TIDMIGC
RNS Number : 6815U
India Capital Growth Fund Limited
30 March 2023
LEI: 213800TPOS9AM7INH846
INDIA CAPITAL GROWTH FUND LIMITED
Annual Results for the year ended 31 December 2022
30 March 2023, London - India Capital Growth Fund ("ICGF" or
"the Company"), the LSE premium listed investment company
established to take advantage of long-term investment opportunities
in companies based in India, today reports results for the year
ended 31 December 2022.
Highlights
2022 2021 % change
Per Ordinary Share
Net Asset Value (NAV) 140.06p 134.74p 3.9%
Share price 129.00p 119.75p 7.7%
Share price discount to NAV 7.9% 11.1%
FX impact
Indian Rupee / Sterling 99.74 100.30 0.6%
-- In 2022 the NAV rose 3.9%, outperforming the BSE Midcap TR Index, which increased 3.2%.
-- The NAV of the portfolio, before deferred tax provision
relating to potential Indian Capital Gains Tax, rose by 4.3%
outperforming emerging markets as a whole which fell 13% during the
year
-- The discount narrowed over the year to just over 7.9% at the
year end. The Board intends to continue to repurchase shares when
the discount is inappropriately wide, unless in volatile
conditions
-- The second Redemption Point will be at 31 December 2023 for
eligible shareholders on the register at 30 September 2023 when the
Exit Discount will be no more than 3%
-- The Indian Rupee continued to remain relatively stable backed
by significant foreign currency reserves helped in part by the
rising export of IT services offsetting the cost of fluctuating oil
imports
-- On 6 March 2023 AssetCo PLC, founded and chaired by Martin
Gilbert, acquired the Company's investment manager, Ocean Dial
Asset Management Limited, subject to regulatory approvals from the
FCA and regulators in India. The successful investment team in
India, led by Gaurav Narain, continues unchanged
Elisabeth Scott, Chair of India Capital Growth Fund, said:
"Despite all the global uncertainties of 2022, it is clear that
India and its economy have been resilient and investors in emerging
markets have favoured India over the stock markets of other
emerging markets. While it is perfectly reasonable to expect that
other emerging markets may catch up in terms of relative
performance, the outlook for the Indian economy is positive and
Indian companies will benefit from this and from the improvement in
governance standards.
The Board believes that, particularly in this uncertain
environment, the Company's focus on high quality companies with
strong management capabilities and a clear path to growth will
generate positive investment returns over time."
ENQUIRIES
David Cornell
Swati Jain
Ocean Dial Asset Management
+44 (0) 7917 461942
+44 (0) 7545 759267
david.cornell@oceandial.com
swati.jain@oceandial.com
William Clutterbuck
Rachel Cohen
H/Advisors Maitland PR
+44 (0) 20 7379 5151
william.clutterbuck@h-advisors.global
rachel.cohen@h-advisors.global
Robert Finlay
Shore Capital
+44 (0) 20 7408 4050
Matt Lihou
Apex Fund and Corporate Services (Guernsey) Limited
+44 (0) 20 3530 3687
matt.lihou@apexgroup.com
About India Capital Growth Fund
India Capital Growth Fund Limited the LSE premium listed
investment company registered and incorporated in Guernsey, was
established to take advantage of long-term investment opportunities
in companies based in India. ICGF predominantly invests in listed
mid and small cap companies, although investments may also be made
in large cap and private Indian companies where the Fund Manager
believes long-term capital appreciation will be achieved.
www.indiacapitalgrowth.com
CHAIR'S STATEMENT
After a very strong year for Indian equity markets in 2021, 2022
saw Indian equities show a positive performance, contrasting with
the negative returns experienced in other global equity markets.
While the global economy and equity markets suffered from Russia's
shock invasion of Ukraine and the consequent increase in energy
prices, India's economic momentum gained pace, with capital
expenditure growing, the real estate sector showing signs of
recovery and consumer demand continuing to rise. With healthy
foreign exchange reserves (the fourth largest in the world at
USD560bn), the currency has been resilient, compared with previous
economic shocks despite the headwind of high oil prices.
Performance
Your Company reported growth in its Net Asset Value (NAV) of
3.9% over the year, which compared favourably to the benchmark
index, the S&P BSE Midcap Total Return Index, which rose by
3.2%. The share price rose by 7.7% as the discount narrowed over
the year. Key to this outperformance was the overweight position in
the financial sector, where the Company's long term holdings in
Federal Bank and IndusInd Bank performed well.
The Investment Manager's Report provides more information on the
performance of the companies held in the Company's portfolio. The
Report illustrates how the Manager's long term active style
continues to benefit performance.
Environmental, Social & Governance ("ESG")
The Board is pleased that the Investment Manager has continued
to build its ESG capability. The bespoke in-house process allows
the Manager to screen out companies with corporate governance
issues. One such example was the Manager's decision to avoid all
the Adani Group of companies, which hurt performance in 2021 and
2022, but, following the year end, has been justified by the recent
exposure of some alleged doubtful business practices resulting in a
sharp fall in the Adani Group companies' share prices.
The Manager continues to engage with the management of portfolio
companies to persuade them to improve their disclosures of their
ESG practices. In an example of this, JK Lakshmi Cement published
its first detailed sustainability report. It is probable that
disclosure levels will improve in India. The Securities Exchange of
India has announced that the top 1000 companies by market
capitalisation will be required to make ESG disclosures.
Redemption Facility
The second redemption point at which shareholders in the Company
can request redemption of part or all of their shareholding on the
record date of 30 September 2023 will be on 31 December 2023. The
Board has agreed that the exit discount at this redemption point
will be no more than 3%. Shareholders will be reminded of this in
the interim report and again in market announcements before the
final notice date.
Further details of the Redemption Facility are available on our
website www.indiacapitalgrowth.com
Discount
The Company's share price discount to NAV began the year at
11.1% and closed at 7.9% reaching a month end low of 6.8% during
the year. This discount was narrower than or in line with many
other closed ended investment companies, especially those investing
in emerging markets.
Over the year the company bought back 165,204 of its shares in
the market at average price of 102.86p per share. The Board
believes that it is in shareholders' interests that the Company's
share price should more closely reflect the prospects of the
Company. The Board also notes that the repurchase of shares at a
discount to NAV is accretive to the NAV of the Company. The Board
works with the Company's broker, Shore Capital, in this regard.
Corporate Governance
The Company is a member of the Association of Investment
Companies (AIC) and seeks to follow best practice regarding
appropriate disclosures and governance. The governance principles
that the Board has adopted are designed to ensure that the Company
delivers long term value to its shareholders and treats all
shareholders equally. All shareholders are encouraged to have an
open dialogue with the Board throughout the year, and the Board can
be contacted via the Company's website or the Company
Secretary.
We welcomed Nick Timberlake to the Board in July 2022. Nick has
considerable experience of the asset management sector and emerging
markets in particular.
Investment Manager
On 6 March 2023 we announced that AssetCo PLC, founded and
chaired by Martin Gilbert, has acquired the Company's investment
manager, Ocean Dial Asset Management Limited, subject to regulatory
approvals from the FCA and regulators in India. The Board supports
this transaction and welcomes the change in ownership to a more
fully resourced UK asset management group. Most importantly, the
successful investment team in India, led by Gaurav Narain,
continues unchanged.
