REG - India CapitalGrwthFd - Annual Results for the year ended 31 December 2023
28/03/2024 07:00
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RNS Number : 6005I India Capital Growth Fund Limited 28 March 2024
LEI: 213800TPOS9AM7INH846
INDIA CAPITAL GROWTH FUND LIMITED
Annual Results for the year ended 31 December 2023
28 March 2024, 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 2023.
Highlights
2023 2022 % change
Per Ordinary Share
Net Asset Value (NAV) 180.11p 140.06p 28.6%
Share price 173.00p 129.00p 34.1%
Share price discount to NAV 3.9% 7.9%
FX impact
Indian Rupee / Sterling 106.11 99.74 -6.4%
· The Company NAV rose 28.6% whilst the share price improved 34.1%
during the year.
· The share price discount to NAV narrowed over the year to just over
3.9% at the year end. The Board intends to continue to repurchase shares when
the discount is inappropriately wide, in normal market conditions.
· The second Redemption Point at 31 December 2023 for eligible
shareholders on the register at 30 September 2023 resulted in 15.7% of the
shares in issue at the time being redeemed at 172.807p per share.
· Since the year end, to satisfy demand in the market, the Company has
issued over 5.8m shares from Treasury at a premium to NAV raising over £10.5m
in new capital, and bought back 150,000 shares at a significant discount to
NAV. As at 29 February 2024 the Company's net asset value remains strong at
£159.7m.
· The economic growth in India which is powering improving
profitability of its corporates is expected to continue in 2024. However
volatility in the India Stock Market is expected in the lead up to the General
Election in April/May 2024. The impact of geopolitical uncertainty and oil
price increases also remain risks for the Indian economy.
· On 2 October 2023 AssetCo PLC and its River Global business completed
the acquisition of the Company's investment manager, Ocean Dial Asset
Management Limited, having received regulatory approval from the FCA. The
successful investment team in India, led by Gaurav Narain, continues with the
full support of the River Global team in the UK.
Elisabeth Scott, Chair of India Capital Growth Fund, said:
"While overall performance was extremely positive, your Company did
underperform its reference benchmark index, the S&P BSE Midcap Total
Return Index. The Investment Adviser, Gaurav Narain, explains this relative
performance in more detail in his Investment Manager's Report. My key
takeaways from his report are that the emphasis on quality companies remains
in place, and as a result he has avoided companies which are majority owned by
the Indian Government. These companies outperformed in the latter part of
the year.
The economic growth that has powered the improving profitability of India's
corporate sector is expected to continue in 2024. The building blocks of
business friendly domestic policies and international investment are firmly in
place and will continue to provide the foundations for growth."
ENQUIRIES
AssetCo & Ocean Dial Asset Management, Investment Manager +44 7702 799 117
Gary Marshall, Robin Sellers & Lucy Draper
+44 20 7068 9870
Shore Capital, Financial Adviser and Broker +44 20 7408 4090
Rose Ramsden (Corporate Advisory)
Henry Willcocks, Fiona Conroy (Corporate Broking)
Apex Fund and Corporate Services (Guernsey), Company Secretary +44 20 3530 3687
Matt Lihou indiacapitalbox@apexgroup.com
About India Capital Growth Fund
India Capital Growth Fund Limited the LSE premium listed investment company
registered and incorporated in Guernsey, was established to take advantage of
long-term investment opportunities in companies based in India. ICGF
predominantly invests in listed mid and small cap companies, although
investments may also be made in large cap and private Indian companies where
the Fund Manager believes long-term capital appreciation will be achieved.
www.indiacapitalgrowth.com
CHAIR'S STATEMENT
I am delighted to report that 2023 was a strong year for your Company. The
Company's share price rose by 34.1% (2022: 7.7%), while the underlying Net
Asset Value (NAV) increased by 28.6% (2022: 3.9%). There was a resurgence of
investor interest in India during the year. Expectations for economic growth
improved throughout the year, and it is almost certain that India will report
stronger growth than any other major economy in 2023 and quite probably in
2024 as well. Infrastructure investment continues apace, and the
diversification of global supply chains ensures a flow of Foreign Direct
Investment into the country.
Performance
While overall performance was extremely positive, your Company did
underperform its reference benchmark index, the S&P BSE Midcap Total
Return Index. The Investment Adviser, Gaurav Narain, explains this relative
performance in more detail in the Investment Manager's Report. My key
takeaways from this report are that the emphasis on quality companies remains
in place, and as a result he has avoided companies which are majority owned by
the Indian Government. These companies outperformed in the latter part of the
year.
Discount and Redemption Facility
As shareholders will no doubt be aware, the Company's second redemption
facility took place on 31 December 2023 and was open to shareholders on the
register at 30 September 2023. In the lead-up to the facility, the Board took
the unusual step of announcing a discretionary share repurchase programme,
managed by Shore Capital, our broker, in order that the discount should not
widen out further than the Board felt was acceptable. Under that programme
almost 135,000 shares were repurchased. Disappointingly, perhaps, one large
investor chose to redeem its entire holding in the Company's shares in the
redemption facility. In total 15,159,876 shares were redeemed representing
15.7% of the Company's market cap.
On a more positive note, the shareholder register after the redemption is made
up almost entirely of retail shareholders, holding their shares via large
platforms such as Hargreaves Lansdown, Interactive Investor and AJ Bell (other
platforms are available), along with some wealth managers and IFAs. This has
allowed your Company's shares to trade more closely to their Net Asset
Value. The Board is conscious that this is a very positive development and
we will continue to monitor the share price against the NAV to ensure that the
range of discount and premium is relatively contained. Since the year end, to
satisfy demand in the market, the Company has issued over 5.8m shares from
Treasury at a premium to NAV raising over £10.5m in new capital, and bought
back 150,000 shares at a significant discount to NAV. As at 29 February 2024
the Company's net asset value remains strong at £159.7m.
During the year, the Company's shares sold at an average month end discount of
7.5%, with a range of 13.5% to 3.9% discount.
Investment Team
I am pleased to report that the process of integrating Ocean Dial's business
in to that of River Global, AssetCo's Fund Management division, is primarily
complete. Gaurav Narain, our Investment Advisor, and his team in Mumbai have
moved into new premises and are continuing their work of finding the hidden
gems in India's mid and small cap public markets. The London based staff of
Ocean Dial have moved into River Global's office in London, from whence
dealing in Indian equities takes place.
Gaurav has taken the opportunity to spend some time with the River Global
investment team. It is clear that there are benefits to both sides in terms
of investment process, access to technology and, in particular, developing and
building the approach and process for ESG.
Investor Relations
As I have said in previous reports to shareholders, the Board of your Company
is very keen to ensure that existing and prospective shareholders have access
to the information that they need about the Company. Throughout 2023, Gaurav
and the investor relations team from Ocean Dial/River Global have visited a
wide range of professional and retail investors across the UK. On a
quarterly basis, the Company has participated in webinars, accessible to all
shareholders, either hosted internally or via external providers. The most
high profile of these was the Citywire Big Broadcast, titled "Why India is
stacked with growth", which garnered considerable interest. 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) .
Throughout 2023 the press continued to show considerable interest in India and
the opportunities for investment in its rapidly developing economy. The team
at Ocean Dial/River Global have worked with our PR agency to make sure that we
maximise opportunities to promote your Company in the press and the Board is
pleased with the results of this work to date.
Environment, Social and Governance (ESG)
As I have already mentioned, along with colleagues at River Global, the
investment team has continued to refine its ESG methodology. This forms an
integral part of the Investment Manager's investment process, which, as
shareholders will be aware, is focussed on the long-term, with low turnover,
and with sound corporate governance and extensive engagement with company
management at the heart of investment decisions. We hope that the section of
this annual financial report covering the Investment Manager's approach to ESG
gives shareholders a good insight into how the Company's portfolio benefits
from this emphasis, despite the fact that the systematic approach to ESG,
which is evident in in the UK and Europe, is not yet in place in India.
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 that it 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.
There have been no changes to the composition of the Board during the year.
Outlook
After a strong year in 2023, a note of caution about the returns that
shareholders can expect in 2024 is warranted. The economic growth that has
powered the improving profitability of India's corporate sector is expected to
continue in 2024. The building blocks of business friendly domestic policies
and international investment are firmly in place and will continue to provide
the foundations for growth. The question that we all must grapple with is
whether this positive environment justifies the valuations on which companies
in India now trade.
It is quite likely that we will see some volatility in the Indian stock market
around the Indian General Election, which is due to take place between April
and June. Nor is India exempt from the impacts of the geopolitical
uncertainty that is so widespread across the globe. The Indian economy is
vulnerable to oil price increases. Nonetheless, as shareholders in the
Company, we can take comfort from the healthy earnings growth of the companies
held in the portfolio and the vigilance with which the investment team
monitors these holdings.
Thank you for your support for the Company. The Board is confident that the
Investment Manager's strategy for the portfolio will continue to stand us in
good stead in the coming year.
INVESTMENT MANAGER'S REPORT
2023 was a good year for the Indian economy and equity market. In our 2022
investment report, we had highlighted that the economy had demonstrated
resilience in a volatile geopolitical environment. 2023 can best be described
as a period of stability and continuity as the positive impact of government
policy initiatives began to take effect in true earnest. In 2023 the Company's
net asset value rose 28.6% (3.9% in 2022), whilst the notional benchmark (the
S&P BSE Midcap Total Return Index) rose 38.4%, (3.2% in 2022).
Economy
2023 was a year where India overtook China to become the most populous
country, its economy overtook the UK to become the fifth largest in terms of
GDP, and the equity market became the fourth largest globally by market
capitalization. It was also the eighth consecutive year of positive returns by
the equity market (Nifty 50 Index). The year ended on a positive note with
optimism that the economy was primed for a period of sustainable high growth.
Three things stood out:
Growth momentum surprised positively: The highlight of the year was the
continuous upgrades in company earnings' estimates and GDP growth numbers.
India's GDP is estimated to expand by 7.0-7.2% for the financial year ended
March 2024, far higher than the 6.0-6.3% estimates forecast at the beginning
of the year. This is being driven by a strong investment cycle, initially led
by Government spending but now also visible with private sector capex spends,
credit growth trending at over 15%, buoyancy in tax collections, expansion in
Purchasing Managers Index (PMI) data and record sales in the residential real
estate sector. The only weak link has been consumption, with rural consumers
yet to fully recover from the effects of high inflation.
Macro-Economic parameters remained stable: The interest rate cycle peaked in
February 2023 with inflation brought under control. Forex reserves remained
steady at ~ US$600bn through the year ensuring a stable currency with low
volatility. Also, tax collections trended above government estimates, ensuring
government met fiscal deficit targets despite aggressive capex spending. It
was a period of stability and continuity in policy with few surprises. The
focus of the government thus remained on its development agenda.
Political stability: With national elections scheduled in mid-2024, the run up
to these is fraught with uncertainty and appeasement politics. However, the
popularity of the Modi led BJP government is at a high. This was reinforced by
the BJP's recent electoral wins in some key state elections held in December
2023. With the opposition parties in disarray and lacking a strong leader,
expectation of the BJP government remaining in power with a strong majority
has only increased. This has given confidence that there will be policy
continuity and the development agenda will sustain.
Market
We had expected 2023 to be a year of modest returns given the strong
performance in 2021 and 2022 post covid. We were thus surprised by the strong
performance. While the BSE Sensex (top 30 companies) was up 19%, the BSE
Mid-Cap Index was up 46% (both in local currency), making it among the best
performing Indices globally. What was interesting was that every sector showed
positive returns reflecting the broad-based nature of the performance.
Strong earnings growth with positive management commentary on the future was
one reason, but positive fund flows was also a major factor driving the
market. Unlike 2022, the year saw positive inflows by both Domestic
Institutional Investors (DIIs) as well as Foreign Institutional Investors
(FIIs). In the case of DIIs, flows continue to be driven by Systematic
Investment Plans (SIP) from retail investors largely from tier 2, 3 and 4
towns in India. There are now over 73 million such SIP investors investing
about US$2bn per month into domestic mutual funds. This number continues to
increase month on month. DIIs have now recorded net inflows of ~US$70bn over
the last three years.
( )
The FIIs flows however continue to be volatile. While the months of January
and February 2023 saw outflows of US$4bn, this was more than offset in the
subsequent months with net inflows of US$21.4bn for the year. Over the last
three years the net inflow from FIIs has been only US$8bn, reflecting the
volatile nature of FIIs flows. A positive trend that we have observed is that
FIIs flows Into India in 2023 were predominantly through India dedicated
funds. This reflects the increased importance being given to India by global
investors as a standalone market as opposed to investing through broader based
emerging market funds. The share of FIIs ownership of the Indian market has
fallen to a low of ~ 18% in 2023 from about 20% in 2021. It has led to lower
volatility in the market as the domestic funds are steady buyers.
