India Capital Growth (IGC) released its annual results this morning, covering the period to 31 December 2019. It was another difficult year for the Indian stock market and for Indian small and mid-cap stocks in particular. The company’s NAV per share declined by (12.9%) while the discount widened from (14%) to (20.4%) over the year.
Indian investment environment over 2019
On the broader Indian investment environment, IGC made these points:
- In 2019 the broader economic slowdown and heightened risk aversion led to a substantial divergence between the top ten stocks (by market capitalisation) and the rest of the Indian stock markets;
- Economic growth in India has continued to slow as businesses are continuing to adapt to a new operating environment driven by the BJP Government; and
- Whilst oil prices increased in 2019 and the Indian Rupee weakened accordingly, the recent sharp fall in oil prices will benefit the Indian economy once the significant negative impact of the coronavirus pandemic has receded.
Covid-19 update and outlook from IGC’s chair
IGC’s NAV, and correspondingly its share price, has fallen 28% and 50% respectively since the year end and in particular since the coronavirus pandemic outbreak which has caused unprecedented falls on global markets.
Elisabeth Scott, IGC’s chair, said: “The global economy is grappling with a worldwide pandemic, an oil price war, and unprecedented extreme volatility in capital markets. The situation is rapidly evolving on a daily basis and as such taking a view as to the likely near term impact on the Indian economy is a challenging task. The Mumbai based management team is in regular touch with the companies in which the Company is invested, monitoring corporate developments closely. They are hopeful that, when concerns about Covid-19 are allayed, Indian equities will be able to recover and that businesses will return to growth.
The board is hopeful that key reforms introduced in Modi’s first term (2014-2019) are now starting to come to fruition and that investors will start to see long term structural improvements from these. The goods & services tax, the newly reconfigured insolvency & bankruptcy code, demonetisation, amongst others, are all expected to improve efficiency and transparency in India’s economy. These factors, combined with the overhaul of India’s labour laws that is currently underway, should provide a push that helps to improve ease of doing business and attract foreign investment. The corporate tax rate cuts, announced in September, were welcomed by Indian companies, with the reduction from 30% to 22% (and from 25% to 15% for new investment in manufacturing) making them globally competitive. As the trade wars between China and the US continue, India is positioned to increase its market share in some manufacturing industries.
Finally, India is in the midst of moving from a patronage based to rules-based system. Whilst the transition period may result in short-term setbacks, the long-term impact of this change will be to improve governance and, in turn, to open up new opportunities for investment in India.
IGC: India Capital Growth annual results reflect challenging investment climate