India Capital Growth posts strong results ahead of first redemption vote – India Capital Growth (IGC) has published its interim results for the six months to 30 June 2021, during which time its share price rose by 31.7% and its NAV increased by 25.1%, outperforming the BSE Midcap TR Index by 2.9%.
However, IGC is subject to both short and long term capital gains tax in India on the growth in value of its investment portfolio. Although this additional tax only becomes payable at the point at which the underlying investments are sold and profits crystallised, IGC and its subsidiary must accrue for the additional cost as a non-resident capital gains tax provision totalling £3.42m for the six months to 30 June 2021, equivalent to a reduction in the NAV per share of 3.04p or 2.4%.
The company’s share price discount to NAV began the period at 14.1% and stood at 11.8% by the end.
The strong performance comes as India suffered from its deadliest coronavirus wave between March and May 2021, far larger in scale than the first wave, and which took the Government by surprise. India’s health infrastructure struggled to cope with the numbers of seriously ill people.
At a sector level, the manager said three sectors delivered the lion’s share of outperformance, notably Materials, Healthcare and Consumer Discretionary with IT services also contributing positively. Portfolio performance was dragged down by Financials, Industrials and cash which averaged 1.8% in the six-month period.
The portfolio’s exposure to Industrials also generated negative attribution. This was a combination of being underweight a sector that performed well and some stock weakness, particularly in PSP Projects (construction, 1.4% weighting, down 2.3%). At 30 June 2021 the portfolio held 32 securities.
Statement from the chair
Redemption Facility
‘Following the requisite amendment to IGC’s articles of incorporation to include a redemption facility, as approved at an extraordinary general meeting in 2020, the first redemption point will be 3pm on 31 December 2021. Shareholders may request redemption of part or all of their shareholding at an exit discount of 6% to NAV as at that redemption point.
‘Clearly there is an element of uncertainty as to the level of uptake of the redemption facility and there is the possibility that significant redemption requests may impair the future viability of the company.
‘Ocean Dial has agreed that if, at any redemption point, IGC receives valid redemption requests in respect of ordinary shares comprising in aggregate more than 50% of the then issued share capital of the company, the company shall be entitled to terminate the investment management agreement with Ocean Dial by not less than six months’ written notice. This is a reduction from the 12 months’ written notice that would otherwise apply.
‘Ocean Dial has also agreed that, if at any time, a resolution is put to shareholders that the company shall continue in existence and should that resolution not be carried (and conversely if a resolution that the company should not continue in existence be put to shareholders to vote at a general meeting at any time and such resolution be carried) IGC shall be entitled to terminate the IMA by not less than six months’ written notice.’
Outlook
‘Economic data coming out of India suggests that, despite being more virulent, the second COVID wave has not been as damaging to the economy as the first. Monthly export figures hit a record high in July and other economic indicators, such as rail freight movement and energy consumption, are showing positive momentum.
‘The balance sheets of Indian companies are being repaired and corporate profitability is improving. As with other economies, the private equity market has grown, and continues to grow rapidly, with some exciting IPOs coming to market.
‘The board believes that the company’s focus on good quality companies with strong management capabilities and a clear path to growth continues to be the way to generate positive investment performance.’
IGC : India Capital Growth posts strong results ahead of first redemption vote