Strong flows have however led to elevated valuations, particularly in the mid
and small cap segment of the market which are trading above historical levels,
both on an absolute and relative basis.
ESG Considerations
We believe the integration of ESG factors in our investment decision making
helps 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. The best and worst scores are 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.
Outlook for 2024
Entering 2024 there is broad consensus that India's growth story is structural
and GDP growth should average ~6-7% p.a. for the next few years. The
foundation has already been set; a favourable regulatory environment, improved
infrastructure, healthy corporate balance sheets and policies geared towards
investment led development. What has come as a bonus is geopolitics. The rush
to de-risk supply chains is accelerating investment by global firms into
India, many of whom are viewing India as an alternate to China especially
since demographics are extremely favourable. We thus believe the momentum in
the economy will remain strong.
We, however, see several trends which are different from what we have seen in
the past:
1. India's growth until now has largely been consumption
led, but this phase is driven by investments. Even within investments, a
different set of sectors like Renewable Energy, Green Hydrogen, Electronic
manufacturing etc. are leading investments. Also, `Make in India' is a big
focus. Policies are geared towards encouraging local manufacturing and the
impact is visible in sectors like Defence, Railways and Electronic
manufacturing, which until now have been import dependent. What is more
exciting is the pace of execution. Earlier, execution seldom matched targets,
but this has changed as bottlenecks and legal hurdles have been addressed
through policy changes.
2. Consumption patterns are surprising. Premium products
are doing well while mass market products are struggling. This trend is across
categories ranging from automobiles, housing to consumer electronics. Though
it is being attributed to inflation, the weakness has been prolonged. We do
believe the trickle-down effect will lead to consumption being broad based,
but this is also creating new opportunities.
3. India's low-cost digital infrastructure is also
impacting business models and behavior patterns. Our own industry is a case in
point, with domestic mutual funds now being the driver of the equity market as
opposed to FIIs. The ease of online transactions is leading to individuals
from smaller towns channeling savings which were traditionally deployed in
bank fixed deposit, real estate, or gold into equity markets through mutual
funds. The rising domestic flows into funds is influencing market behaviour,
with funds struggling to deploy the flows. Digitisation remains a big
disruptor and a great opportunity.
So, as we enter 2024, we are confident on the growth of the economy, but at
the same time conscious that generating returns will require fresh thinking. A
high base both on earnings and valuations remain our biggest concern,
significant growth is already factored in numbers leaving little room for
negative surprises.
Portfolio Attribution
Over the year, the net asset value of the portfolio rose by 28.6% (30.8%
before the effect of Indian Capital Gains Tax) compared to the benchmark
S&P BSE Midcap TR index returning 38.4% (both in sterling terms). While
the absolute return was strong, the portfolio underperformed its notional
benchmark, most of which happened toward the last quarter of the year as the
benchmark saw a sharp rally led by public sector companies in which we do not
invest.
Reflecting on the performance during 2023
2023 was a year when every sector contributed positively to the performance of
the portfolio. This reflects the broad-based nature of the economic recovery.
For ICGF, the main contributors to positive performance were healthcare
(underweight), IT (overweight), Consumer Staples (overweight), materials
(overweight) and Industrials (Underweight).
Even at the stock level, the performance was driven by companies across
different sectors. Neuland Labs (up 217%), a pharmaceuticals company,
Ramkrishna Forgings (up 176%), an auto ancillary and IDFC First Bank (up 51%)
were the top contributors. Each company delivered robust earnings growth,
which also drove a rerating. Elsewhere, Jyothy Labs (up 134%) was amongst the
best performing consumer staples companies as it continued to deliver double
digit revenue growth in a weak consumer environment. Persistent Systems (up
91%), an information technology company, also outperformed the sector both on
revenue growth and margin improvement. In industrials, Skipper (up 81%) saw a
rise in order book as the capex cycle in power sector picked up pace and it
also won new business in developed economies. Finolex Cables (up 95%)
benefitted from the housing led demand for wires. Even in textiles, Welspun
India rose (up 87%) as it gained market share in the US markets and also saw
margins normalise with raw material prices easing. Dixon Technologies
(Consumer Discretionary) rose (up 68%) and Sona BLW (Auto Ancillary) rose (up
54%), once again led by strong performance and continued order wins.
Adverse stock performance was led by the consumer discretionary companies, all
of which were impacted due to a slowdown in consumer demand because of high
inflation. This was led by Bajaj Electricals (down 9%) and Vedant Fashions
(down 5%). In Financials, City Union Bank declined (down 17%) due to weaker
credit growth compared to peers.
At an index level, the biggest detractor was our absence in public sector
companies (where the government is the majority owner), specifically in
financials and utilities. This includes Power Finance Corporation (up 239%)
and Rural Electrification Corporation (up 254%,) both lenders to state
utilities. Also, Trent (Retail) which rose 126% detracted from our
performance.
The portfolio closed the year with 34 stocks. Aarti Industries, Aarti
Pharmalabs, Coforge and Jubilant Foodworks were sold during the year. Two
portfolio additions were made during the year; RBL Bank (mid-size Bank) and
VIP Industries (largest luggage manufacturer). Portfolio turnover remained low
at 14%. 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 2024, our largest sector exposure is in financials which has a
long runway on growth, low risk on credit quality for the next two years (at
the very least), and yet valuations are reasonable with most stock trading
below historical averages. Credit growth is trending in double digits and
banks are well capitalised. We see banks as the best play to the overall
growth of the economy and capex cycle.
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, 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 industrial (13%) and cement (6%) stocks. At the
same time, we are also well positioned to capitalise on the gains India is
likely to make as companies rebalance supply chains out of China. There are
several companies across sectors which are already seeing a positive impact
including Dixon and Kajaria (consumer), Welspun (textiles) and Skipper
(industrial).
With respect to the benchmark, our overweight positions are in materials,
consumer staples, financials and IT services. Our metals exposure is not
through global commodities but through cement and speciality chemicals
companies. We are underweight in healthcare, utilities and real estate.
We are entering FY25 with healthy aggregate earnings growth for our portfolio.
This growth is mainly driven by growth in revenue, as opposed to margin
improvement which was the case in FY24. This does include above average
numbers mainly from consumer discretionary due to the expectation of revival
in consumer demand and low base effect. Though valuations are above historical
averages, the portfolio has higher growth and lower valuation than the broader
market. We believe this growth is sustainable for a few years which gives us
confidence going forward.
CORPORATE GOVERNANCE REPORT
The Company is a member of the AIC and has elected to follow the AIC Code, as
revised in February 2019. The AIC Code has been endorsed by the FRC as an
alternative means for their members to meet their obligations in relation to
the UK Corporate Governance Code, as published in July 2018. The AIC Code
addresses all the principles and recommendations on issues that are of
specific relevance to investment companies.
The UK Corporate Governance Code includes provisions relating to: (i) the role
of the chief executive; (ii) executive directors' remuneration; (iii) a
nomination committee; and (iv) an internal audit function. For the reasons set
out in the AIC Corporate Governance Guide, the Board of Directors considers
these provisions are not relevant to the position of the Company, due to the
size of the Board and as an externally managed investment company with no
employees.
The Finance Sector Code of Corporate Governance issued by the Guernsey
Financial Services Commission (the "GFSC Code") applies to the Company,
Companies which report against the UK Corporate Governance Code (the "UK
Code") or the AIC Code are deemed to meet the requirements of the GFSC Code.
As stated above, the Board considers that it has complied with the AIC Code,
GFSC Code and UK Code during the year ended 31 December 2023.
Composition and independence of the Board
The Board currently consists of four Non-Executive Directors, all of whom are
independent. The Chair of the Board is Elisabeth Scott.
Board meetings
The Board generally meets on at least four occasions each year, at which time
the Directors review the management of the Company's assets and all other
significant matters so as to ensure that the Directors maintain overall
control and supervision of the Company's affairs. The Board is responsible for
the appointment and monitoring of all service providers to the Company. The
Board believes all the Directors have sufficient time to meet their Board
responsibilities.
Performance evaluation
On an annual basis the Board formally considers the independence of its
members, its effectiveness as a Board, the balance of skills represented and
the composition and performance of its committees. The size of the Board and
independence of its members are such that the Board does not consider the need
for external evaluations. The performance and contribution of the Chair is
reviewed by the other Directors under the leadership of the Chair of the Audit
& Risk Committee.
Nomination Committee
The size of the Board and independence of its members are such that the Board
does not consider there is need for a separate Nomination Committee. Any
proposal for a new director is discussed and approved by the Board, having
considered the current skills, experience and diversity of the Board.
Each Director stands for annual re-election at the Company's Annual General
Meeting.
Remuneration Committee
The size of the Board and independence of its members are such that the Board
does not consider the need for a separate Remuneration Committee. Remuneration
is reviewed annually and discussed by the Board as a whole with reference to
the Trust Associates Investment Company Non-Executive Directors' Fee Review.
Audit & Risk Committee
All members of the Board are also members of the Audit & Risk Committee.
The Chair of the Audit & Risk Committee is Patrick Firth. The Chair of the
Board is also a member of the Audit & Risk Committee given her extensive
experience and knowledge, in particular given her appointment to the Board of
the Company for more than 5 years. The Audit & Risk Committee conducts
formal meetings throughout the year for the purpose, amongst others, of
considering the appointment, independence, effectiveness of the audit and
remuneration of the auditors and to review and recommend the annual statutory
accounts and interim report to the Board for approval. Full details of its
functions and activities are set out in the Report of the Audit & Risk
Committee.
DIRECTORS
The Directors as at 31 December 2023, all of whom are non-executive, are as
follows:
Elisabeth Scott (Chair)
Elisabeth was appointed to the Board as Chair on 18 December 2017. She has
over 30 years' experience in the asset management industry. In 1992, she moved
to Hong Kong, where she remained until 2008, most recently in the role of
Managing Director and Country Head of Schroder Investment Management (Hong
Kong) Limited and Chairman of the Hong Kong Investment Funds Association. She
is Chair of JP Morgan Global Emerging Markets Income Trust plc, Non-Executive
Director of Allianz Technology Trust PLC, and retired as the Chairman of the
Association of Investment Companies (AIC) in January 2024. She is resident in
the UK.
Patrick Firth
Patrick was appointed to the Board in September 2020. He qualified as a
Chartered Accountant with KPMG Guernsey in 1991 and is also a member of the
Chartered Institute for Securities and Investment. He worked in the fund
industry in Guernsey since joining Rothschild Asset Management C.I. Limited in
1992 before moving to become managing director at Butterfield Fund Services
(Guernsey) Limited (subsequently Butterfield Fulcrum Group (Guernsey)
Limited), a company providing third party fund administration services, where
he worked from April 2002 until June 2009. Patrick is a former Chairman of the
Guernsey International Business Association and of the Guernsey Investment
Fund Association. He is a Non-Executive Director of Riverstone Energy Limited,
NextEnergy Solar Fund Limited and CT UK Capital and Income Investment Trust
plc. He is resident in the UK.
Lynne Duquemin
Lynne was appointed to the board in May 2021. She has over 30 years'
experience in financial markets, initially in London in the late 1980's before
being seconded by Credit Suisse to Guernsey, Channel Islands in 1995, where
she is still based. Most recently she worked for twelve years as an Investment
Consultant for an Independent Investment Consultancy Company. She is a Fellow
of the Chartered Institute for Securities and Investment and a Chartered
Wealth Manager. She is also an ASIP qualified member of the CFA Society of the
UK, member of the CFA Institute, as well as a Chartered Director and Fellow of
the Institute of Directors. Lynne is currently a non-executive director and
Chief Investment Officer for a Single Family Office and has prior experience
as a director of a listed Frontier Equities Investment Company.
Nick Timberlake
Nick was appointed to the Board in July 2022. He has over 30 years' experience
in the asset management industry as a Portfolio Manager, he was with HSBC
Global Asset Management between 2005 and 2020, initially as Global Head of
Emerging Markets Equities and then Head of Equities. Previously he was a
Director of F&C Investment Management and has spent the last 20 years
investing in global emerging markets equities. He is a non-executive director
of abrdn Equity Income Trust, CT Automotive plc and a partner in Panorama
Property Investments LLP. Nick is a member of the CFA Institute and CFA
Society of the UK.
DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES AND OTHER RELEVANT ENTITIES
The following summarises the Directors' directorships in public companies and
other relevant entities:
Company Name Stock Exchange
Elisabeth Scott Allianz Technology Trust PLC London
Association of Investment Companies N/A
JP Morgan Global Emerging Markets Income Trust plc London
Patrick Firth NextEnergy Solar Fund Limited London
Riverstone Energy Limited London
CT UK Capital and Income Investment Trust plc London
Lynne Duquemin - -
Nick Timberlake abrdn Equity Income Trust plc London
CT Automotive plc London
DIRECTORS' REPORT
The Directors present their annual report and the audited financial statements
of the Company for the year ended 31 December 2023 which have been properly
prepared in accordance with The Companies (Guernsey) Law, 2008, as amended.
The Company
India Capital Growth Fund Limited (the "Company") was registered in Guernsey
on 11 November 2005 and is a closed-ended investment company with its shares
admitted to trading on the main market of the London Stock Exchange. The
Company's objective is to provide long-term capital appreciation by investing
in companies based in India. The Company's registration number is 1030287. At
31 December 2023, the Company has one wholly owned Mauritian subsidiary, ICGQ
Limited ("ICGQ"). The Company has an unlimited life, although a redemption
facility has been put in place following the passing of a shareholders'
resolution at a General Meeting on 12 June 2020. The first date at which
shareholders were able to request the redemption of some or all of their
shares was 31 December 2021 when 15,408,872 net shares were redeemed under the
redemption facility. The second date was 31 December 2023 when 15,159,876 net
shares were redeemed under the redemption facility. Under this facility the
next date at which shareholders will be able to request the redemption of some
or all of the shares is scheduled to be 31 December 2025 for shareholders on
the register at 30 September 2025.
Group structure
The Board of Directors continues to take steps to close down and to liquidate
its Mauritian subsidiary, ICGQ, given it no longer serves a beneficial purpose
for the Company's shareholders. However, this process may take some
considerable time given the restrictions imposed by the Indian regulators on
transferring listed Indian equities from one entity to another without
incurring considerable costs and risk. The Board does not believe this is in
the interest of the shareholders. The Group's custodian is actively engaging
with the Indian regulator to help facilitate this. In the meantime, the
Investment Manager has moved Indian Rupee ("INR") cash balances held by the
Group's custodian from ICGQ to the Company and has committed that all future
purchases for the investment portfolio will only be made by the Company,
unless it is in shareholders' interests to do otherwise.
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 of ICGQ and the Company
(measured at the time of investment) may be invested in the securities of any
one Issuer; and
· No more than 10 per cent. of total assets of ICGQ and the Company
(measured at the time of investment) may be invested in listed closed-ended
funds.
The Board of Directors of the Company does not intend to use derivatives for
investment purposes. The Directors confirm the investment policy of the
Company has been complied with throughout the year ended 31 December 2023.
Long-term sustainable success
The long-term performance of the Company and its reputation for transparency
and good governance are paramount to its long-term success for the benefit of
all its stakeholders.
In order to ensure good governance of the Company, the Board has set various
limits on the investments in the portfolio, whether in the maximum size of
individual holdings, the total aggregate percentage of unlisted investments in
the portfolio, the use of derivatives, the level of gearing and others. These
limits and guidelines are regularly monitored.
The integration of ESG factors in investment decision making will also help to
improve the Company's long term risk adjusted returns and thus its long term
sustainable success. ESG measurement and risk impact scoring have become an
integral part of the investment manager's investment process facilitated by
the ongoing development of their bespoke internal ESG scoring model which
compares and rates each company within the investment portfolio. An
illustration of this scoring model is provided in the ESG report which
highlights the focus on the long-term direction of travel in reducing the
climate impact factors of companies in the portfolio.
The Company's mandate is to invest in India, predominantly in listed mid cap
and small cap companies where the Investment Manager believes significant
long-term investment performance can be achieved. The Board considers this is
best achieved via the investment trust structure constructing a portfolio of
individually chosen shares in underlying companies whose business is in India.
Consequently, our Investment Manager, advisers and analysts do considerable
research in house to identify suitable investments. The Board works with the
Investment Manager to ensure it has the necessary resources available and that
those resources are of the desired quality.
It is one of the Board's long-term objectives that the share price should
trade at a level close to the underlying net asset value of the shares. Share
price discounts and premiums are determined by supply and demand. The
Directors have focused the marketing of the Company particularly on
explaining, through the press, the characteristics of investing in India,
largely to dispel sentiment-based negative misperceptions and to inform the
investing community of its long-term potential for significant sustainable
growth in India. As detailed more fully in the Sustainability and ESG report
the Company and its 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.
Results and dividends
The Company's performance during the year is discussed in the Investment
Manager's report.
The results for the year are set out in the audited statement of comprehensive
income.
Consistent with the Company's investment policy of providing long term capital
appreciation, the Directors do not recommend the payment of a dividend for the
year ended 31 December 2023 (2022: £nil).
Substantial interests
Shareholders who held an interest of 3% or more of the Ordinary Share Capital
of the Company at 29 February 2024, being the latest date such data is
available, are stated in the table below:
No. of Shares % Holding
Hargreaves Lansdown 19,539,975 22.7
Interactive Investor 15,719,147 18.3
AJ Bell 6,034,440 7.0
West Yorkshire Pension Fund 4,677,028 5.4
JM Finn 3,645,724 4.2
Charles Stanley 3,121,456 3.6
In the opinion of the Directors, the Company has no ultimate controlling
party.
Directors' interests
At 31 December 2023, Directors and their immediate families held the following
declarable interests in the Company:
Ordinary shares
2023 2022
Elisabeth Scott 50,000 50,000
Patrick Firth 25,000 25,000
Lynne Duquemin 19,125 19,125
Nick Timberlake 50,000 20,000
Independent Auditor
The Independent Auditor, Deloitte LLP, has indicated their willingness to
continue in office. Accordingly, a resolution for their reappointment will be
proposed at the next Annual General Meeting.
Ongoing charges
In accordance with the recommended methodology set out by the Association of
Investment Companies ("AIC"), the ongoing charges ratio ("OCR") of the Company
and its subsidiary for the year ended 31 December 2023 was 1.57% based on an
average AUM of £148,384,000 (2022: 1.59% based on an average AUM of
£125,914,000).
Composition and independence of the Board
The Board currently consists of four Non-Executive Directors, all of whom are
independent. The Chair of the Board is Elisabeth Scott. In considering the
independence of the Chair, the Board has taken note of the provisions of the
AIC Code relating to independence and has determined that Elisabeth Scott is
an Independent Director. The Chair does not have, and has not had, any
relationships or circumstances that may create a conflict of interest between
her interests and those of shareholders. As the Chair is an Independent
Director, no appointment of a Senior Independent Director has been made. The
Company has no employees and therefore there is no requirement for a Chief
Executive.
Board meetings, Committee meetings and Directors' attendance
During the year, the Directors in attendance at meetings were as listed in the
table below:
Board Meetings Audit & Risk Committee Meetings
Regular Board Meetings Attended Number of meetings Attended
Elisabeth Scott 4 4 3 3
Patrick Firth 4 4 3 3
Lynne Duquemin 4 4 3 3
Nick Timberlake 4 4 3 3
In addition, there were 5 ad-hoc board meetings during the year.
Performance evaluation
On an annual basis the Board formally considers the independence of its
members, its effectiveness as a Board, the balance of skills represented and
the composition and performance of its committees. The size of the Board and
independence of its members are such that the Board does not consider the need
for external evaluations. The Board considers that it has an appropriate
balance of skills and experience in relation to the activities of the Company
and offers relevant training where necessary. The Chair evaluates the
performance of each of the Directors on an annual basis, taking into account
the effectiveness of their contributions and their commitment to the role. The
performance and contribution of the Chair is reviewed by the other Directors
under the leadership of the Chair of the Audit & Risk Committee. The
conclusion of the 2023 review was that the skill sets of the members of the
Board were complementary, and that the Board functioned effectively.
Even though the performance evaluation is deemed effective, the Board may
consider having an external evaluation of the performance in the future.
Nomination Committee, Remuneration Committee, and Audit & Risk Committee
Details on the Nomination Committee, Remuneration Committee, and Audit &
Risk Committee can be found in the Corporate Governance Report.
Sustainability and environmental, social and governance ("ESG")
The Company's report on Sustainability and ESG is provided separately.
Employees, human rights and corporate social responsibility
The Company has no employees, all of its Directors are non-executive and third
party service providers carry out its day-to-day activities. Therefore, there
are no disclosures to be made in respect of employees and the Company has not
adopted a policy on human rights as it has no employees and its operational
processes are delegated. As an investment company, the Company does not
provide goods and services in the normal course of business and has no
customers. Accordingly, the Board considers that the Company is not within the
scope of the Modern Slavery Act 2015. whilst the Company is not obliged to
comply with the Act, the Board is in agreement with its aims and receives
confirmation from those third-party service providers which are in scope that
they are in compliance.
The Investment Manager's primary objective is to produce superior financial
returns for the Company's shareholders. It believes that high standards of
corporate social responsibility ("CSR") make good business sense and have the
potential to protect and enhance investment returns. Consequently, its
investment process considers social, environmental and ethical issues when, in
the Manager's view, these have a material impact on either investment risk or
return.
Section 172 of the Companies Act 2006
Section 172 of the Companies Act 2006 applies directly to UK domiciled
companies. Nonetheless, the intention of the AIC Code is that the matters set
out in section 172 are reported on by all companies, irrespective of domicile,
provided this does not conflict with local company law. Under section 172,
directors have a duty to promote the success of their company for the benefit
of its members as a whole, whilst having regard to (amongst others) the likely
consequences of their decisions in the long-term and the interests of the
company's wider stakeholders. Information on how the Board have acted in
accordance with the requirements of section 172 Is included throughout the
Directors' report, and more specifically:
· details on the Company's values and business model can be found under
the "Chair's Statement' and under the "Investment Policy" respectively;
· details of how the Company seeks to generate and preserve value over
the long-term can be found in the "Investment Manager's Report";
· information on the emerging and principal risks that could disrupt
the long-term success of the Company and how the Board seeks to manage and
mitigate them are considered under "Risk Management and Internal Control" and
"Principal Risks and Uncertainties";
· details of how the Board engages with all shareholders and
stakeholders and why they are important can be found under "Shareholder
communication";
· in relation to the Company's portfolios, the Investment Manager has
day-to day responsibility for the Company's dealings with suppliers,
contractors, customers and others and information of how they foster these
relationships are included in the "Investment Manager's Report";
· information on sustainability and ESG adopted by the Company can be
found in the Report; and
· details of how the Board works towards the long-term sustainable
success of the Company and ensures good governance can be found under
"Long-term sustainable success".
In making decisions, the objective of the Board is always to ensure the
long-term sustainable success of the Company and, therefore, the likely
long-term consequences of any decision are a key consideration. In relation to
the decisions taken by the Board during the year under review, the Board acted
in good faith, and in a way that would most likely promote the Company's
long-term sustainable success and achieve its wider objectives for the benefit
of the shareholders as a whole, having had regard to the wider stakeholders
and the other matters set out in section 172.
Board leadership, effectiveness, diversity & succession planning
The Board recognises that the Company will take investment and other risks in
order to achieve its objectives but these risks are monitored and managed and
the Company seeks to avoid excessive risk-taking in pursuit of returns. A
large part of the Board's activities are centred upon what is necessarily an
open and respectful dialogue with the Investment Manager. The Board believes
that it has a very constructive relationship with the Investment Manager
whilst holding them to account and questioning the choices and recommendations
made by them.
The Board supports the principle of diversity and confirms that there will be
no discrimination on the grounds of gender, social and ethnic background,
cognitive and personal strengths. The Board's overriding intention is to
ensure that it has the best combination of people in order to achieve
long-term capital growth for the Company's shareholders from an actively
managed portfolio of investments. To this effect, the Board, as part of its
succession plan, will continue to appoint individuals who, together as a
Board, will aim to ensure the continued optimal promotion of the Company. The
Board has met its target on gender diversity and will consider the target for
ethnic diversity when appointing new directors.
Number of Board Members Percentage of the Board Number of senior positions on the board (SID, and Chair)
Men 2 50%
Women 2 50% 1 (Chair)
Number of Board Members Percentage of the Board Number of senior positions on the board (SID and Chair)
White British or other white 4 100% 1 (Chair)
All directors are non-executive and the Company does not have a Senior
Independent Director.
Risk management and internal control
The Board is responsible for establishing and maintaining the Company's system
of internal controls and for maintaining and reviewing its effectiveness. The
system of internal controls is designed to manage rather than to eliminate the
risk of failure to achieve business objectives and as such can only provide
reasonable, but not absolute, assurance against material misstatement or loss.