Investor Relations
Ocean Dial has conducted a number of webinars for current and
prospective shareholders in India Capital Growth during the year
and the Board has been pleased with the level of engagement from
shareholders. We have made considerable efforts to get in touch
with shareholders who hold their shares via platforms and encourage
any shareholder to contact us via the Company's website or the
Company Secretary if they would like to receive notice of upcoming
events.
The Company has presented at a number of investor events hosted
by publications, platforms and wealth management companies.
The Company retains the services of a PR agency. With their
help, the Company has appeared in more than 30 articles in the UK
press, podcasts and webinars during the year. The Board believes
that this is an effective mechanism for drawing attention to the
Company, encouraging prospective shareholders to buy shares and, in
the long term, to improve the discount at which the Company's
shares trade.
Outlook
Despite all the global uncertainties of 2022, it is clear that
India and its economy have been resilient in the face of these
challenges and that investors in emerging markets have favoured
India over the stock markets of other emerging markets. While it is
reasonable to expect that other emerging markets may catch up in
terms of relative performance, the outlook for the Indian economy
is positive and Indian companies will benefit from this and from
the improvement in governance standards.
The Board believes that, particularly in this uncertain
environment, the Company's focus on high quality companies with
strong management capabilities and a clear path to growth will
generate positive investment returns over time.
Thank you for your support over the past year.
INVESTMENT POLICY
The Company's investment objective is to provide long-term
capital appreciation by investing in companies based in India. The
investment policy permits the Company to make investments in a
range of Indian equity and equity-linked securities and
predominantly in listed mid and small cap Indian companies with a
smaller proportion in unlisted Indian companies. Investment may
also be made in large cap listed Indian companies and in companies
incorporated outside India which have significant operations or
markets in India. While the principal focus is on investment in
listed equity securities or equity-linked securities, the Company
has the flexibility to invest in bonds (including non-investment
grade bonds), convertibles and other types of securities. The
Company may, for the purposes of hedging and investing, use
derivative instruments such as financial futures, options and
warrants. The Company may, from time to time, use borrowings to
provide short-term liquidity and, if the Directors deem it prudent,
for longer term purposes. The Directors intend to restrict
borrowings on a longer-term basis to a maximum amount equal to 25%
of the net assets of the Company at the time of the drawdown. It is
the Company's current policy not to hedge the exposure to the
Indian Rupee.
The portfolio concentration ranges between 30 and 40 stocks;
however, to the extent the Company grows, the number of stocks held
may increase over time. The Company is subject to the following
investment limitations: No more than 10 per cent. of Total Assets
may be invested in the securities of any one Issuer or invested in
listed closed-ended funds.
INVESTMENT MANAGER'S REPORT
Introduction
2022 may not have been as good as 2021 in terms of absolute
performance for Indian equities but it was a great year for India
especially against other emerging markets. India also stood out in
terms of relative performance against global equities which had
their worst year since 2008.
The Company's net asset value (after deferred tax provisions for
Indian CGT) rose 3.9% (37.9% in 2021), whilst its index (S&P
BSE Midcap Total Return) rose 3.2%, (39.7% in 2021). Emerging
Markets as a whole (MSCI EM GBP) fell 13% in 2022, further
highlighting India's comparative strength.
The performance is particularly gratifying as it comes on the
back of a challenging global environment - the Russia Ukraine War;
a spike in oil prices; rising interest rates; and a flight of
capital out of emerging markets including India. In the past, the
occurrence of any one of these factors would have led to a sell-off
in the Indian equity markets.
The economy has shown `resilience', and this is a word we used
repeatedly to describe India in the year 2022 which demonstrated
that the fundamentals of the economy are stronger than ever. The
Government strategy of limiting "freebies" during Covid but instead
increasing spending on capex to aid the growth recovery, had a
positive impact.
Outlook for 2023
As we enter 2023, we are confronted with divergent commentaries:
a) Western economies where discussions are centred around the
probability of a recession; and b) positive and optimistic India
where sustaining a 6-8% GDP growth for the next decade is the focal
point of discussion. The positive outlook is reinforced by IMF /
World Bank forecasts which list India as being among the fastest
growing large economies in the world in the short term, and over
the next decade emerging as the 3(rd) largest economy globally
(India's GDP surpassed that of the UK in Q4 2022 to make it the
5(th) largest economy in the world). The Government has set a
target of being a US$ 10tr economy in the next decade (compared
with US$ 3.5tr at present). This optimism is also reflected in the
management commentary of most corporates.
ESG Considerations
We believe the integration of ESG factors in our investment
decision making will help to improve the Company's long term risk
adjusted returns. Consequently, ESG measurement and risk impact
scoring have become an integral part of our investment process
facilitated by the ongoing development of our bespoke internal ESG
scoring model which compares and rates each company within our
portfolio. An illustration of this scoring model is provided in the
ESG report which highlights our focus on the direction of travel,
rather than the absolute numbers in isolation, in reporting upon
and reducing the climate impact factors of companies in the
portfolio. In order to truly understand the direction of travel and
the actions being taken by portfolio investment companies in
respect of ESG and the sustainability of their business,
constructive engagement with management is at the core of our
investment process. Our investment advisers in India meet and
interact regularly with both investee companies and potential
portfolio holdings. They meet onsite where possible and will take
the opportunity of visiting manufacturing facilities as well as
corporate headquarters in order to build a clearer picture. In
addition, they also endeavour to meet employees outside of the
senior management team, as this also helps to strengthen the
overall understanding of the business and better establish if the
ESG and sustainability ethos projected by senior management filters
down through the business.
Portfolio Attribution and Positioning
Over the year, the net asset value of the portfolio rose by 4.3%
(before deferred tax provisions for Indian CGT, 3.9% is the
performance post CGT) compared to the benchmark S&P BSE Midcap
TR index returning 3.2% in sterling terms. The portfolio is
positioned to take advantage of key themes we see playing out over
the next few years - namely a) mainstreaming of digitization; b)
China+1 and de-risking of global supply chains; c) consumption
revival and d) domestic capex recovery. These have played out well.
Sector allocation was the main driver of positive performance,
though stock selection also contributed.
Reflecting on the performance during 2022
At a sector level, the main contributors to positive performance
were healthcare, financials, energy, consumer staples, materials
and communication services. Sectors that dragged performance lower
were led by information technology, utilities and industrials.
At a stock level, financials led the way with all four banks in
the portfolio led by Federal Bank (up 71%) and IndusInd Bank (up
39%) delivering positive returns on the back of strong operating
performance. Ramkrishna Forgings (auto ancillary) also rose 40%
driven by a bounce back in the domestic commercial vehicle sales
and new order wins in exports. In the Industrial space, Skipper
(engineering products) rose 61% while PSP Projects (construction
company) rose 46%. Both companies have seen a rise in their order
books as the capex cycle picks up pace. Another notable performer
was Jyothy Labs (consumer staples) which rose 51% on the back of
consistently delivering above market revenue growth with market
share gains. Within materials, JK Lakshmi was among the top
performing Cement companies.
Adverse stock performers were led by the global facing
companies, all of which corrected in anticipation of slowdown in
growth rates. This was led by Welspun India (Textiles) down 46%.
Both our IT service companies, Tech Mahindra (down 40%) and
Persistent (down 20%) also de-rated, even though earnings remained
robust. Sona BLW (Auto Ancillary) also declined 43% on fears of a
global auto slowdown. At an index level, our absence in Varun
Beverage (consumer staple) which rose 125% and Adani Power
(utility) which rose 201% also detracted from our performance.
