a spike in oil
prices; rising interest rates; and a flight of capital out of emerging markets
including India. In the past, the occurrence of any one of these factors would
have led to a sell-off in the Indian equity markets.
The economy has shown `resilience', and this is a word we used repeatedly to
describe India in the year 2022 which demonstrated that the fundamentals of
the economy are stronger than ever. The Government strategy of limiting
"freebies" during Covid but instead increasing spending on capex to aid the
growth recovery, had a positive impact.
Outlook for 2023
As we enter 2023, we are confronted with divergent commentaries: a) Western
economies where discussions are centred around the probability of a recession;
and b) positive and optimistic India where sustaining a 6-8% GDP growth for
the next decade is the focal point of discussion. The positive outlook is
reinforced by IMF / World Bank forecasts which list India as being among the
fastest growing large economies in the world in the short term, and over the
next decade emerging as the 3(rd) largest economy globally (India's GDP
surpassed that of the UK in Q4 2022 to make it the 5(th) largest economy in
the world). The Government has set a target of being a US$ 10tr economy in the
next decade (compared with US$ 3.5tr at present). This optimism is also
reflected in the management commentary of most corporates.
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. An illustration of this scoring model is provided in the
ESG report which highlights our focus on the direction of travel, rather than
the absolute numbers in isolation, in reporting upon and reducing the climate
impact factors of companies in the 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.
Portfolio Attribution and Positioning
Over the year, the net asset value of the portfolio rose by 4.3% (before
deferred tax provisions for Indian CGT, 3.9% is the performance post CGT)
compared to the benchmark S&P BSE Midcap TR index returning 3.2% in
sterling terms. The portfolio is positioned to take advantage of key themes we
see playing out over the next few years - namely a) mainstreaming of
digitization; b) China+1 and de-risking of global supply chains; c)
consumption revival and d) domestic capex recovery. These have played out
well. Sector allocation was the main driver of positive performance, though
stock selection also contributed.
Reflecting on the performance during 2022
At a sector level, the main contributors to positive performance were
healthcare, financials, energy, consumer staples, materials and communication
services. Sectors that dragged performance lower were led by information
technology, utilities and industrials.
At a stock level, financials led the way with all four banks in the portfolio
led by Federal Bank (up 71%) and IndusInd Bank (up 39%) delivering positive
returns on the back of strong operating performance. Ramkrishna Forgings (auto
ancillary) also rose 40% driven by a bounce back in the domestic commercial
vehicle sales and new order wins in exports. In the Industrial space, Skipper
(engineering products) rose 61% while PSP Projects (construction company) rose
46%. Both companies have seen a rise in their order books as the capex cycle
picks up pace. Another notable performer was Jyothy Labs (consumer staples)
which rose 51% on the back of consistently delivering above market revenue
growth with market share gains. Within materials, JK Lakshmi was among the top
performing Cement companies.
Adverse stock performers were led by the global facing companies, all of which
corrected in anticipation of slowdown in growth rates. This was led by Welspun
India (Textiles) down 46%. Both our IT service companies, Tech Mahindra (down
40%) and Persistent (down 20%) also de-rated, even though earnings remained
robust. Sona BLW (Auto Ancillary) also declined 43% on fears of a global auto
slowdown. At an index level, our absence in Varun Beverage (consumer staple)
which rose 125% and Adani Power (utility) which rose 201% also detracted from
our performance.
We continue to hold on to our underperforming companies as the business models
remain robust and do not alter our long-term thesis on these businesses.
Moreover, the price correction makes valuations even more compelling as it has
not been accompanied by a similar downgrade in earnings.