The Board also considers the process for identifying, evaluating and managing
any significant risks faced by the Company. At each quarterly meeting of the
Board a report on the risk assessment and control environment and risk
assessment is presented by the Investment Manager and considered. Changes in
the risk environment are highlighted as are changes in the controls in force
to manage or mitigate those risks. The Board is satisfied that appropriate
controls are in place in relation to the key risks faced by the business.
Following the acquisition of the Company's Investment Manager by AssetCo/River
Global, two of the directors separately visited the offices of AssetCo/River
Global to review the systems in place, which were principally unchanged
although enhanced from those under previous ownership, meet with personnel and
establish that the controls were effective. A report was subsequently
circulated to the whole Board and discussed. The Board concluded that the
systems and controls were effective and risks addressed with no significant
weaknesses identified. The Board will conduct future visits as required and
particularly if there are changes to systems. Also, the Board receives regular
reports from the Investment Manager for consideration. The other significant
third party provider where significant reliance is placed upon effective
controls is the Administrator. The Audit Committee Chair reviewed the most
recent type 2 ISAE3402 report on the Administrator's control environment for
the period ended 31 December 2023 and was satisfied that those controls which
were tested were deemed to be effective with no significant weaknesses
identified. The results of this review were shared with the Board and it was
agreed that this provided comfort that certain key risks connected with those
tasks for which the Administrator is accountable are significantly mitigated.
The Administrator also provides a report at each quarterly Board meeting
identifying any breaches which have occurred during the period and any
significant changes.
Principal risks and uncertainties
The Board confirms that they have carried out a robust assessment of the
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity. The Board has drawn
up a Control Environment and Risk Assessment Matrix (the "Matrix"), which
identifies the key risks to the Company and considers the impact and
likelihood of each significant risk identified. The Board reviews the Matrix
at least quarterly to ensure, in particular, that any emerging risks are
identified, assessed and documented at an early stage.
The Principal Risks fall into the following broad categories:
· Investment performance risk: The Company's long-term growth is
dependent upon the performance of its investment portfolio. Consequently, if
the portfolio fails to perform in line with the investment objectives and
policy, has long-term negative ESG impact, and if the companies in the
portfolio perform poorly or markets move adversely, especially over an
extended period, it may jeopardise the long-term future of the Company. The
Board reviews reports from the Investment Manager at each quarterly Board
meeting, paying particular attention to the constitution of the portfolio, its
liquidity and its attribution by sector and weighting compared to the BSE Mid
Cap Total Return Index and its ESG ratings.
· Environmental and Social ("E&S") impact risk: The potential loss
or harm directly or indirectly resulting from environmental and social factors
that impact the Company, its investors and its service providers, and the
consequential impact on the environment and society. E&S impact risk is a
transverse risk that impacts our other risks: investment performance risk,
currency and emerging market 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. Further details are included in the Company's report on
Sustainability and ESG. The Investment Manager has a team on the ground in
India who keep abreast of the latest political developments and economic
forecasts and regularly advise the Board thereof.
· Operations and systems risk: The Company is exposed to the risks
arising from any failure of systems and controls in the operations of the
Investment Manager, the Administrator, or the Company's other service
providers. Under normal circumstances members of the Audit & Risk
Committee visit the Investment Manager annually to perform a due diligence
review of its controls and the Board receives reports annually from the
Administrator on their internal controls.
· Accounting, legal and regulatory risk: The Company is at risk if it
fails to comply with the laws and regulations applicable to a company with a
premium listing on the Main Market of the London Stock Exchange and the
Guernsey, Mauritian and Indian laws and regulations or if it fails to maintain
accurate accounting records. The Investment Manager and Administrator provides
the Board with regular reports on changes in regulations and accounting
requirements.
· Multi-jurisdictional taxation risk: The Company is at risk of
additional taxation charges from several geographical jurisdictions in which
the Company, its service providers or companies in its investment portfolio
reside. The risk that appropriate tax residency is not maintained may result
from poor administration or from changes in Government policy. The board
receives quarterly updates from the Investment Manager and the Administrator
who is responsible for tax residence administration. Note 10 to the financial
statements details key taxation risks and their impact upon the Company.
· Financial risk: Significant market, foreign currency, credit and
liquidity risks faced by the Company are set out in note 10 to the financial
statements. These risks and their mitigation controls are reviewed at each
quarterly Board meeting.
· Redemption Facility and associated risk: The third Redemption
facility where shareholders will be able to request the redemption of some or
all of the shares will be 31 December 2025. 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. However, based upon the investment
performance of the Company to date, and that shares have been issued at a
premium to NAV to satisfy increased demand, the Board believes shareholder
redemptions at the next scheduled Redemption Facility on 31 December 2025 are
likely to be at such a level not to impact the going concern of the Company.
· Emerging risks: Risks that emerge unexpectedly, and in some cases
quite quickly, can have an economic impact upon the Company. In particular
significant geopolitical conflicts such as the Russia/Ukraine conflict and
Israel/Palestine conflict can disrupt global supply chains and the Indian
economy and listed companies. The Board assesses and monitors these risks as
and when they develop so, if necessary, controls and procedures can be
implemented to mitigate against their economic impact upon the Company. During
the year, there were no changes to the emerging risks identified, and no new
procedures were implemented.
· Cybersecurity, data security breach and related criminal activity
risk: The Company is exposed to the risk of criminal attacks on its data and
systems held and managed by its service providers. Cybersecurity controls at
all service providers are reviewed on a regular basis.
The Company's risks are documented in a Risk Register which is reviewed and
updated by the Board at least quarterly. The Principal Risks listed above have
not materially increased or decreased during the course of the year.
Risk appetite
The Board recognizes that prudent risk-taking is essential to achieving the
Company's strategic objectives and maximizing shareholder value. They embrace
a moderate risk appetite, seeking opportunities for growth while prioritizing
the long-term appreciation of capital and the protection of Company
reputation. The Board is committed to maintaining robust risk management
practices to identify, assess and mitigate risks effectively, ensuring
alignment with given tolerance levels and regulatory requirements. By striking
a balance between investment returns and risk mitigation, the Board aims to
deliver sustainable long-term value to the shareholders of the Company.
Supply of information to the Board
Board meetings are the principal source of regular information for the Board
enabling it to determine policy and to monitor performance and compliance. A
representative of the Investment Manager attends each Board meeting thus
enabling the Board to discuss fully and review the Company's operation and
performance. Each Director has direct access to the Company Secretary, and
may, at the expense of the Company, seek independent professional advice on
any matter that concerns them in the furtherance of their duties.
Delegation of functions
The Board has contractually delegated various functions as listed below to
external parties. Each of these contracts have been entered into after full
and proper consideration by the Board, mindful of the quality and cost of
services offered, including the control systems in operation as far as they
relate to the affairs of the Company. The duties of investment management,
accounting and custody are segregated.
· Investment Management is provided by Ocean Dial Asset Management
Limited, a company authorised and regulated in the United Kingdom by the
Financial Conduct Authority (FCA) which is owned by AssetCo PLC and its
subsidiary River Global LLP.
· Administration and Company Secretarial duties for the Company during
the year were performed by Apex Fund and Corporate Services (Guernsey)
Limited, a company licensed and regulated by the Guernsey Financial Services
Commission. Those for the subsidiary were performed by Apex Fund Services
(Mauritius) Limited, a company registered in Mauritius and licensed by the
Financial Services Commission in Mauritius. In advance of Board meetings, the
Administrator provides regular reports, which include financial and other
operational information, details of any breaches or complaints and relevant
legal, regulatory, corporate governance and other technical updates. There is
also regular contact between the Directors and the Administrator between Board
and Committee meetings.
· Custody of assets is undertaken by Kotak Mahindra Bank Ltd, which is
registered as a custodian with the Securities and Exchange Board of India
(SEBI).
The Board has established a Management Engagement Committee to review the
performance of all material external service providers and the related
contractual terms. The Management Engagement Committee is constituted of the
current four Directors of the Company, with Elisabeth Scott acting as the
Chair. The last meeting of the Management Engagement Committee was held on 12
December 2023 and it meets at least annually. Performances of all material
external service providers are considered satisfactory.
Investment management
The investment management agreement will continue unless and until terminated
by either party giving to the other not less than twelve months' notice in
writing or six months' notice by the Company if at any Redemption Point,
redemption requests exceed 50% of the issued share capital of the Company at
the date of the Redemption Point. The management agreement may also be
terminated forthwith as a result of a material breach of the agreement or on
the insolvency of the Investment Manager or the Company and by the Investment
Manager by notice within 30 days of being notified by the Company of any
material change to the investment policy.
The Investment Manager is entitled to receive a management fee payable jointly
by the Company and the Mauritian subsidiary, ICG Q Limited. The management fee
is the lower of 1.25% per annum of the Company's Total Assets or 1.25% per
annum of the average daily market capitalisation of the Company, calculated
and payable monthly in arrears. The Company's Total Assets consist of the
aggregate value of the assets of the Company less its current liabilities
before the deduction of management fees. For purposes of the calculation of
these fees current liabilities exclude any proportion of principal amounts
borrowed for investment. To date, the Company has not borrowed for investment
or any other purpose.
The Board as a whole reviews the performance of the Investment Manager at each
quarterly Board Meeting and considers whether the investment strategy utilised
is likely to achieve the Company's investment objective. Having considered the
portfolio performance and investment strategy, the Board has agreed that the
interests of the shareholders as a whole are best served by the continuing
appointment of the Investment Manager on the terms agreed.
From time to time the extent of powers delegated to the Investment Manager and
matters upon which decision making is reserved to the Board are reviewed and
considered. In particular, the approval of the Board (or a designated
committee) is required in relation to:
· Borrowings (other than on a temporary basis);
· Investment in unlisted securities (other than those arising on a
temporary basis from demergers from existing listed holdings);
· Exercise of the Company's share buy-back powers; and
· Policy on currency hedging.
The Investment Manager reports to the Board on brokers used for executing
trades and the commission paid to brokers. The Investment Manager does not use
commissions paid by the Company to pay for services used by the Investment
Manager other than directly related research services provided by the broker.
There is a procedure in place whereby any prospective conflict of interest is
reported by the Investment Manager to the Chair and a procedure to manage the
prospective conflict agreed. The Investment Manager's policy on conflicts is
reviewed by the Board annually.
The provisions of the UK Stewardship Code do not apply to the Company as all
investments are outside the United Kingdom. The Board has delegated to the
Investment Manager the power to vote in relation to the Company's holdings in
Indian listed companies, whether held directly or via ICGQ, the Company's
wholly owned subsidiary.
Alternative Investment Fund Managers Directive ("AIFMD")
The Board has appointed the Investment Manager to act as its AIF Manager.
The Investment Manager, Ocean Dial Asset Management Limited, is registered
with the Financial Conduct Authority in the UK as an Alternative Investment
Manager ("AIFM") and is authorised as a small Authorised UK AIFM.
Consequently, AIFM remuneration disclosures are not required.
Foreign Account Tax Compliance Act ("FATCA")
For purposes of the US Foreign Account Tax Compliance Act, the Company
registered with the US Internal Revenue Services ("IRS") as a Guernsey
reporting Foreign Financial Institution ("FFI"), received a Global
Intermediary Identification Number and can be found on the IRS FFI list. The
responsible officer is Robin Sellers.
The Company is subject to Guernsey regulations and guidance based on
reciprocal information sharing inter-governmental agreements which Guernsey
has entered into with the United Kingdom and the United States of America. The
Board will take the necessary actions to ensure that the Company is compliant
with Guernsey regulations and guidance in this regard.
Shareholder communication
The Board considers a report on shareholder communications at each quarterly
Board Meeting and a monthly Fact Sheet is published on the Company's website
reporting the month-end Net Asset Value with a commentary on performance. The
Investment Manager also reports via the Regulatory News Service (RNS) an
estimated, unaudited daily Net Asset Value. The Investment Manager and the
Corporate Broker maintain regular dialogue with institutional shareholders,
feedback from which is reported to the Board. Additionally during the year the
Investment Manager conducted three well-attended webinars for shareholders
which received positive feedback from shareholders who attended. Board members
are available to answer shareholders' questions at any time, and specifically
at the Annual General Meeting. The Company Secretary is also available to
answer general shareholder queries at any time during the year.
In order to ensure the Board members have an understanding of the views of all
shareholders about their Company, the Investment Manager and the Corporate
Broker, who regularly engage with those shareholders, both report those views
to the Board Members at each board meeting. The Board monitors activity in the
Company's shares and the discount or premium to Net Asset Value at which the
shares trade both in absolute terms and relative to the Company's peers.
Shareholders and stakeholders are engaged with via regular webinars and
monthly factsheets.
The Company has the authority, subject to various terms as set out in its
Articles and in accordance with The Companies (Guernsey) Law, 2008, as amended
to buy-back in the market, up to 14.99% of the shares in issue. The Company
intends to request renewal of this power from shareholders on an annual basis.