We continue to hold on to our underperforming companies as the
business models remain robust and do not alter our long-term thesis
on these businesses. Moreover, the price correction makes
valuations even more compelling as it has not been accompanied by a
similar downgrade in earnings.
The portfolio finished the year with 35 stocks. Gujarat Gas
(city gas distribution), Aegis Logistics (gas and liquid
logistics), Star Healthcare (general insurance) and Divis
Laboratories (pharmaceuticals) were sold during the year. Six
portfolio additions were made including Vedant Fashions (garments),
Coforge (IT Services), Cholamandalam Investments (non-bank
financial company), Star Healthcare (general insurance), Ashok
Leyland (commercial vehicle) and Uniparts (auto ancillary). Star
Healthcare was added and exited during the year because of the
strong run-up in price (over 30%) during our holding period. Our
portfolio turnover remained low at 12.6%. We have been actively and
consciously managing the individual stock weights and have used the
volatility to book gains or add weight to several stocks within the
portfolio.
Current positioning and expectations thereof
As we enter 2023, our largest sector exposure is in the
financial space which has a long runway on growth, low risk on
credit quality for the next 2 years (at the very least), and yet
valuations are reasonable. Credit growth is trending in double
digits and banks are well capitalised.
Our second largest exposure is in consumer companies which are
our earnings compounders. We have a wide range of consumer
businesses from staples, building materials, quick service
restaurants, garments and even electronic manufacturing services.
The consumer portfolio has seen a decisive tilt towards more
discretionary plays over staples. We are playing the pick-up in
domestic growth and real estate revival through exposure in cement
(11%) and industrial (5%) stocks. At the same time we are also well
positioned to capitalise on the gains India is likely to make as
economies rebalance supply chains out of China. There are several
stocks across sectors which are already seeing a positive impact
including Dixon & Kajaria (consumer), Welspun (textiles),
Skipper (industrial). Others like PI Industries & Aarti
(specialty chemicals) are also potential gainers.
With respect to our benchmark, our overweights are in
financials, IT and metals. Our metals exposure is not through any
global commodities but instead through cement and speciality
chemicals companies. We are underweight healthcare, having exited
Divis Laboratories. One of our biggest underweights remains
utilities.
We are entering Indian Fiscal FY24 (year ending 31 March 2024)
with one of the highest aggregate earnings growth for our
portfolio. This does include above average numbers with sectors
like cement and banks benefiting due to a low base effect. In
parallel, we expect margins across portfolio companies to rise as
commodity prices settle.
We remain confident with our positioning as we enter the year
with a portfolio having higher growth and lower valuation than the
broader market.
As at 31(st) December P/E FY23 P/E FY24 Earnings Growth Earnings Growth
2022 FY23 FY24
ICGF Portfolio 23.1 16.9 23.0% 36.5%
====================== ============= =========== ================ =================
Nifty 50 22.2 18.9 15.1% 17.8%
---------------------- ------------- ----------- ---------------- -----------------
PRINCIPAL INVESTMENTS OF THE GROUP
As at 31 December 2022
Holding Market cap size(1) Sector Value % of Company NAV
GBP000
-------------------------- -------------------- ------------------------ --------- -----------------
Federal Bank M Financials 10,050 7.2%
IDFC Bank M Financials 8,303 5.9%
Indusind Bank L Financials 7,321 5.2%
City Union Bank S Financials 5,903 4.2%
Ramkrishna Forgings S Materials 5,799 4.1%
Emami M Consumer Staples 5,144 3.7%
Persistent Systems M Information Technology 4,981 3.6%
PI Industries M Materials 4,922 3.5%
JK Lakshmi Cement S Materials 4,588 3.3%
Skipper S Industrials 4,562 3.3%
Balkrishna Industries M Consumer Discretionary 4,466 3.2%
Neuland Laboratories S Health Care 4,366 3.1%
Kajaria Ceramics M Industrials 4,044 2.9%
Affle India S Communication Services 4,016 2.9%
Jyothy Laboratories S Consumer Staples 4,005 2.9%
Multi Commodity Exchange S Financials 3,868 2.8%
CCL Products India S Consumer Staples 3,864 2.8%
Bajaj Electricals S Consumer Discretionary 3,808 2.7%
Sagar Cements S Materials 3,767 2.7%
Tech Mahindra L Information Technology 3,462 2.5%
Total top 20 portfolio investments 101,239 72.5%
========= =================
PORTFOLIO STATEMENT
As at 31 December 2022
HOLDING Market cap Nominal Value % of
size GBP000 company
NAV
------------------------------- -------------- ----------- -------- ---------
LISTED SECURITIES
Communication Services
Affle India Ltd S 370,000 4,016 2.9%
------------------------------- -------------- ----------- -------- ---------
4,016 2.9%
---------------------------------------------- ----------- -------- ---------
Consumer Discretionary
Bajaj Electricals S 312,734 3,808 2.7%
Balkrishna Industries M 209,000 4,466 3.2%
Dixon Technologies M 78,000 3,053 2.2%
Jubilant Foodworks M 287,500 1,473 1.1%
Sona BLW Precision
Forgings M 690,000 2,902 2.1%
Uniparts India S 505,267 2,915 2.1%
Vedant Fashions M 116,638 1,565 1.1%
Welspun India S 4,099,080 3,169 2.3%
------------------------------- -------------- ----------- -------- ---------
23,351 16.8%
---------------------------------------------- ----------- -------- ---------
Consumer Staples
CCL Products India S 727,883 3,864 2.8%
Emami M 1,207,126 5,144 3.7%
Jyothy Laboratories S 1,950,272 4,005 2.9%
------------------------------- -------------- ----------- -------- ---------
13,013 9.4%
---------------------------------------------- ----------- -------- ---------
Financials
Cholamandalam Investment
and Finance Company M 175,000 1,268 0.9%
City Union Bank S 3,264,000 5,903 4.2%
IDFC Bank M 14,085,000 8,303 5.9%
Indusind Bank L 598,500 7,321 5.2%
Multi Commodity Exchange S 248,227 3,868 2.8%
Federal Bank M 7,209,380 10,050 7.2%
------------------------------- -------------- ----------- -------- ---------
36,713 26.2%
---------------------------------------------- ----------- -------- ---------
Healthcare
Aarti Pharmalabs Unlisted 102,108 389 0.3%
Neuland Laboratories S 261,227 4,366 3.1%
------------------------------- -------------- ----------- -------- ---------
4,755 3.4%
---------------------------------------------- ----------- -------- ---------
Industrials
Ashok Leyland M 1,800,000 2,588 1.9%
Finolex Cables S 574,585 3,151 2.3%
Kajaria Ceramics M 347,698 4,044 2.9%
PSP Projects S 459,000 3,223 2.3%
Skipper S 3,600,000 4,562 3.3%
------------------------------- -------------- ----------- -------- ---------
17,568 12.7%
---------------------------------------------- ----------- -------- ---------
IT
Coforge M 30,000 1,168 0.8%
Persistent Systems M 128,355 4,981 3.6%
Tech Mahindra L 339,719 3,462 2.5%
------------------------------- -------------- ----------- -------- ---------
9,611 6.9%
---------------------------------------------- ----------- -------- ---------
Materials
Aarti Industries M 408,435 2,498 1.5%
Essel Propack S 1,141,000 1,952 1.4%
JK Lakshmi Cement S 560,515 4,588 3.3%
PI Industries M 143,556 4,922 3.5%
Ramkrishna Forgings S 2,200,000 5,799 4.1%
Sagar Cements S 1,611,000 3,767 2.7%
The Ramco Cements S 238,500 1,674 1.2%
------------------------------- -------------- ----------- -------- ---------
25,200 17.7%
---------------------------------------------- ----------- -------- ---------
Total equity investments (including those held
by ICG Q Limited) 134,227 96.0%
------------------------------------------------------------ -------- ---------
Cash less other net current liabilities 5,555 4.0%
----------------------------------------------- ----------- -------- ---------