The portfolio finished the year with 35 stocks. Gujarat Gas (city gas
distribution), Aegis Logistics (gas and liquid logistics), Star Healthcare
(general insurance) and Divis Laboratories (pharmaceuticals) were sold during
the year. Six portfolio additions were made including Vedant Fashions
(garments), Coforge (IT Services), Cholamandalam Investments (non-bank
financial company), Star Healthcare (general insurance), Ashok Leyland
(commercial vehicle) and Uniparts (auto ancillary). Star Healthcare was added
and exited during the year because of the strong run-up in price (over 30%)
during our holding period. Our portfolio turnover remained low at 12.6%. We
have been actively and consciously managing the individual stock weights and
have used the volatility to book gains or add weight to several stocks within
the portfolio.
Current positioning and expectations thereof
As we enter 2023, our largest sector exposure is in the financial space which
has a long runway on growth, low risk on credit quality for the next 2 years
(at the very least), and yet valuations are reasonable. Credit growth is
trending in double digits and banks are well capitalised.
Our second largest exposure is in consumer companies which are our earnings
compounders. We have a wide range of consumer businesses from staples,
building materials, quick service restaurants, garments and even electronic
manufacturing services. The consumer portfolio has seen a decisive tilt
towards more discretionary plays over staples. We are playing the pick-up in
domestic growth and real estate revival through exposure in cement (11%) and
industrial (5%) stocks. At the same time we are also well positioned to
capitalise on the gains India is likely to make as economies rebalance supply
chains out of China. There are several stocks across sectors which are already
seeing a positive impact including Dixon & Kajaria (consumer), Welspun
(textiles), Skipper (industrial). Others like PI Industries & Aarti
(specialty chemicals) are also potential gainers.
With respect to our benchmark, our overweights are in financials, IT and
metals. Our metals exposure is not through any global commodities but instead
through cement and speciality chemicals companies. We are underweight
healthcare, having exited Divis Laboratories. One of our biggest underweights
remains utilities.
We are entering Indian Fiscal FY24 (year ending 31 March 2024) with one of the
highest aggregate earnings growth for our portfolio. This does include above
average numbers with sectors like cement and banks benefiting due to a low
base effect. In parallel, we expect margins across portfolio companies to rise
as commodity prices settle.
We remain confident with our positioning as we enter the year with a portfolio
having higher growth and lower valuation than the broader market.
As at 31(st) December 2022 P/E FY23 P/E FY24 Earnings Growth FY23 Earnings Growth FY24
ICGF Portfolio 23.1 16.9 23.0% 36.5%
Nifty 50 22.2 18.9 15.1% 17.8%
PRINCIPAL INVESTMENTS OF THE GROUP
As at 31 December 2022
Holding Market cap size(1) Sector Value % of Company NAV
£000
Federal Bank M Financials 10,050 7.2%
IDFC Bank M Financials 8,303 5.9%
Indusind Bank L Financials 7,321 5.2%
City Union Bank S Financials 5,903 4.2%
Ramkrishna Forgings S Materials 5,799 4.1%
Emami M Consumer Staples 5,144 3.7%
Persistent Systems M Information Technology 4,981 3.6%
PI Industries M Materials 4,922 3.5%
JK Lakshmi Cement S Materials 4,588 3.3%
Skipper S Industrials 4,562 3.3%
Balkrishna Industries M Consumer Discretionary 4,466 3.2%
Neuland Laboratories S Health Care 4,366 3.1%