As of 31 December 2023, the Company had bought back a total of 762,645 (2022:
577,648) shares in the market excluding those acquired via the redemption
facility.
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 (80.3% of the portfolio can be liquidated
within 5 days); the performance of the investment portfolio (the net asset
value of the Company increased 28.6% 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 more than 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 a net 15,408,872 shares (13.9% of the then issued share
capital) were redeemed under the redemption facility at a total cost of
£19.5m in accordance with the announced timetable.
The second redemption point was on 31 December 2023 when valid redemption
requests were received in respect of 15,159,876 ordinary shares (15.7% of the
then issued share capital) which were subsequently redeemed under the
redemption facility at a total cost of £26.5m in accordance with the
announced redemption price on 8 January 2024. Since the year end, to satisfy
demand in the market, the Company has issued over 5.8m shares from Treasury at
a premium to NAV raising over £10.5m in new capital, and bought back 150,000
shares at a significant discount to NAV. As at 29 February 2024 the Company's
net asset value remains strong at £159.7m.
The next date at which shareholders will be able to request the redemption of
some or all of the shares is scheduled to be 31 December 2025 for shareholders
on the register at 30 September 2025.
The Directors are satisfied that the Company has sufficient liquid resources
to continue in business for the next twelve months from the date of approval
of these financial statements, therefore the financial statements have been
prepared on a going concern basis.
Longer-term viability statement
The Directors have assessed the prospects of the Company for a period of three
years. The Board believes this time period is appropriate having consideration
for the Company's;
· Long-term capital appreciation investment strategy;
· portfolio of liquid listed equity investments and cash balances;
· level of operating expenses, both fixed and variable;
· principal risks and uncertainties; and
· the Redemption Facility available to shareholders every two years.
In making this assessment, the Directors have considered the possible impact
of the Redemption Facility and the next scheduled Redemption Date on 31
December 2025. Whilst redemption requests at the next Redemption Date could
impact the Company's longer-term viability the Board have considered the
performance of the Company up to the Second Redemption Point and the
proportion of shares (15.7%) redeemed at that time.
In making this assessment as to the Company's longer-term viability, the
Directors have considered detailed information provided at Board meetings that
include the Company's balance sheet, investment portfolio liquidity, operating
expenses, market capitalisation, share price discount, shareholder register
analysis and investment performance to date, both actual and against the BSE
Mid Cap Total Return Index (the "Index") and the Company's peers.
Approved by the Board of Directors and signed on behalf of the Board on 27
March 2024.
Lynne
Duquemin
Patrick Firth
SUSTAINABILITY AND ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG") REPORT
The Board recognises its responsibilities for reporting on ESG and regularly
engages with the Investment Manager, upon whom the Board is reliant to deliver
this ESG reporting of the Company and to implement its ESG strategy.
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").
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 and a 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
In October 2023 the Investment Manager was acquired by AssetCo, as a
consequence of which it now benefits from the central infrastructure of
AssetCo's River Global brand which has strengthened the breadth and depth of
resources available to both the Investment Manager and the Company with ESG
being a focal point.
The management of sustainability risks forms an important part of the
investment portfolio 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. Although a systematic approach to ESG is
lacking in India, the Investment Manager has made ESG matters an integral part
of its due diligence process and positioned itself ahead of the learning curve
in India.
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 companies where
practical issues of "getting business done" within India can undermine good
governance. These companies 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 which
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 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.
ESG Scoring
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 has developed its own bespoke
ESG scoring model for all the portfolio companies. The scoring is based
primarily upon publically available data and output from company meetings
resulting in scores for three key areas;
· Disclosure
· Direction of Travel
· Absolute comparison against companies in the sector
ESG factors considered in the assessment and scoring include:
Environment
· GHG emissions
· Planned carbon neutrality goals
· Energy management
· Water and wastewater management
· Waste and hazardous materials management
· Biodiversity & land use
Social
· 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
Governance
· Related party transactions
· Promoter's behaviour: % holding, % shares pledged, exposure to other
business, unlisted entities in similar business, remuneration, family run vs.
independently & professionally run
· Board structure: diversity, independence and size
· Board Committees and their independence: Audit, Nomination and
Remuneration
· Capital allocation decisions
· Management of legal & regulatory environment
· Business ethics
· Competitive behaviour
The aggregate score is then weighted based upon its sector. An example of
scoring is given below for a cement company in the portfolio. The Investment
Manager is not focused on absolute and target scores but improvements year on
year. Consequently it will require several more years of data collection
before deciding that improvements are not being made.
The Investment Manager's overall ESG score for the portfolio in FY23 is 5.1
out of 9, an improvement from 4.7 in FY22 across all three scoring criteria of
Disclosure, Direction of Travel, and Absolute Comparison Against Companies in
the Sector. The Top 5 and Bottom 5 ESG scored portfolio companies were all
from different sectors so there appears to be no sector trend in the ESG
performance improvements in the portfolio. Additionally, the Investment
Manager reports that disclosures have substantially improved in FY23 as the
Security Exchange Board of India (SEBI) mandated the top 1,000 listed
companies to provide detailed sustainability disclosures. ESG Scoring is
providing the Investment Manager with key insight into how portfolio companies
are faring on ESG and ongoing engagement enables the Investment Manager to
obtain incremental data which is not publicly disclosed. Below is a summary of
the ESG scoring for FY23:
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. Provided below are examples of the
engagement undertaken by the Investment Manager to promote ESG in India:
Engagement case study 1
Engaged with PwC who serve as the ESG advisor to an auto ancillary
manufacturing company to present a list of key ESG variables the company
should disclose. The variables were carefully selected to ensure the company
provides relevant and meaningful information to all stakeholders. The company
acknowledged the importance of these variables and has implemented them into
their ESG disclosure, demonstrating its commitment to transparency and
sustainability which will not only benefit the environment but also contribute
to the long-term success of the business.
Engagement case study 2
Engaged with cement production company on providing integrated ESG disclosure
alongside their annual report. Previously the company had disclosed data with
a 1-year lag but from FY23 onwards they have moved to annual integrated
disclosure. This move signifies a positive step towards increased transparency
and highlights the company's commitment to responsible business practices.
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 our 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 us for guidance on aspects of best
practice. In turn we look to influence their thinking positively in respect of
ESG matters.
Modern Slavery Statement
The Modern Slavery Statement is included under 'Employees, human rights and
corporate social responsibility'.
United Nations-backed Principles of Responsible Investment Initiative (PRI)
As part of its commitment to responsible investing, the Investment Manager is
a signatory to The United Nations-backed Principles for Responsible Investment
Initiative (PRI).
Risk Summary
There are ESG risks for the Company associated with non-adherence to the
principles highlighted above and inherent in the principal and emerging risks
described in more detail in this Annual Report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Directors' Report, Directors'
Remuneration Report, Portfolio Statement and the Audited Financial Statements
in accordance with applicable laws.
The Companies (Guernsey) Law, 2008 requires the Directors to prepare audited
financial statements for each financial year. Under that law they have elected
to prepare the Audited Financial Statements in conformity with International
Financial Reporting Standards ("IFRS"), as adopted by the European Union
("EU") and applicable law.
The Audited Financial Statements are required by law to give a true and fair
view of the state of affairs of the Company and of the profit or loss of the
Company for that period.
In preparing these Audited Financial Statements the Directors are required to:
-
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and
prudent;
· state whether applicable accounting standards have been followed
subject to any material departures disclosed and explained in the Audited
Financial Statements; and
· prepare the Audited Financial Statements on a going concern basis
unless it is inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the Audited Financial Statements
comply with the Companies (Guernsey) Law, 2008, as amended. They have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
The Directors are also responsible for ensuring the Company complies with the
Listing Rules and Disclosure Guidance and Transparency Rules (DTR) of the UK
Listing Authority which, with regard to corporate governance, requires the
Company to disclose how it has applied the principles, and complied with the
provisions, of the AIC Code and the UK Corporate Governance Code to the
Company. Except as disclosed within this Annual Report, the Board is of the
view that throughout the year ended 31 December 2023, the Company complied
with the recommendations and provisions of the AIC Code and the UK Corporate
Governance Code.
We confirm to the best of our knowledge that:
· the audited financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the company;
· the annual report includes a fair review of the development and
performance of the business and the position of the company, together with a
description of the principal risks and uncertainties that they face; and
· the annual report and audited financial statements, taken as a whole,
are fair, balanced and understandable and provide the information necessary
for shareholders to assess the company's position, performance, business model
and strategy.
Signed on behalf of the Board by:
Lynne Duquemin
Patrick
Firth
27 March 2024
UNAUDITED DIRECTORS' REMUNERATION REPORT
Introduction
An ordinary resolution for the approval of the Directors' remuneration report
will be put to the Shareholders at the next Annual General Meeting.
Remuneration Policy
Due to the size of the Board, the Directors have not established a separate
Remuneration Committee. The Company's Articles of Incorporation state that
unless otherwise determined by ordinary resolution, the number of the
Directors shall not be less than two and the aggregate remuneration of all
Directors in any 12-month- period or pro rata for any lesser period shall not
exceed £200,000 or such higher amount as may be approved by ordinary
resolution. The level of Directors' fees is determined by the whole Board on
an annual basis, but no Director is involved in setting his own remuneration.
When considering the level of Directors' remuneration, the Board considers the
industry standard and the level of work that is undertaken.
The Directors shall also be entitled to be repaid all reasonable out of pocket
expenses properly incurred by them in or with a view to the performance of
their duties or in attending meetings of the Board or of committees or general
meetings.
The Board shall have the power at any time to appoint any person to be a
Director either to fill a casual vacancy or as an addition to the existing
Directors. Any Director so appointed shall hold office only until the next
following annual general meeting and shall then be eligible for re-election.
Remuneration
Annual Directors' fees for the years listed are as follows:
Annual fee effective 01 Sept 2023 Annual fees paid to 31 Dec 2023 Annual fees paid to 31 Dec 2022
£ £ £
Elisabeth Scott (Chair) 42,000 38,500 35,000
Patrick Firth 34,000 31,000 28,000
Lynne Duquemin 28,000 26,500 25,000
Nick Timberlake 28,000 26,500 *11,277
*Nick Timberlake's annual equivalent Director fee for 2022 was £25,000
No additional sums were paid in the year to Directors for work on behalf of
the Company outside their normal duties. None of the Directors had a service
contract with the Company during the year and accordingly a Director is not
entitled to any minimum period of notice or to compensation in the event of
their removal as a Director.
AUDIT & RISK COMMITTEE REPORT
Introduction
The Audit & Risk Committee (the "Committee") report for 2023 is presented
below. As in previous years, the Committee has reviewed the Company's
financial reporting, the independence and effectiveness of the Independent
Auditor and the internal control and risk management systems of the Company
and its service providers.
Structure and Composition
The Chair of the Committee is Patrick Firth. The Chair of the Committee is
appointed by the Board and the members are appointed by the Board, in
consultation with the Chair of the Committee. The Committee shall have a
minimum of two members. All members of the Committee shall be independent
non-executive directors, at least one of whom has recent and relevant
financial experience. The Chair of the committee is a qualified accountant and
all members of the Board have recent and relevant financial experience.
The Committee conducts formal meetings at least twice a year, normally
immediately preceding the Board meetings at which the audited financial
statements for the half-year and year end are reviewed. Only members of the
Committee have the right to attend meetings although, with the consent of the
Chair of the Committee, other Directors may be in attendance. The meetings
attendance table in the Directors' Report sets out the number of Committee
meetings held during the year ended 31 December 2023 and the number of such
meetings attended by each committee member. The Independent Auditor is invited
to attend those meetings at which the annual and interim reports are
considered. The Independent Auditor and the Committee may meet together
without representatives of either the Administrator or Investment Manager
being present if either considers this to be necessary.
Principal Duties of the Committee
The role of the Committee includes:
· monitoring the integrity of the audited financial statements and any
formal announcements regarding financial performance of the Company;
· reviewing and reporting to the Board on the significant issues and
judgements made in the preparation of the Company's published audited
financial statements, (having regard to matters communicated by the
Independent Auditors) preliminary announcement and other financial
information;
· reviewing the effectiveness of the external audit process and the
auditors' independence;
· considering and making recommendations to the Board on the
appointment, reappointment, replacement and remuneration of the Company's
Independent Auditor;
· reviewing arrangements by which persons associated with the key
service providers are able to, in confidence, raise concerns about possible
improprieties in matters of financial reporting or other matters and to ensure
that appropriate proportionate independent investigation of such matters is
undertaken; and
· assessing whether the Annual Report and Audited Financial Statements
taken as a whole, are fair, balanced and understandable and provide the
information necessary for the shareholders to assess the Company's
performance, business model and strategy.