Total Net Assets (before deferred taxation for
Indian CGT) 139,782 100.0%
------------------------------------------------------------ -------- ---------
Deferred tax provision for Indian
CGT (4,603)
Total Net Assets (after deferred tax provision
for India CGT) 135,179
------------------------------------------------------------ -------- ---------
Notes:
L: Large cap - companies with a market capitalisation
above US$8bn 7.7%
M: Mid cap - companies with a market capitalisation between
US$2bn and US$8bn 41.6%
S: Small cap - companies with a market capitalisation below
US$2bn 46.4%
Unlisted 0.3%
---------------------------------------------------------------------- ---------
96.0%
AUDITED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
2022 2021
Total Total
Notes Revenue GBP000 Capital GBP000 GBP000 GBP000
-------------------------------------------------------- ------ --------------- --------------- -------- --------
Income
Dividend income 113 - 113 94
Foreign exchange gain 65 - 65 2
Net gain on financial assets at fair value through
profit or loss - 4,374 4,374 42,315
Total income 178 4,374 4,552 42,411
--------------- --------------- -------- --------
Expenses
Operating expenses 3 (534) - (534) (586)
Transaction costs (22) - (22) (4)
Total expenses (556) - (556) (590)
--------------- --------------- -------- --------
Profit for the year before taxation (378) 4,374 3,996 41,821
Taxation 6 (24) (199) (223) (217)
Total comprehensive income for the year (402) 4,175 3,773 41,604
=============== =============== ======== ========
Earnings per Ordinary Share (pence)
(*prior year restated) 4 3.88 36.99*
======== ========
Diluted earnings per Ordinary Share (pence) (*prior
year restated) 4 3.88 36.99*
======== ========
The total column of this statement represents the Company's
statement of comprehensive income, prepared in accordance with IFRS
as adopted by the EU. The supplementary revenue and capital columns
are both prepared under guidance published by the Association of
Investment Companies, as disclosed in the Basis of Preparation in
Note 1.
The profit after tax is the "total comprehensive income" as
defined by IAS 1. There is no other comprehensive income as defined
by IFRS and all the items in the above statement derive from
continuing operations.
AUDITED STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
2022 2021
Notes GBP000 GBP000
-------------------------------------- ------ ----------- ------------
Non-current assets
Financial assets designated at fair
value through profit or loss 5 134,986 148,786
Current assets
Cash and cash equivalents 646 2,510
Other receivables and prepayments 158 180
----------- ------------
804 2,690
Current liability
Payables and accruals (214) (247)
----------- ------------
Net current assets 590 2,443
----------- ------------
Non-current liability
Deferred Taxation 6 (397) (198)
----------- ------------
Net assets 135,179 151,031
=========== ============
Equity
Share capital 8 965 1,121
Reserves 134,214 149,910
----------- ------------
Total equity 135,179 151,031
=========== ============
Number of Ordinary Shares in issue 8 96,515,653 112,089,729
=========== ============
Net Asset Value per Ordinary Share (pence)
* Undiluted and diluted 140.06 134.74
=========== ============
AUDITED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
Other
Share Capital Revenue Distributable
Capital Reserve Reserve Reserve Total
Notes GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- --------- --------- --------- ---------- --------------- ---------
Balance as at 1 January
2022 1,121 67,408 (10,524) 93,026 151,031
Gain on investments 5 - 4,175 - - 4,175
Share repurchase 8 (156) - - (19,469) (19,625)
Total revenue loss
for the year - - - (402) (402)
Balance as at 31
December 2022 965 71,583 (10,524) 73,155 135,179
========= ========= ========== =============== =========
For the year ended 31 December 2021
Share Capital Revenue Other Distributable
Capital Reserve Reserve Reserve Total
Notes GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- --------- --------- --------- ---------- -------------------- --------
Balance as at 1 January
2021 1,125 25,093 (10,524) 94,221 109,915
Gain on investments 5 - 42,315 - - 42,315
Share repurchase 8 (4) - - (484) (488)
Total revenue loss
for the year - - - (711) (711)
Balance as at 31
December 2021 1,121 67,408 (10,524) 93,026 151,031
========= ========= ========== ==================== ========
AUDITED STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
2022 2021
GBP000 GBP000
----------------------------------------------- ---------- ---------
Cash flows from operating activities
Operating profit 3,996 41,623
Adjustments for:
Net gain on financial assets at fair value
through profit or loss (4,374) (42,315)
Foreign exchange gain (65) (2)
Dividend income (113) (94)
Decrease in other receivables and prepayments 22 91
(Decrease)/increase in payables and accruals (33) 265
---------- ---------
Cash used in operations (567) (432)
Withholding tax deducted (24) (19)
---------- ---------
Net cash flows used in operating activities (591) (451)
Cash flows from investing activities
Dividend income 113 94
Acquisition of investments (5,441) (1,029)
Disposal of investments 23,615 4,253
---------- ---------
Net cash flows from investing activities 18,287 3,318
---------- ---------
Cash flows from financing activities
Redemption of shares (19,625) (488)
---------- ---------
Net cash used in financing activities (19,625) (488)
---------- ---------
Net (decrease)/increase in cash and cash
equivalents during the year (1,929) 2,379
---------- ---------
Cash and cash equivalents at the start
of the year 2,510 129
Foreign exchange gain 65 2
---------- ---------
Cash and cash equivalents at the end
of the year 646 2,510
========== =========
NOTES TO THE AUDITED FINANCIAL STATEMENTS
1. Accounting Policies
Basis of accounting
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the EU and interpretations adopted by the International Accounting
Standards Board (IASB).
Basis of preparation
The financial statements for the year ended 31 December 2022
have been prepared under the historical cost convention adjusted to
take account of the revaluation of the Company's investments to
fair value.
Where presentational guidance set out in the Statement of
Recommended Practice (SORP) for Investment Trust Companies and
Venture Capital Trusts issued by the Association of Investment
Companies (AIC) in November 2014, and subsequently revised in
November 2019, is consistent with the requirements of IFRS, the
Directors have sought to prepare the financial statements on a
basis compliant with the recommendations of the SORP. In
particular, supplementary information which analyses the statement
of comprehensive income between items of a revenue and capital
nature has been presented alongside the statement of comprehensive
income.
Going concern
The Board made an assessment of the Company's ability to
continue as a going concern for the twelve months from the date of
approval of these financial statements taking into account all
available information about the future including the liquidity of
the investment portfolio held both by the Company and its
subsidiary, ICG Q Limited (74.1% of the portfolio can be liquidated
within 5 days); the performance of the investment portfolio (the
net asset value of the Company increased 3.9% in the year); the
overall size of the Company and its impact on the Ongoing Charges
of the Company (the net asset value of the Company exceeded GBP100m
throughout the year); the level of operating expenses covered by
highly liquid investments held in the portfolio (operating expenses
are 50 times covered by highly liquid investments); and the length
of time to remit funds from India to Mauritius and Guernsey to
settle ongoing expenses (no more than 10 working days to have
investments liquidated and sterling funds in Guernsey).