Kajaria Ceramics M Industrials 4,044 2.9%
Affle India S Communication Services 4,016 2.9%
Jyothy Laboratories S Consumer Staples 4,005 2.9%
Multi Commodity Exchange S Financials 3,868 2.8%
CCL Products India S Consumer Staples 3,864 2.8%
Bajaj Electricals S Consumer Discretionary 3,808 2.7%
Sagar Cements S Materials 3,767 2.7%
Tech Mahindra L Information Technology 3,462 2.5%
Total top 20 portfolio investments 101,239 72.5%
PORTFOLIO STATEMENT
As at 31 December 2022
HOLDING Market cap Nominal Value % of
size
£000
company
NAV
LISTED SECURITIES
Communication Services
Affle India Ltd S 370,000 4,016 2.9%
4,016 2.9%
Consumer Discretionary
Bajaj Electricals S 312,734 3,808 2.7%
Balkrishna Industries M 209,000 4,466 3.2%
Dixon Technologies M 78,000 3,053 2.2%
Jubilant Foodworks M 287,500 1,473 1.1%
Sona BLW Precision Forgings M 690,000 2,902 2.1%
Uniparts India S 505,267 2,915 2.1%
Vedant Fashions M 116,638 1,565 1.1%
Welspun India S 4,099,080 3,169 2.3%
23,351 16.8%
Consumer Staples
CCL Products India S 727,883 3,864 2.8%
Emami M 1,207,126 5,144 3.7%
Jyothy Laboratories S 1,950,272 4,005 2.9%
13,013 9.4%
Financials
Cholamandalam Investment and Finance Company M 175,000 1,268 0.9%
City Union Bank S 3,264,000 5,903 4.2%
IDFC Bank M 14,085,000 8,303 5.9%
Indusind Bank L 598,500 7,321 5.2%
Multi Commodity Exchange S 248,227 3,868 2.8%
Federal Bank M 7,209,380 10,050 7.2%
36,713 26.2%
Healthcare
Aarti Pharmalabs Unlisted 102,108 389 0.3%
Neuland Laboratories S 261,227 4,366 3.1%
4,755 3.4%
Industrials
Ashok Leyland M 1,800,000 2,588 1.9%
Finolex Cables S 574,585 3,151 2.3%
Kajaria Ceramics M 347,698 4,044 2.9%
PSP Projects S 459,000 3,223 2.3%
Skipper S 3,600,000 4,562 3.3%
17,568 12.7%
IT
Coforge M 30,000 1,168 0.8%
Persistent Systems M 128,355 4,981 3.6%
Tech Mahindra L 339,719 3,462 2.5%
9,611 6.9%
Materials
Aarti Industries M 408,435 2,498 1.5%
Essel Propack S 1,141,000 1,952 1.4%
JK Lakshmi Cement S 560,515 4,588 3.3%
PI Industries M 143,556 4,922 3.5%
Ramkrishna Forgings S 2,200,000 5,799 4.1%
Sagar Cements S 1,611,000 3,767 2.7%
The Ramco Cements S 238,500 1,674 1.2%
25,200 17.7%
Total equity investments (including those held by ICG Q Limited) 134,227 96.0%
Cash less other net current liabilities 5,555 4.0%
Total Net Assets (before deferred taxation for Indian CGT) 139,782 100.0%
Deferred tax provision for Indian CGT (4,603)
Total Net Assets (after deferred tax provision for India CGT) 135,179
Notes:
L: Large cap - companies with a market capitalisation above US$8bn 7.7%
M: Mid cap - companies with a market capitalisation between US$2bn and US$8bn 41.6%
S: Small cap - companies with a market capitalisation below US$2bn 46.4%
Unlisted 0.3%
96.0%
AUDITED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
2022 2021
Notes Revenue £000 Capital £000 Total Total
£000
£000
Income
Dividend income 113 - 113 94
Foreign exchange gain 65 - 65 2
Net gain on financial assets at fair value through profit or loss - 4,374 4,374 42,315
Total income 178 4,374 4,552 42,411
Expenses
Operating expenses 3 (534) - (534) (586)
Transaction costs (22) - (22) (4)
Total expenses (556) - (556) (590)
Profit for the year before taxation (378) 4,374 3,996 41,821
Taxation 6 (24) (199) (223) (217)
Total comprehensive income for the year (402) 4,175 3,773 41,604
Earnings per Ordinary Share (pence) 4 3.88 36.99*
(*prior year restated)
Diluted earnings per Ordinary Share (pence) (*prior year restated) 4 3.88 36.99*
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 after tax is the "total comprehensive income" 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.