· informing the administrative or supervisory body of the issuer of the
outcome of the statutory audit and explaining how the statutory audit
contributed to the integrity of financial reporting and what the role of the
relevant body was in that process.
The complete details of the Committee's formal duties and responsibilities are
set out in the Committee's terms of reference, which can be obtained from the
Company's website (https://www.indiacapitalgrowth.com).
Independent Auditor
Deloitte LLP acted as the Independent Auditor of the Company in respect of the
year ended 31 December 2023.
The recent revisions to the UK Corporate Governance Code introduced a
recommendation that the independent audit of FTSE 350 companies be put out to
tender every 10 years. Similarly, the EU and the Competition Markets Authority
have also issued requirements to tender every 10 years and extend for a
maximum of further 10 years before mandatory rotation. Notwithstanding the
Company does not fall within the FTSE350, the Committee will follow the
developments around the FRC, EU and Competition Markets Authority guidance on
tendering and consider the impact for offshore entities.
Following the recommendation of the Committee, Deloitte were appointed by the
Board of Directors on 10 June 2015 to audit the financial statements for the
year ending 31 December 2015 and subsequent financial periods. The period of
total uninterrupted engagement including previous renewals and reappointments
of the firm is 9 years, covering the years ending 31 December 2015 to 31
December 2023.
The independence and objectivity of the Independent Auditor is reviewed by the
Committee which also reviews the terms under which the Independent Auditor is
appointed to perform non-audit services. Any non-audit service provided by the
Independent Auditor, other than reviewing interim financial information, those
services which are closely linked to the audit itself or those services which
are required by law or regulation to be completed by the Auditor, requires
prior Committee approval where fees for the service are in excess of £10,000
cumulative over the financial year.
In accordance with the non-audit services policy, Deloitte LLP will not be
appointed to provide additional services including the provision of accounting
advice. The exception is where Deloitte LLP is best placed to provide a
service as a result of its audit, including the interim review which is
permissible under the FRC independence rules.
Given the fees for non-audit services paid by the Company are currently below
the specified threshold, the Independent Auditor can be deemed to be
independent and objective.
The committee also received assurance from Deloitte LLP that no matters of
concern were raised in external evaluations of their performance that would
impact upon their audit of the Company.
Evaluations during the year
The following assessments have been made by the Committee during the year:
Significant Financial Statement Issues
Liquidity and Valuation - The ongoing liquidity of the Company's investment
portfolio was evaluated, which included a review of both financial and
relative non-financial information. Due to the liquid nature of the Company's
and ICGQ's holdings and the Company's ability to effect a disposal of any
investment in ICGQ's portfolio and any of its direct investments at the
prevailing market price and the distribution of proceeds back to the Company
should it so wish, it was determined that no illiquidity discount would be
applied in determining the fair value of the Company's investment in ICGQ and
the Company's direct investments.
Going Concern and Longer-Term Viability - The Committee assessed both the
going concern of the Company for a period of twelve months and its longer-term
viability for a period of three years, particularly in the light of the
previous Redemption Facility in December 2023. Given recent investment
performance, feedback from shareholders and the adequacy of the Company's
liquid resources it was determined the Company can continue in business for
the foreseeable future.
The foregoing matters were discussed during the planning and final stage of
the audit and there were no disagreements between the Committee and the
Independent Auditor.
Effectiveness of the External Audit Process
The Committee had formal meetings with Deloitte LLP in attendance during the
course of the year: 1) at the review and approval of the year end accounts,
and 2) for the planning discussions for the year-end audit. The Committee
performed the following in relation to its review of the effectiveness and
independence of the Independent Auditor:
· Reviewed the audit plan presented to the Committee before the start
of the audit;
· Challenged the post audit report;
· Challenged the Auditor's own internal procedures to identify threats
to independence, which included obtaining confirmation from the Independent
Auditor of their independence;
· Discussed with both the Manager and the Administrator any feedback on
the external audit process; and
· Challenged and approved terms of the engagement of audit services
during the year, which included an evaluation of the related fees.
In addition, the Committee performed specific evaluation of the performance of
the Independent Auditor which is supported by the results of questionnaires
completed by the Committee. This questionnaire covered areas such as quality
of audit team, business understanding, audit approach and management.
There were no significant findings from the evaluation this year and the
Committee is satisfied that the external audit process is effective.
Audit fees and Non-audit Services
The table below summarises the remuneration paid by the Company to the
Independent Auditor:
2023 2022
£ £
Annual Audit 52,000 42,000
Interim Review - 15,000
Internal Control
The Committee has considered the need for an internal audit function. The
Committee agreed that the systems, controls and procedures employed by the
Investment Manager and the Administrator provided sufficient assurance that a
sound system of internal control, which safeguards the Company's assets, has
been maintained. An internal audit function specific to the Company is
therefore considered unnecessary.
The Committee examined and challenged externally prepared assessments of the
control environment in place at the Administrator who provided an independent
service auditor's report in accordance with ISAE 3402 for the year ended 30
September 2023.
Conclusion and Recommendation
After consultations with the Independent Auditor as necessary and reviewing
various reports from the Investment Manager such as the quarterly performance
reports and portfolio attribution and portfolio turnover reporting and
assessing the significant financial statement issues, the Committee is
satisfied that the Audited Financial Statements appropriately address the
critical judgements and key estimates (both in respect to the amounts reported
and the disclosures). The Committee is also satisfied that the significant
assumptions used for determining the value of assets and liabilities have been
appropriately scrutinised, challenged and are sufficiently robust. The
Committee further concludes that the Audited Financial Statements, taken as a
whole, are fair, balanced and understandable and provide the information
necessary for the shareholder to assess the Company's performance, business
model and strategy.
At the conclusion of the external audit process, the Independent Auditor
reported to the Committee that no material misstatements were found in the
course of its work. Furthermore, both the Manager and the Administrator
confirmed to the Committee that they were not aware of any material
misstatements including matters relating to presentation. The Committee
confirms that it is satisfied that the Independent Auditor has fulfilled its
responsibilities with diligence and professional scepticism.
Following the detailed review and evaluation processes identified in this
report, the Committee has concluded that the auditors have acted independently
in the work undertaken on behalf of the Company and has recommended to the
Board that Deloitte LLP be reappointed as Independent Auditor of the Company
for the coming financial year.
For any questions on the activities of the Committee not addressed in the
foregoing, a member of the Committee remains available to attend each Annual
General Meeting to respond to such questions.
Patrick Firth
Audit & Risk Committee Chair
27 March 2024
PRINCIPAL INVESTMENTS OF THE GROUP
As at 31 December 2023
Holding Market cap size Sector Value % of Company NAV
£000
Federal Bank M Financials 10,610 5.8%
Indusind Bank L Financials 9,019 4.9%
IDFC Bank M Financials 8,743 4.8%
Emami M Consumer Staples 8,157 4.5%
Dixon Technologies M Consumer Discretionary 7,380 4.0%
Persistent Systems M Information Technology 7,202 3.9%
RBL Bank M Financials 6,531 3.6%
PI Industries M Materials 6,394 3.5%
Ramkrishna Forgings S Materials 6,202 3.4%
Sona BLW Precision Forgings M Consumer Discretionary 5,908 3.2%
Skipper S Industrials 5,852 3.2%
Neuland Laboratories S Health Care 5,684 3.1%
JK Lakshmi Cement S Materials 5,652 3.1%
Welspun India S Consumer Discretionary 5,496 3.0%
Affle India M Communication Services 5,293 2.9%
Ashok Leyland M Industrials 4,911 2.7%
Jyothy Laboratories M Consumer Staples 4,862 2.7%
Multi Commodity Exchange S Financials 4,771 2.6%
City Union Bank S Financials 4,584 2.5%
CCL Products India S Consumer Staples 4,416 2.4%
Total top 20 portfolio investments 127,667 69.8%
Investments may be held by the Company and its Mauritian subsidiary, ICG Q
Limited.
PORTFOLIO STATEMENT
As at 31 December 2023
HOLDING Market cap Nominal Value % of
size
£000
company
NAV
LISTED SECURITIES
Communication Services
Affle India M 430,000 5,293 2.9%
5,293 2.9%
Consumer Discretionary
Bajaj Electricals S 312,734 2,912 1.6%
Balkrishna Industries M 148,000 3,583 2.0%
Dixon Technologies M 119,248 7,380 4.0%
Sona BLW Precision Forgings M 972,714 5,908 3.2%
Vedant Fashions M 116,638 1,394 0.8%
VIP Industries S 678,853 3,824 2.1%
Welspun India S 4,036,913 5,496 3.0%
30,497 16.7%
Consumer Staples
CCL Products India S 727,883 4,416 2.4%
Emami M 1,535,182 8,157 4.5%
Jyothy Laboratories M 1,077,326 4,862 2.7%
17,435 9.6%
Financials
Cholamandalam Investment and Finance Company L 175,000 2,077 1.1%
City Union Bank S 3,264,000 4,584 2.5%
IDFC Bank M 10,435,000 8,743 4.8%
Indusind Bank L 598,500 9,019 4.9%
Multi Commodity Exchange S 158,227 4,771 2.6%
RBL Bank M 2,481,000 6,531 3.6%
Federal Bank M 7,209,380 10,610 5.8%
46,335 25.3%
Healthcare
Neuland Laboratories S 113,986 5,684 3.1%
5,684 3.1%
Industrials
Ashok Leyland M 2,870,000 4,911 2.7%
Bajel Projects S 312,734 390 0.2%
Finolex Cables S 157,207 1,584 0.9%
Kajaria Ceramics M 347,698 4,266 2.3%
PSP Projects S 459,000 3,316 1.8%
Skipper S 2,716,924 5,852 3.2%
Uniparts India S 655,339 3,570 2.0%
23,889 13.1%
IT
Persistent Systems M 103,408 7,202 3.9%
Tech Mahindra L 279,719 3,356 1.9%
10,558 5.8%
Materials
Essel Propack S 1,419,399 2,701 1.5%
JK Lakshmi Cement S 666,826 5,652 3.1%
PI Industries M 192,956 6,394 3.5%
Ramkrishna Forgings S 906,794 6,202 3.4%
Sagar Cements S 1,611,000 3,866 2.1%
The Ramco Cements M 145,644 1,401 0.8%
26,216 14.4%
Total equity investments (including those held by ICG Q Limited) 165,907 90.90%
Cash less other net current liabilities 16,521 9.1%
Total Net Assets (before deferred taxation for Indian CGT) 182,428 100.0%
Deferred tax provision for Indian CGT (8,926)
Total Net Assets (after deferred tax provision for India CGT) 173,502
Notes:
L: Large cap - companies with a market capitalisation above US$8bn 7.9%
M: Mid cap - companies with a market capitalisation between US$2bn and US$8bn 47.5%
S: Small cap - companies with a market capitalisation below US$2bn 35.5%
90.9%
Equity investments may be held by the Company and its Mauritian subsidiary,
ICG Q Limited
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF INDIA CAPITAL GROWTH FUND
LIMITED
Report on the audit of the financial statements
Opinion
In our opinion the financial statements of India Capital Growth Fund Limited
(the 'Company'):
· give a true and fair view of the state of the Company's affairs as at
31 December 2023 and of its profit for the year then ended;
· have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union; and
· have been prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008.
We have audited the financial statements which comprise:
· the statement of comprehensive income;
· the statement of financial position;
· the statement of changes in equity;
· the statement of cash flows; and;
· the related notes 1 to 15.
The financial reporting framework that has been applied in their preparation
is applicable law and IFRSs as adopted by European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the auditor's responsibilities for the
audit of the financial statements section of our report.
We are independent of the Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK,
including the Financial Reporting Council's (the 'FRC's') Ethical Standard as
applied to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We confirm we
have not provided any non-audit services prohibited by the FRC's Ethical
Standard to the Company.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters The key audit matter that we identified in the current year was:
· Valuation of the Company's investment in its subsidiary, and the
valuation of directly held investments
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality The materiality that we used in the current year was £1,735,053 which was
determined on the basis of 1% of Net Assets.
Scoping The Company was audited as a single component. Balances were scoped in for
testing based on our assessment of risk of material misstatement. As part of
our risk assessment process, we considered the impact of controls implemented
at service organisations of the Company.
Significant changes in our approach Following the outcome of the shareholder redemptions at 31 December 2023, and
the subsequent reduced uncertainty, we did not identify going concern as a key
audit matter in the current year. Additionally, our key audit matter relating
to the Company's investments is focussed this year on their valuation, instead
of valuation and ownership.