Given the Company's previous performance, the Directors proposed
a continuation ordinary resolution at the Extraordinary General
Meeting held on 12 June 2020, at which the Shareholders approved
that the Company continue as currently constituted and introduce a
redemption facility which gives the ordinary shareholders the
ability to redeem part or all of their shareholding at a Redemption
Point every two years. The first Redemption Point was on 31
December 2021 when valid redemption requests were received in
respect of ordinary shares which were subsequently redeemed under
the redemption facility in accordance with the announced
timetable.
The next date at which shareholders will be able to request the
redemption of some or all of the shares will be 31 December 2023.
There is therefore a possibility that redemptions requests may
impair the future viability of the Company. This creates material
uncertainty which may cast significant doubt on the Company's
ability to continue as a going concern. Based upon the investment
performance of the Company to date and the increase in the
proportion of retail and institutional shareholders seeking long
term value growth on the share register since the last Redemption
Facility on 31 December 2021, the Board believes shareholder
redemptions at the forthcoming Redemption Facility on 31 December
2023 are likely to be at such a level not to impact the going
concern of the Company.
The Directors are satisfied that the Company has sufficient
liquid resources to continue in business for the next twelve
months, therefore the financial statements have been prepared on a
going concern basis.
Impact of IFRS 10 'Consolidated Financial Statements'
As set out under IFRS 10, a parent entity that qualifies as an
investment entity should not consolidate its subsidiaries. The
Company meets all the following criteria to qualify as an
investment entity: -
(i) Obtaining funds from one or more investors for the purpose
of providing those investors with investment management services -
the Board of Directors of the Company has delegated this function
to its investment manager, Ocean Dial Asset Management Limited;
(ii) Commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income or both - funds are invested in ICG Q Limited for
the sole purpose of achieving capital appreciation via further
placements in Indian listed securities; and
(iii) Measures and evaluates the performance of substantially
all of its investments on a fair value basis - on a monthly basis,
the Company's investment in ICG Q Limited is revalued at the
prevailing Net Asset Value at the corresponding valuation date.
The IFRS 10 Investment Entity Exemption requires investment
entities to fair value all subsidiaries that are themselves
investment entities. As the subsidiary meets the criteria of an
investment entity, it has not been consolidated. On the basis of
the above, these financial statements represent the stand-alone
figures of the Company.
Dividend income
Dividend income is recognised when the right to receive payment
is established.
Expenses
Expenses are accounted for on an accrual basis. Other expenses,
including management fees, are allocated to the revenue column of
the statement of profit or loss and other comprehensive income.
Taxation
Full provision is made in the statement of profit or loss and
other comprehensive income at the relevant rate for any taxation
payable in respect of the results for the year.
Deferred taxation
Deferred taxation is recognised in respect of all temporary
differences at the Statement of Financial Position date, where
transactions or events that result in an obligation to pay more tax
in the future or right to pay less tax in the future have occurred
at the Statement of Financial Position date. This is subject to
deferred taxation assets only being recognised if it is considered
more likely than not that there will be suitable profits from which
the future reversal of the temporary differences can be deducted.
Deferred taxation assets and liabilities are measured at the rates
applicable to the legal jurisdictions in which they arise, using
enacted taxation rates that are expected to apply at the date the
deferred taxation position is unwound.
Financial instruments
The Company's investment in ICGQ Limited is designated at fair
value through profit or loss as the Company meets the definition of
an investment entity under IFRS 10. It is initially recognised at
fair value, being the cost incurred at acquisition. Transaction
costs are expensed in the statement of comprehensive income. Gains
and losses arising from changes in fair value are presented in the
statement of comprehensive income in the period in which they
arise.
The investment is designated at fair value through profit or
loss at inception because it is managed, and its performance
evaluated on a fair value basis in accordance with the Company's
investment strategy as documented in the Admission Document and
information thereon is evaluated by the management of the Company
on a fair value basis.
The basis of the fair value of the investment in the underlying
subsidiary, ICG Q Limited, is its Net Asset Value. ICG Q Limited's
investments are designated at fair value through profit and
loss.
Financial assets
Portfolio investments held by the Company are stated at the
mid-market price quoted on the Indian Stock Exchanges. Purchases
and sales are recognised on the trade date - the date on which the
Company commits to purchase or sell the investment. Realised gains
and losses are calculated with reference to book cost on a FIFO
(First in First out) basis.
The financial asset is derecognised when the rights to receive
cash flows from the investment have expired or the Company has
transferred substantially all risks and rewards of ownership.
Impairment of financial assets
The Company holds only cash and cash equivalents with reputable
institutions at amortised cost and, as such, has chosen to apply an
approach similar to the simplified approach for expected credit
losses (ECL) under IFRS 9. Therefore, the Company does not track
changes in credit risk, but instead, recognises a loss allowance
based on lifetime ECLs at each reporting date. The Company's
approach to ECLs reflects a probability-weighted outcome, the time
value of money and reasonable and supportable information that is
available without undue cost or effort at the reporting date about
past events, current conditions and forecasts of future economic
conditions.
Receivables and Payables
Receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted on an active market.
After initial measurement, such financial assets are subsequently
measured at amortised cost using the effective interest rate method
(EIR), less impairment, such impairment to be determined using the
simplified expected credit losses approach in accordance with IFRS
9. Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the EIR. The EIR amortisation is included in profit or
loss. The losses arising from impairment are recognised in profit
or loss.
Other financial liabilities include all financial liabilities,
other than those classified as at FVPL. The Company includes in
this category short-term payables.
Foreign currency translation
The Company's shares are denominated in Sterling ("GBP") and the
majority of its expenses are incurred in Sterling. Accordingly, the
Board has determined that the functional currency is Sterling.
Sterling is also the presentational currency of the financial
statements.
Monetary foreign currency assets and liabilities are translated
into Sterling at the rate of exchange ruling at the statement of
financial position date. Investment transactions and income and
expenditure items are translated at the rate of exchange ruling at
the date of the transactions. Gains and losses on foreign exchange
are included in the statement of comprehensive income.
Cash and cash equivalents
Cash consists of Bank current accounts. Cash equivalents are
short-term highly liquid investments that are readily convertible
into known amounts of cash and which are subject to insignificant
changes in value.
Share capital
The share capital of the Company consists of Ordinary Shares
which have all the features and have met all the conditions for
classification as equity instruments under IAS 32 (amended) and
have been classified as such in the financial statements.
Treasury shares are equity instruments which are created when
the Company reacquires its own ordinary shares. Treasury shares are
recognised at the consideration paid, including any attributable
transaction costs net of income taxes. Where such shares are
subsequently sold or reissued, any consideration received, net of
transaction costs, is included in the shareholders' equity. No gain
or loss is recognised on the purchase, sale, issue or cancellation
of the Company's own ordinary shares.
Changes in accounting policies
New and revised standards
The following standards and interpretations (some of which are
amendments to existing standards) are effective for the first time
for the financial period beginning 1 January 2022:
-- Amendments to IAS 37 Provisions, Contingent Liabilities and
Contingent Assets: Onerous Contracts - Cost of Fulfilling a
Contract (applicable for annual periods beginning on or after 1
January 2022)
-- Annual Improvements to IFRS Standards 2018-2020 (applicable
for annual periods beginning on or after 1 January 2022)
Other changes to accounting standards in the current year had no
material impact.
