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LONDON (Alliance News) - India Capital Growth Fund Ltd said Tuesday its net asset value declined in the first half of the year due to a retrenchment of the equity market in India.
As at June 30 the fund, which invests primarily in small and mid cap stocks, said its net asset value per share had fallen 15% to 108.09 pence from 127.05p at the end of 2017
"Alongside the restoration of more normal valuations for Indian mid and small cap stocks, investors in the Indian equity market have been concerned by the gradual recovery in international oil prices over the last twelve months which may result in the weakening of the Indian economy, widening the current account, raising inflation and forcing the currency lower. In tandem, the sentiment for emerging market assets waned quite suddenly as markets took account of rising US bond yields, a stronger US dollar and increasing concerns of an impending trade war," said India Capital Chair Elisabeth Scott.
Nonetheless, the fund did outperform its benchmark, the BSE Mid Cap Index Total Return, which fell 17% as mid and small cap stocks corrected significantly and lost much of what they had gained in 2017.
A majority of India Capital's principal investments are in mid and small cap investments, but it also holds some principal investments in large cap stocks, which reduced the impact of these market corrections.
The company's share price discount on June 30 was 18%, significantly wider than its 8.3% discount on December 31.
Shares in India Capital were down 1.7% at 96.03 pence on Monday.
The company's chair retained a sense of optimism for the future, but expressed concerns for the upcoming half-year.
"The second half of the year may yet prove to be as equally challenging as the first. India's ruling political party, the Narendra Modi led BJP, will fight a re-election battle in the early part of 2019...In addition, the extent and timing of further interest rate tightening across the world (including India) will continue to dictate the sentiment for equities, particularly in mmerging markets," said Scott.
"Despite these near-term worries, I remain confident that the opportunity to make compelling investment returns over the long term is very much intact...The board is reassured by the investment manager's confidence that investment in India's mid and small cap stocks, supported by the closed ended structure that the company offers, is the right way to manage both the risks and the rewards," she added.