India CapitalGrwthFd - Half-year Report
21/09/2023 07:00
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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 30 June 2023 Audited 31 December 2022 % change Unaudited 30 June 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 (http://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
(http://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
Holding Sector
Market cap size Value % of Portfolio
£000
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
Notes Revenue £000 Capital £000 Total Total Total
£000
£000
£000
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
4 10.62 (20.84)
Fully diluted earnings/(loss) per Ordinary Share (pence) 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 £000 £000 £000
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) 150.68 115.00 140.06
- Undiluted and
diluted
UNAUDITED CONDENSED STATEMENT OF CHANGES IN EQUITY
For the six months to 30 June 2023
Share Capital £000 Capital Reserve £000 Revenue Reserve £000 Other Distributable Reserve £000 Total £000
Notes
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
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
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 £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
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
£000 £000 £000
Cash flows from operating activities
Operating profit/(loss) 10,390 (20,412) 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 £100m 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 £145.4m 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
Year
Six months Six months
to 30.06.23 to 30.06.22 to 31.12.22
£000 £000 £000
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 £10,249,475 (30 June 2022 - loss
of £20,417,000) 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
£000 £000 £000
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 £10,894,000 (30 June
2022: loss of £20,403,000) 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 £10,098,000 (30 June 2022: loss of £18,949,000) and gains of
£796,000 (30 June 2022: loss of £1,454,000) 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
£000 £000 £000
Dividend income 337 172 950
Unrealised gain/(loss) on financial assets at fair value through profit and 6,556 (34,435) (14,289)
loss
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 £1,200. For the period ended 30 June 2023, the Company had a
tax liability of £nil (2022: £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 £530,000 at 30 June 2023 (30 June 2022: £nil) (2022: £397,000)
and for its subsidiary was £5,136,000 at 30 June 2023 (30 June 2022:
£2,065,000) (2022: £4,187,000).
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 £7,000 (30 June 2022: £5,000) and for its
subsidiary was £70,000 (30 June 2022: £36,000).
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 £0.01 each
Issued share capital Number of shares Share capital
£000
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 of shares Treasury shares
Ordinary shares held in treasury
£000
15,986,520 160
Ordinary shares held in treasury as at 30 June 2023
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 1 Level 2 Level 3 Total
£000 £000 £000 £000
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
£000 £000 £000 £000
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
£000 £000 £000 £000
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
£14,303,000 (30 June 2022: £9,576,000) 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 £12,600,600 (30 June 2022:
£10,164,000) 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 £5,498,841 (30 June 2022:
£700,000).
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 £760,000 in
management fees during the six months ended 30 June 2023 (six months ended 30
June 2022: £650,000 and year ended 31 December 2022: £1,370,000) of which
£136,000 was outstanding at 30 June 2023 (30 June 2022: £97,000 and 31
December 2022: £125,000).
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 £39,000 for administration and secretarial
services during the six months ended 30 June 2023 (six months ended 30 June
2022: £22,000 and year ended 31 December 2022: 77,000) of which £18,000 was
outstanding at 30 June 2023 (30 June 2022: £25,000 and 31 December 2022:
£19,000).
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
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