Standards and interpretations published, but not yet applicable
for the annual period beginning
on 1 January 2022:
-- Amendments to IAS 1 Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current (applicable
for annual periods beginning on or after 1 January 2023, but not
yet endorsed in the EU)
-- Amendments to IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2: Disclosure of Accounting Policies
(applicable for annual periods beginning on or after 1 January
2023)
-- Amendments to IAS 8 Accounting policies, Changes in
Accounting Estimates and Errors: Definition of Accounting Estimates
(applicable for annual periods beginning on or after 1 January
2023)
-- Amendments to IAS 12 Income Taxes: Deferred Tax related to
Assets and Liabilities arising from a Single Transaction
(applicable for annual periods beginning on or after 1 January
2023, but not yet endorsed in the EU)
Other standards in issue, but not yet effective, are not
expected to have a material effect on the financial
statements of the Company in future periods and have not been
disclosed.
Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which
it introduces a definition of 'accounting estimates. The amendments
clarify the distinction between changes in accounting estimates and
changes in accounting policies and the correction of errors. Also,
they clarify how entities use measurement techniques and inputs to
develop accounting estimates.
The amendments are effective for annual reporting periods
beginning on or after 1 January 2023 and apply to changes in
accounting policies and changes in accounting estimates that occur
on or after the start of that period. Earlier application is
permitted as long as this fact is disclosed.
The amendments are not expected to have a material impact on the
Company.
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS
Practice Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS
Practice Statement 2 Making Materiality Judgements, in which it
provides guidance and examples to help entities apply materiality
judgements to accounting policy disclosures. The amendments aim to
help entities provide accounting policy disclosures that are more
useful by replacing the requirement for entities to disclose their
'significant' accounting policies with a requirement to disclose
their 'material' accounting policies and adding guidance on how
entities apply the concept of materiality in making decisions about
accounting policy disclosures.
The amendments to IAS 1 are applicable for annual periods
beginning on or after 1 January 2023 with earlier application
permitted. Since the amendments to the Practice Statement 2 provide
non-mandatory guidance on the application of the definition of
material to accounting policy information, an effective date for
these amendments is not necessary.
The Company is currently assessing the impact of the amendments
to determine the impact they will have on the Company's accounting
policy disclosures.
Prior period errors
During the year ended 31 December 2021, the Company redeemed
412,444 shares from shareholders. When calculating the Earnings per
Ordinary Shares and Diluted earnings per Ordinary Shares, the
closing number of shares in issue of 112,089,729 was used as
opposed to the correct weighted average number of shares during the
year of 112,476,020 in an error resulting in reported Earnings per
Ordinary Shares and Diluted earnings per Ordinary Shares of 37.12
pence/share. Management corrected the error in the current period
resulting in the restated Earnings per Ordinary Shares and Diluted
earnings per Ordinary Shares of 36.99 pence/share.
2. Critical accounting judgements
Management make judgements, estimates and assumptions that
affect the application of policies and the reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
judgements about the carrying value of assets and liabilities that
are not readily apparent from other sources. The Company makes
estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equate to the
related actual results.
3. Operating expenses
2022 2021
GBP000 GBP000
Administration and secretarial
fees 77 55
Audit fees (1) 66 27
Broker fee 31 31
D&O insurance 10 12
Directors' fees and expenses 120 111
General expenses 63 101
Marketing expenses 94 53
Other professional fees 36 171
Registrar fee 12 5
Tax Exempt fee - 1
Regulatory fees 25 19
534 586
======= =======
(1) Audit fees
The audit fee as agreed upon in the letter of engagement for the
2021 financial year was GBP 50,000.
The audit fee expense as disclosed in the annual report of 2021
was lower as result of an over accrual from the prior year that was
adjusted accordingly in the 2021 financial year.
4. Earnings/(loss) per share
Earnings/(loss) per Ordinary Share and the fully diluted loss
per share are calculated on the profit for the year of GBP3,773,000
(2021 - profit of GBP41,604,000) divided by the weighted average
number of Ordinary Shares of 97,279,178 (2021 - 112,476,020* ).
*During the year ended 31 December 2021, the Company redeemed
412,444 shares from shareholders. When calculating the Earnings per
Ordinary Shares and Diluted earnings per Ordinary Shares, the
closing
number of shares in issue of 112,089,729 was used as opposed to
the correct weighted average number of shares during the year of
112,476,020 in an error resulting in reported Earnings per Ordinary
Shares and Diluted earnings per Ordinary Shares of 37.12
pence/share. Management corrected the error in the current period
resulting in the restated Earnings per Ordinary Shares and Diluted
earnings per Ordinary Shares of 36.99 pence/share.
5. Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss consists
of investments in securities listed on Indian Stock Exchanges,
namely the National Stock Exchange or the Bombay Stock Exchange, as
well as investment in the wholly owned subsidiary, ICG Q Limited. A
summary of movements is as follows:
2022 2021
GBP000 GBP000
Fair value at beginning of year 148,786 109,695
Disposal of investments (23,615) (4,253)
Acquisition of investments 5,441 1,029
Realised gains on disposal of investments 15,787 2,664
Unrealised (losses)/gains on revaluation (11,413) 39,651
Fair value at end of year 134,986 148,786
========= ========
The net realised and unrealised gains totalling GBP4,374,000
(2021: GBP42,315,000) on financial assets at fair value through
profit and loss comprise of gains on the Company's holding in ICG Q
Limited to the extent of GBP2,554,000 (2021: gains of
GBP40,229,000) and gains of GBP1,820,000 (2021: gains of
GBP2,086,000) arising from investments in securities listed on
Indian stock markets. The movement arising from the Company's
holding in ICG Q Limited is driven by the following amounts within
the financial statements of ICG Q Limited, as set out below.
2022 2021
GBP000 GBP000
Dividend income 950 1,095
Other income - 19
Unrealised (loss)/gain on financial assets at
fair value through profit and loss (14,289) 38,681
Foreign exchange (loss)/gain (442) 12
Realised gain on disposal of investments 17,935 6,724
Investment management fees (1,370) (1,507)
Other operating expenses (79) (52)
Withholding tax on dividend income (199) (226)
Deferred taxation for Indian Capital Gains
Tax 201 (4,388)
Other Taxes (55) (13)
Transaction costs (98) (97)
----------- --------
Net profit of ICG Q Limited 2,554 40,248
=========== ========
The equity investment represents ICG Q Limited, the Company's
wholly owned subsidiary. ICG Q Limited is incorporated and has its
principal place of business in the Republic of Mauritius. The
Company holds Participating Shares in ICG Q Limited, which confer
voting rights to the Company, hence controlling interests.
6. Taxation
Guernsey
India Capital Growth Fund Limited is exempt from taxation in
Guernsey on non-Guernsey sourced income. The Company is exempt
under The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as
amended) and paid the annual exemption fee of GBP1,200 in 2021. For
the year ended 31 December 2022, the Company had a tax liability of
GBPNil (2021: GBPNil).
India
Capital gains arising from equity investments in Indian
companies are subject to Indian Capital Gains Tax Regulations.
Consequently, with effect from April 2020, the Company and its
subsidiary, ICGQ Limited, have been subject to both short and long
term capital gains tax in India on the growth in value of their
investment portfolios at the rate of 15% and 10% respectively.
Although this additional tax only becomes payable at the point at
which the underlying investments are sold and profits crystallised,
the Company and its subsidiary must accrue for this additional cost
as a deferred taxation liability, notwithstanding that they seek to
minimise the impact of these taxation rates applicable to capital
gains by maintaining its investment strategy of investing in a
concentrated portfolio for long term capital appreciation. The
deferred taxation liability relating to Indian capital gains tax
for the Company was GBP397,000 at 31 December 2022 (2021:
GBP198,000) and for its subsidiary was GBP4,187,000 at 31 December
2022 (2021: GBP4,388,000).
