Research on the Company
Marten & Co.
Marten & Co Ltd provides non-independent research for ICGF
Moving to the main board
India Capital Growth (IGC) moved to the premium listing segment of the London Stock Exchange’s main market on 24 January 2018. The board considers that this market is more appropriate for IGC’s size and maturity, and provides a more fitting platform for its growth ambitions. It also believes that the move allows IGC to access an expanded investor audience, putting it on a par with its immediate peers, and that it will benefit from enhanced liquidity, and potentially an improved rating, building on last year’s narrowing discount.
Full Steam Ahead
With last year’s successful subscription share exercise pushing India Capital Growth (IGC)’s net assets through the £100m mark; strong performance relative to peers; and buoyant conditions in India, the focus now is on driving down IGC’s discount.
India at a significant discount
In August, India Capital Growth (IGC) saw the successful conversion of its subscription share issue, which increased net assets by 29.2% before costs. This expansion should improve liquidity in the company’s shares and lower its ongoing charges going forward. However, despite these positive developments, an improving outlook for India and superior performance relative to its immediate peers, IGC’s discount has widened both absolutely and relative to its peer group. We feel this is not justified and see a number of potential catalysts for it to narrow, particularly if IGC continues to grow and passes the £100m market cap threshold (£91.5m as at 20 October 2016).
Shore Capital
Shore Capital Stock Brokers Ltd (previously Stockdale Securities Limited) acts as a broker and adviser and provides non-independent research for ICGF
On the road with IGC
We spent four days during the middle of March accompanying Ocean Dial, the managers of India Capital Growth Fund on an investor trip to India. The meetings included a broad mix of companies, members of the broking community, the media as well as government officials. While the issue of nonperforming loans within the banking sector is expected to restrain growth from re-accelerating significantly from c.7% figure it stands at, in the short-term the policies being implemented by the BJP government lay the foundation for an acceleration in growth in the future. We continue to recommend that investors buy India Capital Growth Fund (IGC) to capture India’s accelerating growth.
Short-term pain, long-term gain
We spoke to David Cornell, CIO of Ocean Dial Asset Management about the demonetization drive in India. This is reform on a large scale and will inevitably cause short-term pain. It remains to be seen what the impact of a probable short-term decline in GDP will have on the support for this measure. However, one should not underestimate the potential benefits of this move. This is a major reform and if successful holds the prospect for a significant positive rerating of India’s long-term growth potential. We continue to recommend that investors buy India Capital Growth Fund (IGC).
Capturing India’s accelerating growth
One of the major headwinds for the global economy in general has been the decelerating growth in emerging markets. Indeed, if corporate profits are likely to grow at a similar pace then companies in developed markets which tend to have significantly higher corporate governance standardsshould trade at a premium multiple to those in emerging markets. With accelerating GDP growth, India stands out. In addition, the companies in the portfolio of India Capital Growth Fund should compound their earnings at a pace that is significantly higher than India’s nominal GDP growth, which we estimate to be c.12% per annum.