AUDITED STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
2022 2021
Notes £000 £000
Non-current assets
Financial assets designated at fair value through profit or loss 5 134,986 148,786
Current assets
Cash and cash equivalents 646 2,510
Other receivables and prepayments 158 180
804 2,690
Current liability
Payables and accruals (214) (247)
Net current assets 590 2,443
Non-current liability
Deferred Taxation 6 (397) (198)
Net assets 135,179 151,031
Equity
Share capital 8 965 1,121
Reserves 134,214 149,910
Total equity 135,179 151,031
Number of Ordinary Shares in issue 8 96,515,653 112,089,729
Net Asset Value per Ordinary Share (pence) 140.06 134.74
- Undiluted and diluted
AUDITED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
Share Capital £000 Capital Reserve £000 Revenue Reserve £000 Other Distributable Reserve £000 Total £000
Notes
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
For the year ended 31 December 2021
Share Capital £000 Capital Reserve £000 Revenue Reserve £000 Other Distributable Reserve £000 Total £000
Notes
Balance as at 1 January 2021 1,125 25,093 (10,524) 94,221 109,915
Gain on investments 5 - 42,315 - - 42,315
8 (4) - - (484) (488)
Share repurchase
Total revenue loss for the year - - - (711) (711)
Balance as at 31 December 2021 1,121 67,408 (10,524) 93,026 151,031
AUDITED STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
2022 2021
£000 £000
Cash flows from operating activities
Operating profit 3,996 41,623
Adjustments for:
Net gain on financial assets at fair value through profit or loss (4,374) (42,315)
Foreign exchange gain (65) (2)
Dividend income (113) (94)
Decrease in other receivables and prepayments 22 91
(Decrease)/increase in payables and accruals (33) 265
Cash used in operations (567) (432)
Withholding tax deducted (24) (19)
Net cash flows used in operating activities (591) (451)
Cash flows from investing activities
Dividend income 113 94
Acquisition of investments (5,441) (1,029)
Disposal of investments 23,615 4,253
Net cash flows from investing activities 18,287 3,318
Cash flows from financing activities
Redemption of shares (19,625) (488)
Net cash used in financing activities (19,625) (488)
Net (decrease)/increase in cash and cash equivalents during the year (1,929) 2,379
Cash and cash equivalents at the start of the year 2,510 129
Foreign exchange gain 65 2
Cash and cash equivalents at the end of the year 646 2,510
NOTES TO THE AUDITED FINANCIAL STATEMENTS
1. Accounting Policies
Basis of accounting
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the EU and interpretations
adopted by the International Accounting Standards Board (IASB).
Basis of preparation
The financial statements for the year ended 31 December 2022 have been
prepared under the historical cost convention adjusted to take account of the
revaluation of the Company's investments to fair value.
Where presentational guidance set out in the Statement of Recommended Practice
(SORP) for Investment Trust Companies and Venture Capital Trusts issued by the
Association of Investment Companies (AIC) in November 2014, and subsequently
revised in November 2019, is consistent with the requirements of IFRS, the
Directors have sought to prepare the financial statements on a basis compliant
with the recommendations of the SORP. In particular, supplementary information
which analyses the statement of comprehensive income between items of a
revenue and capital nature has been presented alongside the statement of
comprehensive income.
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 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 (74.1% of the portfolio can be liquidated
within 5 days); the performance of the investment portfolio (the net asset
value of the Company increased 3.9% in the year); the overall size of the
Company and its impact on the Ongoing Charges of the Company (the net asset
value of the Company exceeded £100m throughout the year); the level of
operating expenses covered by highly liquid investments held in the portfolio
(operating expenses are 50 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 working 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 redemptions 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 seeking long term value
growth on the share register 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 are satisfied that the Company has sufficient liquid resources
to continue in business for the next twelve months, therefore the financial
statements have been prepared on a going concern basis.