Dividend withholding tax
The Company and its subsidiary are also subject to withholding
tax on their dividend income in India. The withholding tax charge
for the Company for the year ended 31 December 2022 was GBP24,000
(2021: GBP19,000) and for its subsidiary was GBP199,000 (2021:
GBP226,000).
7. Segmental information
The Board has considered the provisions of IFRS 8 in relation to
segmental reporting and concluded that the Company's activities are
from a single segment under the standard. From a geographical
perspective, the Company's activities are focused in a single area
- India. The subsidiary, ICG Q Limited, focuses its investment
activities in listed securities in India. Additional disclosures
have been provided in this Annual Report as elaborated in the
Directors" Report to disclose the underlying information.
8. Share capital
Authorised Share Capital
Unlimited number of Ordinary Shares of GBP0.01 each
Issued Share Capital Number of Share Capital
shares
GBP000
Ordinary shares of
GBP0.01 each:
At 31 December 2021 112,089,729 1,121
Shares transferred
to treasury (15,574,076) (156)
------------- ---------------------
At 31 December 2022 96,515,653 965
============= =====================
The Ordinary Shares of the Company carry the following
rights:
(i) The holders of Ordinary Shares have the right to receive in
proportion to their holdings all the revenue profits of the Company
(including accumulated revenue reserves) attributable to the
Ordinary Shares as a class available for distribution and
determined to be distributed by way of interim and/or final
dividend at such times as the Directors may determine.
(ii) On a winding-up of the Company, after paying all the debts
attributable to and satisfying all the liabilities of the Company,
holders of the Ordinary Shares shall be entitled to receive by way
of capital any surplus assets of the Company attributable to the
Ordinary Shares as a class in proportion to their holdings.
(iii) Subject to any special rights or restrictions for the time
being attached to any class of shares, on a show of hands every
member present in person has one vote. Upon a poll every member
present in person or by proxy has one vote for each share held by
him.
Treasury shares
There was a total buy back of 15,574,076 ordinary shares during
the period ended 31 December 2022. These shares were transferred
from Issued Share Capital Account to Treasury Shares Account and
were purchased at a discount to the Net Asset Value per share, as
per below:
Date Number Par Buy Back Value of
of shares Value Price ( Buy back
( GBP GBP ) ( GBP )
)
----------- -----------
17 January 2022 (redemption facility
only) * 15,408,872 0.01 1.2626 19,455,449
----------- -----------
21 February 2022 ^ 30,201 0.01 1.0800 32,617
24 February 2022 ^ 50,000 0.01 1.0550 52,750
19 May 2022 ^ 10,003 0.01 1.0200 10,203
27 May 2022 ^ 75,000 0.01 0.9914 74,355
----------- -----------
Sub-total (buy-back through the
market) ^ 165,204 169,925
----------- -----------
Total 15,574,076 19,625,374
=========== ===========
* Redemption facility resulted in 15,408,872 net shares bought
back (not through the market) and transferred from Issued Share
Capital to Treasury Shares Account.
^ 165,204 Shares bought back in the market and transferred to
Treasury Shares Account .
9. Fair value of financial instruments
The following tables show financial instruments recognised at
fair value, analysed between those whose fair value is based
on:
-- Quoted prices in active markets for identical assets or liabilities (Level 1);
-- Those involving inputs other than quoted prices included in
Level 1 that are observable for the asset or liability, either
directly (as prices) or indirectly (derived from prices) (Level 2);
and
-- Those with inputs for the asset or liability that are not
based on observable market data (unobservable inputs) (Level
3).
The analysis as at 31 December 2022 is as follows:
LEVEL LEVEL LEVEL
1 2 3 TOTAL
-------- --------- ------- ---------
GBP000 GBP000 GBP000 GBP000
Listed securities 14,038 - - 14,038
Unlisted securities - 120,948 - 120,948
-------- --------- ------- ---------
Total 14,038 120,948 - 134,986
======== ========= ======= =========
The analysis as at 31 December 2021 is as follows:
LEVEL LEVEL LEVEL
1 2 3 TOTAL
------- -------- ------- --------
GBP000 GBP000 GBP000 GBP000
Listed securities 10,432 - - 10,432
Unlisted securities - 138,354 - 138,354
------- -------- ------- --------
Total 10,432 138,354 - 148,786
======= ======== ======= ========
The Company's investment in ICG Q Limited, the Company's wholly
owned subsidiary is priced based on the subsidiary's net asset
value as calculated as at the reporting date. The Company has the
ability to redeem its investment in ICG Q Limited at the net asset
value at the measurement date therefore this is categorised as
level 2. The classification within the hierarchy does not
necessarily correspond to the Investment Manager's perceived risk
of the investment, nor the level of the investments held within the
subsidiary. All the underlying investments (apart from Aarti
Pharmalabs') of ICG Q Limited are categorised as level 1 at 31
December 2022 and 2021. The year-end fair value of those
investments, together with cash held in ICG Q Limited, comprise all
but an insignificant proportion of the net asset value of the
subsidiary.
There has been no movement between levels for the year ended 31
December 2022. There were no changes in valuation techniques during
the year ended 31 December 2022.
10. Financial instruments and risk profile
The primary objective of the Company is to provide long-term
capital appreciation by investing predominantly in companies based
in India. The investment policy permits making investments in a
range of equity and equity linked securities of such companies. The
portfolio of investments comprises of listed Indian companies,
predominantly mid cap and small cap. The specific risks arising
from exposure to these instruments and the Investment Manager's
policies for managing these risks, which have been applied
throughout the period, are summarised below:
Capital management
The Company is a closed-ended investment company and thus has a
fixed capital for investment. It has no legal capital regulatory
requirement. The Board has the power to purchase shares for
cancellation thus reducing capital and the Board considers on a
regular basis whether it is appropriate to exercise such powers. In
the year ended 31 December 2022, the Board determined that it was
inappropriate to exercise such powers, although continuation of
these powers will be sought at the Annual General Meeting.
The Board also considers from time to time whether it may be
appropriate to raise new capital by a further issue of shares. The
raising of new capital would, however, be dependent on there being
genuine market demand.
Environmental and social ("E&S") impact risk
E&S impact risk is a transverse risk that impacts most of
our other risks: market risk, foreign currency risk, credit risk,
liquidity risk, operational non-financial risk, legal and
regulatory risk and reputation risk. Our Investment Manager has
developed a qualitative scoring model which measures climate and
other environmental impacts and the reporting thereof by the
Company's investment portfolio companies.
The Investment Manager considers all factors that may have a
financially material impact on returns. Climate change is such a
key factor. The related physical and transition risks are vast and
are becoming increasingly financially material for many
investments. Not only in the obvious high-emitting sectors, such as
energy, utilities and transportation, but also along the supply
chain, providers of finance and in those reliant on agricultural
outputs and water. It is important that the financial implications
of material climate-change risks are assessed across all asset
classes, including real assets, and make portfolios more resilient
to climate risk. Comparable climate-related data is necessary to
enable effective decision making, and is
something the Investment Manager actively sources and
incorporates into its process and scoring model. Regular engagement
with all investee companies allows the Investment Manager to better
understand their exposure and management of climate change risks
and influence corporate behaviour positively in relation to climate
risk management.