Materiality
The materiality that we used in the current year was £1,735,053 which was
determined on the basis of 1% of Net Assets.
Scoping
The Company was audited as a single component. Balances were scoped in for
testing based on our assessment of risk of material misstatement. As part of
our risk assessment process, we considered the impact of controls implemented
at service organisations of the Company.
Significant changes in our approach
Following the outcome of the shareholder redemptions at 31 December 2023, and
the subsequent reduced uncertainty, we did not identify going concern as a key
audit matter in the current year. Additionally, our key audit matter relating
to the Company's investments is focussed this year on their valuation, instead
of valuation and ownership.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
In our assessment of the directors' use of the going concern assessment, we
performed the following procedures:
· We reviewed the minutes of the Extraordinary General Meeting held
on 12 June 2020 which introduced 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 event was on 31
December 2021, the second being 31 December 2023 and the next being 31
December 2025.
· We reviewed redemption payments for the valid redemption requests
received as at 31 December 2023 and their impact on the going concern of the
Company;
· We assessed the performance of the Company post redemptions,
specifically reviewing factsheets prepared by the investment manager.;
· We reviewed the Company's share price movement on the London
Stock Exchange after the redemptions;
· We inspected the Company's website for evidence of regular
updates to shareholders with particular focus on the going concern of the
Company;
· We reviewed management's going concern assessment with particular
attention to liquidity of the investment portfolio; and
· We assessed the relevant disclosures in the financial statements.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Company's ability to continue
as a going concern for a period of at least twelve months from when the
financial statements are authorised for issue.
In relation to the reporting on how the company has applied the UK Corporate
Governance Code, we have nothing material to add or draw attention to in
relation to the directors' statement in the financial statements about whether
the directors considered it appropriate to adopt the going concern basis of
accounting.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In addition to the matter
described in the material uncertainty related to going concern section, we
have determined the matter described below to be the key audit matters to be
communicated in our report.
Valuation of the Company's investment in its subsidiary, and valuation of
directly held investments
Key audit matter description The fair value of investments the company holds in its subsidiary, ICGQ is
determined by its NAV at year end. The majority of ICGQ's NAV comprises its
investments and as a result there is risk that if these are materially
misstated, the investment balance recorded in ICGF's financial statements will
be misstated.
Investments are the most significant balance on the Statement of Financial
Position, errors or deliberate manipulation of valuationscould result in a
material misstatement to the financial statements.
Details of the investments are disclosed in notes 5 and 9 and the accounting
policies relating to them are disclosed in note 1.
How the scope of our audit responded to the key audit matter In order to test the valuation of the Company's investments as at 31 December
2023 we performed the following procedures:
· We obtained an understanding of the relevant controls relating to the
valuation of investments, including controls adopted by the Company's
administrators;
· We assessed the adequacy of the ISAE 3402 controls report prepared
for the administrator by its service auditor to establish whether the
valuation controls included within the report covered the NAV controls we were
seeking to rely on and whether there were any exceptions identified by the
service auditor;
· Agreed the unit prices of all investments in the Company and ICG Q to
independent pricing sources;
· We examined trading volumes for all investments held by the Company
and ICG Q and for any investments that were not traded daily and performed
further analysis to assess whether these investments were sufficiently liquid
to be classified as a Level 1 investment;
· Tested the initial cost of investment transactions by agreeing the
purchase and sale of a sample of the Company's equity shares to independent
evidence; and
· Reconciled the net asset value of ICG Q to the investment value
recorded in ICG Q's trial balance.
Key observations We concluded that the valuation of investments in the subsidiary, and
valuation of directly held investments was appropriate.
Our application of materiality
Materiality
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both
in planning the scope of our audit work and in evaluating the results of our
work.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Materiality £1,735,000 (2022: £1,351,700)
Basis for determining materiality 1% of Net Assets, which is consistent with the prior year.
Rationale for the benchmark applied Net Assets is the key balance considered by the users of the financial
statements which is consistent with the market approach for such entities.
Performance materiality
We set performance materiality at a level lower than materiality to reduce the
probability that, in aggregate, uncorrected and undetected misstatements
exceed the materiality for the financial statements as a whole. Performance
materiality was set at 70% of materiality for the 2023 audit (2022: 70%). In
determining performance materiality, we considered the following factors:
· our risk assessment, including our assessment of the Company's
overall control environment;
· our past experience of the audit, which has indicated a low number of
corrected and uncorrected misstatements identified in prior periods; and
· potential impact as result of the redemption facility that is due
within the next 12 months.
Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all
audit differences in excess of £86,700 (2022: £67,500), as well as
differences below that threshold that, in our view, warranted reporting on
qualitative grounds. We also report to the Audit Committee on disclosure
matters that we identified when assessing the overall presentation of the
financial statements.
An overview of the scope of our audit
Scoping
Our audit was scoped by obtaining an understanding of the Company and its
environment, including internal controls, and assessing the risks of material
misstatement. The Company holds investments directly and also through its
wholly owned subsidiary ICG Q Limited. We audited the Company which included
testing the valuation of the Company's investment in ICG Q Limited which
involved testing the net assets value of ICG Q Limited.
Audit work to respond to the risks of material misstatement was performed
directly by the audit engagement team.
Our consideration of the control environment
The Company is administered by a third-party Guernsey regulated service
provider. As part of our audit, we obtained an understanding of relevant
controls established at the service provider. We obtained the independently
audited ISAE 3402 report on the service provider's controls, which included
financial reporting controls as well as General IT Controls (GITCs). We also
obtained a bridging letter from the date of the ISAE 3402 report to year end
on the controls in place.
Our consideration of climate-related risks
The Company, through its investment advisor, has considered climate related
risks from its operations. The Company's climate related risks arise from
companies it invests in. As fully explained in the Sustainability and
Environmental, Social and Governance ("ESG") report and Note 10 of the
financial statements, the investment advisor has developed a scoring model in
which companies they invest in are tracked for their climate risk processes
and disclosures.
In our assessment of the Company's climate related risks and disclosures, we
performed the following procedures:
· We assessed the Company's climate related risks by obtaining an
understanding of management's process and controls in considering the impact
of climate risks and assessed whether the risks identified are complete and
consistent with our understanding of the Company;
· We performed peer reviews of similar companies with similar exposure
to the Indian equity market for their climate related risks and disclosures
and compared to the Company's climate related risks and disclosures;
· We reviewed the ESG factors considered by the Company in their ESG
report and compared these to broad industry specific factors; and
We challenged the metrics considered in coming up with the scoring model
through review of source data of the metrics and comparing to disclosures of
similar companies.
Other information
The other information comprises the information included in the annual report,
other than the financial statements and our auditor's report thereon. The
directors are responsible for the other information contained within the
annual report.
Our opinion on the financial statements does not cover the other information
and, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or otherwise
appears to be materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Company or
to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial
statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) . This description forms part
of our auditor's report.
Extent to which the audit was considered capable of detecting irregularities
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of
irregularities, including fraud and non-compliance with laws and regulations,
we considered the following:
· the nature of the industry and sector, control environment and
business performance including the design of the company's remuneration
policies, key drivers for directors' remuneration, bonus levels and
performance targets;
· results of our enquiries of management, the directors and the Audit
Committee about their own identification and assessment of the risks of
irregularities, including those that are specific to the Company's sector;
· any matters we identified having obtained and reviewed the Company's
documentation of their policies and procedures relating to:
o identifying, evaluating and complying with laws and regulations and
whether they were aware of any instances of non-compliance;
o detecting and responding to the risks of fraud and whether they have
knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks of fraud or
non-compliance with laws and regulations;
· the matters discussed among the audit engagement team regarding how
and where fraud might occur in the financial statements and any potential
indicators of fraud.
As a result of these procedures, we considered the opportunities and
incentives that may exist within the organisation for fraud and identified the
greatest potential for fraud in the following areas:
· Valuation of the Company's investment in its subsidiary and the
valuation of the directly held investments.
In common with all audits under ISAs (UK), we are also required to perform
specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that
the Company operates in, focusing on provisions of those laws and regulations
that had a direct effect on the determination of material amounts and
disclosures in the financial statements. The key laws and regulations we
considered in this context included the Companies (Guernsey) Law, 2008; the
Listing Rules and relevant tax legislation.
In addition, we considered provisions of other laws and regulations that do
not have a direct effect on the financial statements but compliance with which
may be fundamental to the Company's ability to operate or to avoid a material
penalty.
Audit response to risks identified
As a result of performing the above, we identified valuation of the company's
investment in its subsidiary and the valuation of the directly held
investments as a key audit matter related to the potential risk of fraud. The
key audit matter section of our report explains the matter in more detail and
also describes the specific procedures we performed in response to that key
audit matter.
In addition to the above, our procedures to respond to risks identified
included the following:
· reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions of relevant laws
and regulations described as having a direct effect on the financial
statements;
· enquiring of management and the Audit Committee concerning actual and
potential litigation and claims;
· performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material misstatement due
to fraud;
· reading minutes of meetings of the board and the Audit Committee and
reviewing correspondence with the Guernsey Financial Services Commission; and
· in addressing the risk of fraud through management override of
controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting
estimates are indicative of a potential bias; and evaluating the business
rationale of any significant transactions that are unusual or outside the
normal course of business.
We also communicated relevant identified laws and regulations and potential
fraud risks to all engagement team members and remained alert to any
indications of fraud or non-compliance with laws and regulations throughout
the audit.
Report on other legal and regulatory requirements
Corporate Governance Statement
The Listing Rules require us to review the directors' statement in relation to
going concern, longer-term viability and that part of the Corporate Governance
Statement relating to the Company's compliance with the provisions of the UK
Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the Corporate Governance Statement is materially
consistent with the financial statements and our knowledge obtained during the
audit:
· the directors' statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material uncertainties
identified;
· the directors' explanation as to its assessment of the Company's
prospects, the period this assessment covers and why the period is
appropriate;
· the directors' statement on fair, balanced and understandable;
· the board's confirmation that it has carried out a robust assessment
of the emerging and principal risks;
· the section of the annual report that describes the review of
effectiveness of risk management and internal control systems; and
· the section describing the work of the Audit Committee.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies (Guernsey) Law, 2008 we are required to report to you if,
in our opinion:
· we have not received all the information and explanations we require
for our audit; or
· proper accounting records have not been kept by the Company; or
· the financial statements are not in agreement with the accounting
records.
We have nothing to report in respect of these matters.
Use of our report
This report is made solely to the Company's members, as a body, in accordance
with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has
been undertaken so that we might state to the Company's members those matters
we are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
Stuart Crowley FCA
For and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
27 March 2024
AUDITED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2023
2023 2022
Notes Revenue £000 Capital £000 Total Total
£000
£000
Income
Dividend income 144 - 144 113
Foreign exchange gain (386) - (386) 65
Net gain on financial assets at fair value through profit or loss 5 - 40,169 40,169 4,374
Total income (242) 40,169 39,927 4,552
Expenses
Operating expenses 3 (538) - (538) (534)
Transaction costs (55) - (55) (22)
Total expenses (593) - (593) (556)
Profit for the year before taxation (832) 40,169 39,334 3,996
Taxation 6 (30) (696) (726) (223)
Total comprehensive income for the year (865) 39,473 38,608 3,773
Earnings per Ordinary Share (pence) 4 40.01 3.88
Diluted earnings per Ordinary Share (pence) 4 40.01 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 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 2023
2023 2022
Notes £000 £000
Non-current asset
Financial assets designated at fair value through profit or loss 5 169,649 134,986
Current assets
Cash and cash equivalents 5,009 646
Other receivables and prepayments 191 158
5,200 804
Current liability
Payables and accruals (254) (214)
Net current assets 4,946 590
Non-current liability
Deferred Taxation 6 (1,093) (397)
Net assets 173,502 135,179
Equity
Share capital 8 963 965
Reserves 172,539 134,214
Total equity 173,502 135,179
Number of Ordinary Shares in issue 8 96,330,656 96,515,653
Net Asset Value per Ordinary Share (pence) 180.11 140.06
- Undiluted and diluted
The audited financial statements were approved by the Board of Directors on 27
March 2024 and signed on its behalf by:-
Lynne Duquemin
Patrick Firth
AUDITED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2023
Share Capital £000 Capital Reserve £000 Revenue Reserve £000 Other Distributable Reserve £000 Total £000
Note
Balance as at 1 January 2023 965 71,583 (10,524) 73,155 135,179
Gain on investments - 39,473 - - 39,473
Share repurchase 8 (2) - - (283) (285)
Total comprehensive income for the year - - - (865) (865)
Balance as at 31 December 2023 963 111,056 (10,524) 72,007 173,502
For the year ended 31 December 2022
Share Capital £000 Capital Reserve £000 Revenue Reserve £000 Other Distributable Reserve £000 Total £000
Note
Balance as at 1 January 2022 1,121 67,408 (10,524) 93,026 151,031
Gain on investments - 4,175 - - 4,175
Share repurchase 8 (156) - - (19,469) (19,625)
Total comprehensive income for the year - - (402)
- (402)
Balance as at 31 December 2022 965 71,583 (10,524) 73,155 135,179
AUDITED STATEMENT OF CASH FLOWS
For the year ended 31 December 2023
2023 2022
Notes £000 £000
Cash flows from operating activities
Operating profit 39,334 3,996
Adjustments for:
Net gain on financial assets at fair value through profit or loss (40,169) (4,374)
Foreign exchange loss/(gain) 386 (65)
Dividend income (144) (113)
(Increase)/decrease in other receivables and prepayments (33) 22
Increase/(decrease) in payables and accruals 40 (33)
Cash used in operations (586) (567)
Withholding tax deducted (30) (24)
Net cash flows used in operating activities (616) (591)
Cash flows from investing activities
Dividend income 144 113
Acquisition of investments 5 (19,471) (5,441)
Disposal of investments 5 24,977 23,615
Net cash flows from investing activities 5,650 18,287
Cash flows from financing activity
Redemption of shares (285) (19,625)
Net cash used in financing activity (285) (19,625)
Net increase/(decrease) in cash and cash equivalents during the year 4,749 (1,929)
Cash and cash equivalents at the start of the year 646 2,510
Foreign exchange (loss)/gain (386) 65
Cash and cash equivalents at the end of the year 5,009 646
NOTES TO THE AUDITED FINANCIAL STATEMENTS
1. Material accounting Policies
Basis of accounting
The audited 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"),and the Companies (Guernsey) Law, 2008 (Amendment) Ordinance, 2023.