Impact of IFRS 10 'Consolidated Financial Statements'
As set out under IFRS 10, a parent entity that qualifies as an investment
entity should not consolidate its subsidiaries. The Company meets all the
following criteria to qualify as an investment entity: -
(i) Obtaining funds from one or more investors for the purpose of
providing those investors with investment management services - the Board of
Directors of the Company has delegated this function to its investment
manager, Ocean Dial Asset Management Limited;
(ii) Commits to its investors that its business purpose is to invest funds
solely for returns from capital appreciation, investment income or both -
funds are invested in ICG Q Limited for the sole purpose of achieving capital
appreciation via further placements in Indian listed securities; and
(iii) Measures and evaluates the performance of substantially all of its
investments on a fair value basis - on a monthly basis, the Company's
investment in ICG Q Limited is revalued at the prevailing Net Asset Value at
the corresponding valuation date.
The IFRS 10 Investment Entity Exemption requires investment entities to fair
value all subsidiaries that are themselves investment entities. As the
subsidiary meets the criteria of an investment entity, it has not been
consolidated. On the basis of the above, these financial statements represent
the stand-alone figures of the Company.
Dividend income
Dividend income is recognised when the right to receive payment is
established.
Expenses
Expenses are accounted for on an accrual basis. Other expenses, including
management fees, are allocated to the revenue column of the statement of
profit or loss and other comprehensive income.
Taxation
Full provision is made in the statement of profit or loss and other
comprehensive income at the relevant rate for any taxation payable in respect
of the results for the year.
Deferred taxation
Deferred taxation is recognised in respect of all temporary differences at the
Statement of Financial Position date, where transactions or events that result
in an obligation to pay more tax in the future or right to pay less tax in the
future have occurred at the Statement of Financial Position date. This is
subject to deferred taxation assets only being recognised if it is considered
more likely than not that there will be suitable profits from which the future
reversal of the temporary differences can be deducted. Deferred taxation
assets and liabilities are measured at the rates applicable to the legal
jurisdictions in which they arise, using enacted taxation rates that are
expected to apply at the date the deferred taxation position is unwound.
Financial instruments
The Company's investment in ICGQ Limited is designated at fair value through
profit or loss as the Company meets the definition of an investment entity
under IFRS 10. It is initially recognised at fair value, being the cost
incurred at acquisition. Transaction costs are expensed in the statement of
comprehensive income. Gains and losses arising from changes in fair value are
presented in the statement of comprehensive income in the period in which they
arise.
The investment is designated at fair value through profit or loss at inception
because it is managed, and its performance evaluated on a fair value basis in
accordance with the Company's investment strategy as documented in the
Admission Document and information thereon is evaluated by the management of
the Company on a fair value basis.
The basis of the fair value of the investment in the underlying subsidiary,
ICG Q Limited, is its Net Asset Value. ICG Q Limited's investments are
designated at fair value through profit and loss.
Financial assets
Portfolio investments held by the Company are stated at the mid-market price
quoted on the Indian Stock Exchanges. Purchases and sales are recognised on
the trade date - the date on which the Company commits to purchase or sell the
investment. Realised gains and losses are calculated with reference to book
cost on a FIFO (First in First out) basis.
The financial asset is derecognised when the rights to receive cash flows from
the investment have expired or the Company has transferred substantially all
risks and rewards of ownership.
Impairment of financial assets
The Company holds only cash and cash equivalents with reputable institutions
at amortised cost and, as such, has chosen to apply an approach similar to the
simplified approach for expected credit losses (ECL) under IFRS 9. Therefore,
the Company does not track changes in credit risk, but instead, recognises a
loss allowance based on lifetime ECLs at each reporting date. The Company's
approach to ECLs reflects a probability-weighted outcome, the time value of
money and reasonable and supportable information that is available without
undue cost or effort at the reporting date about past events, current
conditions and forecasts of future economic conditions.
