India Capital Growth’s results for the 12 months ended 31 December 2024 show an NAV return of 16% and share price return of 11.3% (as the discount widened from 3.9% to 7.9%). [The chair describes 2024 as a strong year for the company – which it was in absolute terms – but while the chair’s statement acknowledges that the trust underperformed its notional benchmark index, the BSE Midcap Total Return Index, it fails to quantify that. The manager says that the return on the index was 25.6%, we note that smaller companies did even better with a return of 28.7%.]
In January, February and March 2024, when the trust was trading at a premium, the company issued 5.83m shares from Treasury at a premium to NAV of at least 0.5%. However, after negative comments from the chair of SEBI, the Indian financial regulator, hit the mid and small cap sectors, confidence suffered and the trust’s shares moved from a premium to NAV to a discount. Subsequently, the company repurchased some 1.6m shares from March through to the end of the year at discounts between 4.1% and 14.8%. Since the year end, the company has continued to repurchase shares when appropriate. In the year to date, 345,000 shares have been repurchased at a discount to NAV of between 9.7% and 11.1%.
Redemption facility in November
The next redemption facility takes place on the last working day of November 2025, subject to shareholder approval at the AGM on 5 June 2025. Previous redemption facilities have taken place every two years on the last working day of December. Further details will be given in July 2025.
Extract from the manager’s report
The Fund did well in absolute terms for its financial year, delivering a GBP NAV return of 16.0%. However, this was behind its benchmark, the BSE Midcap Total Return Index (GBP), which rose 25.6%. This relative weakness has had two main causes: the first was strong performance from companies that we didn’t hold. The quality and valuation focus of the Fund steers us away from expensive or speculative businesses, and also from some public-sector focused companies, where shareholder interests may not be fully aligned with those of the Company’s other stakeholders.
In 2024, a number of those public sector companies performed very well, and we missed out on those gains. Many of these were in the energy and utilities sector where we had no exposure. Constant interference from the government through imposition of duties or fixing pricing makes it difficult to take a long-term investment decision on companies in these sectors. We also did not hold any company in the real estate sector, which also performed well over the year, denting our relative returns. This was because we found the valuations expensive, especially since accounting standards do not reflect a true picture of the profit and loss account and one needs to rely on management estimates on cash flows and sales. There were also a number of industrial companies that performed well, but they were single sector focused and expensive, and therefore we did not hold them in the portfolio. Staying away from these areas hit relative performance hard, particularly in the first half of the year. This started to correct in the second half of the year and we remain convinced with an approach that excludes areas where we do not have conviction on management quality or financial metrics, in accordance with our ESG focus.
Banks were the primary detractors over the year, contributing to a 6.77% loss in the portfolio. This was distributed across holdings in RBL Bank, IndusInd Bank, and IDFC FIRST Bank. The Banking sector experienced underperformance due to tight liquidity and rising cost of liabilities, which adversely impacted net interest margins, Some of our bank holdings were particularly affected due to their higher lending exposure to microfinance and unsecured lending, leading to pockets of stress.
The banks are well capitalized and have adequately provisioned for this economic environment. We believe the banking sector is best positioned to capitalize on the India growth story. Asset quality is strong, return ratios are improving and valuations are compelling. Additionally, Uniparts, an auto ancillary company, contributed to the losses with a 38% decline in 2024, driven by weaker demand in its core markets of the US and Europe.
The primary sectors contributing to positive performance over the year included our 13.3% allocation in Consumer Discretionary, 9.1% in Industrials, 6.1% in Healthcare, and 3% in Financial Services, which includes companies related to capital markets like stock exchanges, asset management companies etc. Stock selection was the key driver of performance across all these sectors, further supported by our lack of holdings in the Media sector, which had a benchmark weighting of 0.7%.
Our top-performing stock, Dixon Technology, achieved a gain of 170%. Furthermore, our off-benchmark positions proved particularly profitable. Skipper, a manufacturer of transmission and telecom towers, delivered a return of 167%, while Neuland Laboratories, a provider of Active Pharmaceutical Ingredients (API) and custom research and manufacturing solutions to pharmaceutical companies, achieved a return of 156%. Additionally, Multi Commodity Exchange of India Ltd. saw an increase of 93%, and our recent purchase of Cartrade Tech Ltd resulted in a 104% gain, driven by increased advertising revenues from its platform, by automobile manufacturers and dealers.
IGC : India Capital Growth lagged benchmark by wide margin over 2024