Market risk
Market price risk arises mainly from the uncertainty about
future price of the financial instrument held by the Company and
its subsidiary, ICG Q Limited ("the Group"). It represents the
potential loss the Group may suffer through holding market
positions in the face of price movements.
The Group's investment portfolio is exposed to market price
fluctuations which are monitored by the Investment Manager in
pursuit of the investment objectives and policies and in adherence
to the investment guidelines and the investment and borrowing
powers set out in the Admission Document. The Group's investment
portfolio is concentrated and, as at 31 December 2022, comprised
investment in less than 35 companies. Thus, the Group has higher
exposure to market risk in relation to individual stocks than more
broadly spread portfolios.
The Group's investment portfolio consists predominantly of mid
cap and small cap listed Indian securities, and thus the effect of
market movements is not closely correlated with the principal
market index, the BSE Sensex. The BSE Mid Cap Total Return Index
provides a better (but not ideal) indicator of the effect of market
price risk on the portfolio. Assuming perfect correlation, the
sensitivity of the Group's investment portfolio to market price
risk can be approximated by applying the percentage of funds
invested (2022: 96.0%; 2021: 93.7%) to any movement in the BSE Mid
Cap Total Return Index.
At 31 December 2022, with all other variables held constant,
this approximation would produce a movement in the net assets of
the Group's investment portfolio of GBP13,423,000 (2021:
GBP14,584,000) for a 10% (2021: 10%) movement in the index which
would impact the Company via a fair value movement of the same
magnitude in its holding in ICG Q Limited and its investments.
Foreign currency risk
Foreign currency risk arises mainly from the fair value or
future cash flows of the financial instruments held by the Group
fluctuating because of changes in foreign exchange rates. The
Group's investment portfolio consists of predominantly Rupee
denominated investments but reporting, and in particular the
reported Net Asset Value, is denominated in Sterling. Any
appreciation or depreciation in the Rupee would have an impact on
the performance of the Company. The underlying currency risk in
relation to the Group's investment portfolio is the Rupee. The
Group's policy is not to hedge the Rupee exposure. The Group may
enter into currency hedging transactions but appropriate mechanisms
on acceptable terms are not expected to be readily available.
At 31 December 2022, if the Indian Rupee had strengthened or
weakened by 10% (2021: 10%) against Sterling with all other
variables held constant, pre-tax profit for the period would have
been GBP13,913,000 (2021: GBP14,281,000) higher or lower,
respectively, mainly as a result of foreign exchange gains or
losses on translation of Indian Rupee denominated financial assets
designated at fair value through profit or loss in ICG Q Limited,
the consequent impact on the fair value of the Company's investment
in ICG Q Limited and in the Company's investment portfolio.
Credit risk
Credit risk arises mainly from an issuer or counterparty being
unable to meet a commitment that it has entered into with the
Group. Credit risk in relation to securities transactions awaiting
settlement is managed through the rules and procedures of the
relevant stock exchanges. In particular settlements for
transactions in listed securities are affected by the custodian on
a delivery against payment or receipt against payment basis.
Transactions in unlisted securities are affected against binding
subscription agreements.
The principal credit risks are in relation to cash held by the
custodian. Kotak Mahindra Bank Limited ("Kotak") acts as the
custodian to the Group. The aggregate exposure to Kotak at 31
December 2022 was GBP4,897,000 (2021: GBP1,688,130).
Kotak acted as custodian of the Group's assets during the
period. The securities held by Kotak as custodian are held in trust
and are registered in the name of the Group. Kotak has a long-term
credit rating of AAA (CRISIL Ratings - a S&P company).
Interest rate risk
Interest rate risk represents the uncertainty of investment
return due to changes in the market rates of interest. The direct
effect of movements in interest rates is not material as any
surplus cash is predominantly in Indian Rupees, and foreign
investors are not permitted to earn interest on Rupee balances.
Liquidity risk
Liquidity risk arises mainly from the Group encountering
difficulty in realising assets or otherwise raising funds to meet
financial commitments. As the trading volume on the Indian stock
markets is lower than that of more developed stock exchanges the
Group may be invested in relatively illiquid securities. The Group
has no unlisted securities and its focus is to invest predominantly
in mid and small cap listed stocks. However, there remain holdings
where there is relatively little market liquidity, which may take
time to realise. The Directors do not believe that the market is
inactive enough to warrant a discount for liquidity risk on the
Group's investment portfolio. ICG Q Limited seeks to maintain
sufficient cash to meet its working capital requirements. The
Directors do not believe it to be appropriate to adjust the fair
value of the Company's investment in ICG Q Limited for liquidity
risk, as it has the ability to effect a disposal of any investment
in ICG Q Limited's investment portfolio at the prevailing market
price and the distribution of proceeds back to the Company should
it so wish.
All liabilities are current and due on demand.
Taxation risk
Taxation risk arises mainly from the taxation of income and
capital gains of ICG Q Limited and the Company increasing as a
result of changes in the tax regulations and practice in Guernsey,
Mauritius and India. The Company and ICG Q Limited are registered
with the Securities and Exchange Board of India ("SEBI") as a
foreign portfolio investor ("FPI") with a Category I licence, and
ICG Q Limited holds a Global Business Licence in Mauritius and has
obtained a Mauritian Tax Residence Certificate ("TRC") which have
been factors in determining its resident status under the
India-Mauritius Double Taxation Avoidance Agreement ("DTAA") and
General Anti Avoidance Rules ("GAAR") under the Income Tax Act 1961
("ITA").
However, with effect from April 2017, the DTAA was amended such
that the advantages of investing in India via Mauritius were
removed and capital gains arising from investments in Indian
companies are subject to Indian Capital Gains Tax regulations.
Consequently, tax on short term capital gains (for investments held
less than 12 months) of 15% and long-term capital gains (for
investments held for 12 months or longer) of 10% apply to the
investment portfolio.
The Group seeks to minimise the impact of these changes in the
taxation rates applicable to its capital gains by maintaining its
investment strategy of investing in a concentrated portfolio for
long term capital appreciation.
11. Related party transactions and material contracts
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial or operational
decisions. The Directors are responsible for the determination of
the investment policy and have overall responsibility for the
Company's activities. Directors' fees are disclosed in the
unaudited Directors' remuneration report.
During the year 2022, the investment management fee was
equivalent to 1.25 per cent per annum of the aggregate value of its
assets less current liabilities, calculated and payable monthly in
arrears. The Investment Manager earned GBP1,370,000 in management
fees during the year ended 31 December 2022 (2021: GBP1,507,000) of
which GBP125,000 was outstanding at 31 December 2022 (2021:
GBP144,000).
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 GBP77,000 for administration
and secretarial services during the year ended 31 December 2022
(2021: GBP55,000) of which GBP19,000 was outstanding at 31 December
2022 (2021: GBP30,000).
12. Contingent liabilities
The Directors are not aware of any contingent liabilities as at
31 December 2022 and at the date of approving these financial
statements.
13. Subsequent events
There have been no material events since the end of the
reporting period which would require disclosure or adjustment to
the financial statements for the year ended 31 December 2022.
On 6 March 2023 AssetCo PLC, founded and chaired by Martin
Gilbert, acquired the Company's investment manager, Ocean Dial
Asset Management Limited, subject to regulatory approvals from the
FCA and regulators in India. The successful investment team in
India, led by Gaurav Narain, continues unchanged.
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END
FR JLMFTMTATBJJ
(END) Dow Jones Newswires
March 30, 2023 02:00 ET (06:00 GMT)
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