Receivables and Payables
Receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted on an active market. After initial measurement,
such financial assets are subsequently measured at amortised cost using the
effective interest rate method (EIR), less impairment, such impairment to be
determined using the simplified expected credit losses approach in accordance
with IFRS 9. Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral part of the
EIR. The EIR amortisation is included in profit or loss. The losses arising
from impairment are recognised in profit or loss.
Other financial liabilities include all financial liabilities, other than
those classified as at FVPL. The Company includes in this category short-term
payables.
Foreign currency translation
The Company's shares are denominated in Sterling ("£") and the majority of
its expenses are incurred in Sterling. Accordingly, the Board has determined
that the functional currency is Sterling. Sterling is also the presentational
currency of the financial statements.
Monetary foreign currency assets and liabilities are translated into Sterling
at the rate of exchange ruling at the statement of financial position date.
Investment transactions and income and expenditure items are translated at the
rate of exchange ruling at the date of the transactions. Gains and losses on
foreign exchange are included in the statement of comprehensive income.
Cash and cash equivalents
Cash consists of Bank current accounts. Cash equivalents are short-term highly
liquid investments that are readily convertible into known amounts of cash and
which are subject to insignificant changes in value.
Share capital
The share capital of the Company consists of Ordinary Shares which have all
the features and have met all the conditions for classification as equity
instruments under IAS 32 (amended) and have been classified as such in the
financial statements.
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.
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 2022:
· 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 2022:
· 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.
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.
The amendments to IAS 1 are applicable for annual periods beginning on or
after 1 January 2023 with earlier application permitted. Since the amendments
to the Practice Statement 2 provide non-mandatory guidance on the application
of the definition of material to accounting policy information, an effective
date for these amendments is not necessary.
The Company is currently assessing the impact of the amendments to determine
the impact they will have on the Company's accounting policy disclosures.
Prior period errors
During the year ended 31 December 2021, the Company redeemed 412,444 shares
from shareholders. When calculating the Earnings per Ordinary Shares and
Diluted earnings per Ordinary Shares, the closing number of shares in issue of
112,089,729 was used as opposed to the correct weighted average number of
shares during the year of 112,476,020 in an error resulting in reported
Earnings per Ordinary Shares and Diluted earnings per Ordinary Shares of 37.12
pence/share. Management corrected the error in the current period resulting in
the restated Earnings per Ordinary Shares and Diluted earnings per Ordinary
Shares of 36.99 pence/share.
2. Critical accounting judgements
Management 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.
3. Operating expenses
2022 2021
£000 £000
Administration and secretarial fees 77 55
Audit fees (1) 66 27
Broker fee 31 31
D&O insurance 10 12
Directors' fees and expenses 120 111
General expenses 63 101
Marketing expenses 94 53
Other professional fees 36 171
Registrar fee 12 5
Tax Exempt fee - 1
Regulatory fees 25 19
534 586
(1) Audit fees
The audit fee as agreed upon in the letter of engagement for the 2021
financial year was £ 50,000.
The audit fee expense as disclosed in the annual report of 2021 was lower as
result of an over accrual from the prior year that was adjusted accordingly in
the 2021 financial year.
4. Earnings/(loss) per share
Earnings/(loss) per Ordinary Share and the fully diluted loss per share are
calculated on the profit for the year of £3,773,000 (2021 - profit of
£41,604,000) divided by the weighted average number of Ordinary Shares of
97,279,178 (2021 - 112,476,020*).
*During the year ended 31 December 2021, the Company redeemed 412,444 shares
from shareholders. When calculating the Earnings per Ordinary Shares and
Diluted earnings per Ordinary Shares, the closing
number of shares in issue of 112,089,729 was used as opposed to the correct
weighted average number of shares during the year of 112,476,020 in an error
resulting in reported Earnings per Ordinary Shares and Diluted earnings per
Ordinary Shares of 37.12 pence/share. Management corrected the error in the
current period resulting in the restated Earnings per Ordinary Shares and
Diluted earnings per Ordinary Shares of 36.99 pence/share.
5. Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss consists of investments
in securities listed on Indian Stock Exchanges, 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:
2022 2021
£000 £000
Fair value at beginning of year 148,786 109,695
Disposal of investments (23,615) (4,253)
Acquisition of investments 5,441 1,029
Realised gains on disposal of investments 15,787 2,664
Unrealised (losses)/gains on revaluation (11,413) 39,651
Fair value at end of year 134,986 148,786
The net realised and unrealised gains totalling £4,374,000 (2021:
£42,315,000) 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
£2,554,000 (2021: gains of £40,229,000) and gains of £1,820,000 (2021:
gains of £2,086,000) 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.
2022 2021
£000 £000
Dividend income 950 1,095
Other income - 19
Unrealised (loss)/gain on financial assets at fair value through profit and (14,289) 38,681
loss
Foreign exchange (loss)/gain (442) 12
Realised gain on disposal of investments 17,935 6,724
Investment management fees (1,370) (1,507)
Other operating expenses (79) (52)
Withholding tax on dividend income (199) (226)
Deferred taxation for Indian Capital Gains Tax 201 (4,388)
Other Taxes (55) (13)
Transaction costs (98) (97)
Net profit of ICG Q Limited 2,554 40,248
The equity investment represents 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.
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 £1,200 in 2021. For the year ended 31 December 2022, the
Company had a tax liability of £Nil (2021: £Nil).
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 £397,000 at 31 December 2022 (2021: £198,000) and for its
subsidiary was £4,187,000 at 31 December 2022 (2021: £4,388,000).
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
year ended 31 December 2022 was £24,000 (2021: £19,000) and for its
subsidiary was £199,000 (2021: £226,000).
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 Annual Report as elaborated
in the Directors'' Report to disclose the underlying information.
8. Share capital
Authorised Share Capital
Unlimited number of Ordinary Shares of £0.01 each
Issued Share Capital Number of shares Share Capital
£000
Ordinary shares of £0.01 each:
At 31 December 2021 112,089,729 1,121
Shares transferred to treasury (15,574,076) (156)
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 a 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
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 Net Asset Value per share, as per below:
Date Number of shares Par Value (£) Buy Back Price (£) Value of Buy back (£)
17 January 2022 (redemption facility only) * 15,408,872 0.01 1.2626 19,455,449
21 February 2022 ^ 30,201 0.01 1.0800 32,617
24 February 2022 ^ 50,000 0.01 1.0550 52,750
19 May 2022 ^ 10,003 0.01 1.0200 10,203
27 May 2022 ^ 75,000 0.01 0.9914 74,355
Sub-total (buy-back through the market) ^ 165,204 169,925
Total 15,574,076 19,625,374
* Redemption facility resulted in 15,408,872 net shares bought back (not
through the market) and transferred from Issued Share Capital to Treasury
Shares Account.
^ 165,204 Shares bought back in the market and transferred to Treasury Shares
Account.
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 31 December 2022 is as follows:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
£000 £000 £000 £000
Listed securities 14,038 - - 14,038
Unlisted securities - 120,948 - 120,948
Total 14,038 120,948 - 134,986
The analysis as at 31 December 2021 is as follows:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
£000 £000 £000 £000
Listed securities 10,432 - - 10,432
Unlisted securities - 138,354 - 138,354
Total 10,432 138,354 - 148,786
The Company's investment in ICG Q Limited, the Company's wholly owned
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. The classification within the hierarchy does not
necessarily correspond to the Investment Manager's perceived risk of the
investment, nor the level of the investments held within the subsidiary. All
the underlying investments (apart from Aarti Pharmalabs') of ICG Q Limited are
categorised as level 1 at 31 December 2022 and 2021. The year-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.
