India Cap Regulatory News (IGC)

7 February 2018

India Capital Growth Fund Limited (the "Company" or "ICGF")

Net Asset Value statement at 31 January 2018

Net Asset Value

The Company announces its Net Asset Value (NAV) per share as at 31 January 2018 was 119.40 pence.

In the month the NAV was down 6.0% in Sterling terms, whilst the BSE Mid Cap TR Index was down 7.2%, delivering an outperformance against the notional benchmark of 1.2%. In local currency terms, the NAV was down 1.3% for the month.

Portfolio update

Positive attribution to the portfolio's performance came from NIIT Technologies (up 32.7%), Tech Mahindra (up 21.5%), Radico Khaitan (up 23.0%) and Sagar Cements (up 18.3%). Negative attribution came from Ramkrishna Forgings (down 9.5%), Kajaria Ceramics (down 13.4%) and City Union Bank (down 11.7%).

Market and economic update

India's equity markets performance was mixed with the S&P BSE Sensex up 5.6%, whilst the BSE Mid Cap TR Index fell 2.6%. Foreign Institutions were significant net buyers (US$2bn for the month) and Domestic Institutions were also net buyers (US$63m for the month). The Rupee appreciated 0.4% against US Dollar but depreciated 5.0% against Sterling. The correction that is currently underway in mid-caps was prompted by Domestic Institutions booking profits on lofty valuations and strong performance in 2017.

India's Finance Minister, Arun Jaitley, presented the last budget before the 2019 Federal Election which provided little by way of surprise or excitement for investors. The key thrust was rural in nature with education and healthcare also at the forefront. The primary purpose is to bring relief to an agricultural community justifiably in need of Government support, as well as poorer communities as a whole. Widely expected was slippage in the fiscal deficit targets for this year (FY18) from 3.2% to 3.5% and for next year (FY19) from 3.0% to 3.3%. This, along with rising inflation to 5.2% for December, is reflected in 10 Year Government bond yields rising to 7.6%. However in a move that disappointed equity investors across the board, long term capital gains tax (greater than 12 months) was raised from 0% to 10%, effective from 31 January 2018. This, along with deteriorating investor sentiment in the broader markets, contributed to further falls in early February.

Indian companies began reporting Q3 (quarter ended December 17) earnings which have been faring better than expectations: Private Banks are witnessing a pick-up in loan growth and improving asset quality trends. The Consumer Staples and Discretionary sectors have reported good volume growth supported by a favourable base effect. IT earnings were in line although the growth outlook is improving for FY19.