With effect from 1 January 2024, the Company intends to adopt IASB as adopted
by the UK. The Company's Guernsey registration number is 1030287.
Basis of preparation
The audited financial statements for the year ended 31 December 2023 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 audited financial statements on
a basis compliant with the recommendations of the SORP, as applicable for a
Guernsey incorporated company. 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 audited
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 (80.3% of the portfolio can be
liquidated within 5 days); the performance of the investment portfolio (the
net asset value of the Company increased 28.6% 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 second redemption point was on 31 December 2023 when valid redemption
requests were received in respect of 15,159,876 ordinary shares (15.7% of the
then issued share capital) which were subsequently redeemed under the
redemption facility at a total cost of £26.5m in accordance with the
announced redemption price on 8 January 2024. Since the year end, to satisfy
demand in the market, the Company has issued over 5.8m shares from Treasury at
a premium to NAV raising over £10.5m in new capital, and bought back 150,000
shares at a significant discount to NAV. As at 29 February 2024 the Company's
net asset value remains strong at £159.7m.
The next date at which shareholders will be able to request the redemption of
some or all of the shares is scheduled to be 31 December 2025 for shareholders
on the register at 30 September 2025.
The Directors are satisfied that the Company has sufficient liquid resources
to continue in business for the foreseeable future 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 audited 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 and are presented in the Capital column of the Statement of
Comprehensive Income
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, fair value is determined by
reference to the mid-market price ruling at the balance sheet date, or if this
is not available, the latest mid-price from the Investment Manager.
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. These are initially
recognised at fair value plus transaction costs that are directly attributable
to the acquisition. 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 fair value through profit or loss ("FVPL"), are
initially measured at fair value plus transaction costs. 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 audited 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
audited 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 material 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 on or after 1 January 2023:
· 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)
· Amendments to IAS 12 Income Taxes: International Tax Reform - Pillar
Two Model Rules (applicable for annual periods beginning on or after 1 January
2023)
· Amendments to IFRS 17 Insurance Contracts: Amendments regarding the
principles for the recognition, measurement, presentation and disclosure of
Insurance contracts (applicable for annual periods beginning on or after 1
January 2023)
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 or after 1 January 2023:
· Amendments to IAS 1 Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current (applicable for annual
periods beginning after 1 January 2024, but not yet endorsed in the EU)
In January 2020 and October 2022, the IASB issued amendments to paragraphs 69
to 76 of IAS 1 to specify the requirements for classifying liabilities as
current or non-current. The amendments clarify:
a. What is meant by a right to defer settlement;
b. That a right to defer must exist at the end of the reporting period;
c. That classification is unaffected by the likelihood that an entity
will exercise its deferral right; and
d. That only if an embedded derivative in a convertible liability is
itself an equity instrument would the terms of a liability not impact its
classification.
In addition, a requirement has been introduced to require disclosure when a
liability arising from a loan agreement is classified as non-current and the
entity's right to defer settlement is contingent on compliance with future
covenants within twelve months.
The amendments are effective for annual reporting periods beginning after 1
January 2024 and must be applied retrospectively. The Company is currently
assessing the impact the amendments will have on current practice.
· Amendments to IFRS 16: Lease Liability in a Sale and Leaseback
In September 2022, the IASB issued amendments to IFRS 16 to specify the
requirements that a seller-lessee uses in measuring the lease liability
arising in a sale and leaseback transaction, to ensure the seller-lessee does
not recognise any amount of the gain or loss that relates to the right of use
it retains.
The amendments are effective for annual reporting periods beginning after 1
January 2024 and must be applied retrospectively to sale and leaseback
transactions entered into after the date of initial application of IFRS 16.
Earlier application is permitted, and that fact must be disclosed.
The amendments are not expected to have a material impact on the Company's
audited financial statements.
Other changes to accounting standards in the current year had no material
impact.
· Amendments to IAS7 and IFRS 7: Supplier Finance Arrangements
In May 2023, the IASB issued amendments to IAS 7 Statement of Cash Flows and
IFRS 7 Financial Instruments:
Disclosures to clarify the characteristics of supplier finance arrangements
and require additional disclosure of such arrangements. The disclosure
requirements in the amendments are intended to assist users of financial
statements in understanding the effects of supplier finance arrangements on an
entity's liabilities, cash flows and exposure to liquidity risk.
The amendments will be effective for annual reporting periods beginning after
1 January 2024. Early adoption is permitted but will need to be disclosed.
The amendments are not expected to have a material impact on the Company's
audited financial statements.
The Directors anticipate that the adoption of the above Standards in future
years will have no material impact on the audited financial statements of the
Company in the year of initial application.
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 audited 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.
3. Operating expenses
2023 2022
£000 £000
Administration and secretarial fees 84 77
Audit fees 52 66
Broker fee 23 31
D&O insurance 8 10
Directors' fees and expenses 126 120
General expenses 60 63
Marketing expenses 88 94
Other professional fees 45 36
Registrar fee 7 12
Regulatory fees 45 25
538 534
4. Earnings per share
Earnings per Ordinary Share and the fully diluted earnings per share are
calculated on the profit for the year of £38,608,000 (2022 - profit of
£3,773,000) divided by the weighted average number of Ordinary Shares of
96,487,421 (2022 - 97,279,178).
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:
2023 2022
£000 £000
Fair value at beginning of year 134,986 148,786
Disposal of investments (24,977) (23,615)
Acquisition of investments 19,471 5,441
Realised gains on disposal of investments 17,181 15,787
Unrealised gains/(losses) on revaluation 22,988 (11,413)
Fair value at end of year 169,649 134,986
The net realised and unrealised gains above totalling £40,169,000 (2022:
£4,374,000) on financial assets at fair value through profit and loss
comprise gains on the Company's holding in ICG Q Limited of £35,412,000
(2022: gains of £2,554,000) and gains of £4,757,000 (2022: gains of
£1,820,000) 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 audited financial statements of ICG
Q Limited.
2023 2022
£000 £000
Dividend income 959 950
Unrealised gain/(loss) on financial assets at fair value through profit and 24,310 (14,289)
loss
Foreign exchange loss (2,612) (442)
Realised gain on disposal of investments 19,035 17,935
Investment management fees (1,702) (1,370)
Other operating expenses (91) (79)
Withholding tax on dividend income (197) (199)
Deferred taxation for Indian Capital Gains Tax - 201
Other Taxes (4,208) (55)
Transaction costs (82) (98)
Net profit of ICG Q Limited 35,412 2,554
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. For the year ended 31 December 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 £1,093,000 at 31 December 2023 (2022: £397,000) and for its
subsidiary was £7,833,000 at 31 December 2023 (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
year ended 31 December 2023 was £30,000 (2022: £24,000) and for its
subsidiary was £197,000 (2022: £199,000).
Minimum top-up tax
The Company has adopted mandatory exception to the International Tax Reform -
Pillar Two Model Rules (Amendments to IAS 12) upon their release on 23 May
2023. The amendments provide a temporary mandatory exception from deferred tax
accounting for the top‑up tax, which is effective immediately, and require
new disclosures about the Pillar Two exposure. However, because no new
legislation to implement the top‑up tax was enacted or substantively enacted
in India hence no related deferred tax was recognised at that date, the
retrospective application has no impact on the Company's financial statements.
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 and Paid Share Capital Number of shares Share Capital
£000
Ordinary shares of £0.01 each:
At 31 December 2022 96,515,653 965
Shares transferred to treasury (184,997) (2)
At 31 December 2023 96,330,656 963
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 184,997 ordinary shares during the year ended 31
December 2023. 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 (£)
27 October 2023 50,000 0.01 1.425 71,250
8 November 2023 34,997 0.01 1.575 55,120
9 November 2023 100,000 0.01 1.590 159,000
Total 184,997 285,370
Other distributable reserves
Other distributable reserves includes all other gains and losses during the
year except for the realised and unrealised gains and losses on the
investments measured at FVTPL. Other distributable reserves includes foreign
exchange gains and losses made on ordinary transactions, dividend income and
general expenses, as well as taxation.
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 2023 is as follows:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
£000 £000 £000 £000
Listed securities 34,948 - - 34,948
Unlisted securities - 134,701 - 134,701
Total 34,948 134,701 - 169,649
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 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 of ICG Q Limited are categorised as level 1 at 31
December 2023 and 2022. 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 2023.
There were no changes in valuation techniques during the year ended 31
December 2023.
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 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 2023, 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 financial
material impact on returns. Climate change is 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,
including the impact of inflation, 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 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 Investment Manager has a team on the ground in India who keep abreast of
the latest political developments and economic forecasts that may impact the
listed equities market in India and regularly advise the Board thereof.
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: 90.90%;
2022: 97.3%) to any movement in the BSE Mid Cap Total Return Index.
At 31 December 2023, with all other variables held constant, this
approximation would produce a movement in the net assets of the Group's
investment portfolio of £16,590,731 (2022: £13,423,000) for a 10% (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 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 2023, if the Indian Rupee had strengthened or weakened by 10%
(2022: 10%) against Sterling with all other variables held constant, pre-tax
profit for the period would have been £20,910,238 (2022: £13,913,000) 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 2023 was £65,379 (2022:
£4,897,000).
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 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 affect 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 2023, 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
£1,702,000 in management fees during the year ended 31 December 2023 (2022:
£1,370,000) of which £162,000 was outstanding at 31 December 2023 (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 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
£84,000 for administration and secretarial services during the year ended 31
December 2023 (2022: £77,000) of which £23,000 was outstanding at 31
December 2023 (2022: £19,000).
12. Contingent liabilities
The Directors are not aware of any contingent liabilities as at 31 December
2023 and at the date of approving these audited financial statements.
13. Significant events
On 6 March 2023, AssetCo PLC founded and chaired by Martin Gilbert, acquired
the Company's investment manager, Ocean Dial Asset Management Limited. The
successful investment team in India, led by Gaurav Narain, continues
unchanged.
14. Ultimate controlling party
In the opinion of the Directors of the Company, the Company has no ultimate
controlling party
15. Subsequent events
During the month of January 2024, 15,159,876 ordinary shares, equivalent to
15.7% of the shares in issue as at 31 December 2023 (excluding treasury
shares), were redeemed at 174.08p per Redemption Share. These Redemption
Shares were held in treasury following the redemption of shares paid in
January 2024, which resulted in a £26.2m reduction in the net asset value of
the Company.
During the period from 31 December 2023 to the date of signing of these
Financial Statements, 5,828,500 shares have been issued from Treasury and
150,000 shares bought back into Treasury.
Following the transactions, the Company's issued share capital comprises:
- 87,274,156 Ordinary Shares (excluding treasury shares)
- 25,228,017 Ordinary Shares held in treasury
- 112,502,173 Ordinary Shares (including treasury and redemption shares)
There are no other material events since the end of the reporting period which
would require disclosure or adjustment to the audited financial statements for
the year ended 31 December 2023.
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