There has been no movement between levels for the year ended 31 December 2022.
There were no changes in valuation techniques during the year ended 31
December 2022.
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 of
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 year ended 31 December 2022, the Board determined that it was
inappropriate to exercise such powers, although continuation of these powers
will be sought at the 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.
Environmental and social ("E&S") impact risk
E&S impact risk is a transverse risk that impacts most of our other risks:
market risk, foreign currency risk, credit risk, liquidity risk, operational
non-financial risk, legal and regulatory risk and reputation risk. Our
Investment Manager has developed a qualitative scoring model which measures
climate and other environmental impacts and the reporting thereof by the
Company's investment portfolio companies.
The Investment Manager considers all factors that may have a financially
material impact on returns. Climate change is such a key factor. The related
physical and transition risks are vast and are becoming increasingly
financially material for many investments. Not only in the obvious
high-emitting sectors, such as energy, utilities and transportation, but also
along the supply chain, providers of finance and in those reliant on
agricultural outputs and water. It is important that the financial
implications of material climate-change risks are assessed across all asset
classes, including real assets, and make portfolios more resilient to climate
risk. Comparable climate-related data is necessary to enable effective
decision making, and is
something the Investment Manager actively sources and incorporates into its
process and scoring model. Regular engagement with all investee companies
allows the Investment Manager to better understand their exposure and
management of climate change risks and influence corporate behaviour
positively in relation to climate risk management.
Market risk
Market price risk arises mainly from the uncertainty about future price 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 pursuit 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 31 December 2022,
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 (2022: 96.0%;
2021: 93.7%) to any movement in the BSE Mid Cap Total Return Index.
At 31 December 2022, with all other variables held constant, this
approximation would produce a movement in the net assets of the Group's
investment portfolio of £13,423,000 (2021: £14,584,000) for a 10% (2021:
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 of
predominantly Rupee denominated investments but reporting, and in particular
the reported Net Asset Value, 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 31 December 2022, if the Indian Rupee had strengthened or weakened by 10%
(2021: 10%) against Sterling with all other variables held constant, pre-tax
profit for the period would have been £13,913,000 (2021: £14,281,000) 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 affected 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 31 December 2022 was £4,897,000 (2021:
£1,688,130).
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 long-term credit rating of AAA (CRISIL
Ratings - a S&P company).
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. As
the trading volume on the Indian stock markets is lower than that of more
developed stock exchanges the Group may be invested in relatively illiquid
securities. The Group has no unlisted securities and its focus is to invest
predominantly in mid and small cap listed stocks. However, there remain
holdings where there is relatively little market liquidity, 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
ICG Q Limited and the Company 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 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 in the unaudited
Directors' remuneration report.
During the year 2022, the investment management fee was equivalent to 1.25 per
cent per annum of the aggregate value of its assets less current liabilities,
calculated and payable monthly in arrears. The Investment Manager earned
£1,370,000 in management fees during the year ended 31 December 2022 (2021:
£1,507,000) of which £125,000 was outstanding at 31 December 2022 (2021:
£144,000).
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 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 recoverable by way of a fixed disbursement charge of US$50 per month
excluding all international calls and
courier. The Administrator earned £77,000 for administration and secretarial
services during the year ended 31 December 2022 (2021: £55,000) of which
£19,000 was outstanding at 31 December 2022 (2021: £30,000).
12. Contingent liabilities
The Directors are not aware of any contingent liabilities as at 31 December
2022 and at the date of approving these 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 financial statements for the
year ended 31 December 2022.
On 6 March 2023 AssetCo PLC, founded and chaired by Martin Gilbert, acquired
the Company's investment manager, Ocean Dial Asset Management Limited, subject
to regulatory approvals from the FCA and regulators in India. The successful
investment team in India, led by Gaurav Narain, continues unchanged.
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. END FR JLMFTMTATBJJ
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