Final Results

RNS Number : 8123A

India Capital Growth Fund Limited

29 March 2017

 

INDIA CAPITAL GROWTH FUND LIMITED

Annual Results for the Year Ended 31 December 2016

Strong investment performance generates net investment gains of £17m

29^th March 2017, London - India Capital Growth Fund ("ICGF" or "the Company"), the AIM quoted investment company established to take advantage of long term investment opportunities in companies based in India, today reports results for the year ended 31 December 2016.

Highlights

	31 Dec 2016	31 Dec 2015	% change
Per Ordinary Share
Net Asset Value (NAV) - Diluted	89.31p	74.09p	+20.5%
Net Asset Value (NAV) - Undiluted	89.31p	80.64p	+10.8%
Share price discount to diluted NAV	17.8%	17.7%
FX impact
Indian Rupee / Sterling	83.42	98.35	+15.2%

·     Strong investment performance generating £17m of net investment gains, despite headwinds from global economy and short term impact of Indian Government's demonetisation policy

·     Successful new issue of shares in August, raising an additional £23m of capital to invest in India

·     Company's NAV increased by £40m (66%) during the year to £100m

·     Diluted NAV per share and market share price increased by 20%

·     Underlying liquidity in the Company's shares significantly improved since new share issue in August 2016

·     Daily trading volumes also improved to be greater than that of the Company's main competitor, Aberdeen New India

·     Positive attribution from the portfolio during the year came from Essel Propack (up 86%), Finolex Cables (up 65%), Max Financial Services (up 64%) and Yes Bank (up 61%)

Indian Investment Environment

·     Indian government policy changes are proactively forcing individuals and SMEs into the formal banking system, thereby helping to eradicate "black money" and corruption

·     Positive effects from the reforms to date include:

- shift in household savings from physical to financial assets, and steady inflows in domestic equity mutual funds (averaging almost US$700m a month); and

- record FDI inflows of US$32bn in the first nine months of the 2016 calendar year, an increase of 21% on 2015

·     ICGF expects these changes to continue to have a positive impact on the Indian economy over the longer term 

Fred Carr, Chairman of India Capital Growth Fund, said: "India Capital Growth Fund has made significant progress in 2016.  As a result of last year's successful share issue, total assets exceeded £100m for the first time, and enabled us to invest an additional £23m of capital in India.  The issuance marked good progress against the Board's longer term strategic plans for the Company, and we are now well placed to bring the unique qualities of the Company's investment approach, combined with better liquidity and lower costs, to a much broader audience. I look forward to reporting on the Company's progress at the half way point of 2017."

David Cornell, Fund Manager of India Capital Growth Fund, commented: "India's mid cap stocks once again performed better than the broader market. This, combined with our bottom-up approach to stock picking, was reflected in the significant gains generated by our portfolio, despite headwinds from both the global economy and the short-term impact of Government policy changes. ICGF remains ideally positioned to benefit from India's continued economic transformation."

ENQUIRIES

Temple Bar Advisory (PR advisers)	020 7002 1080
Tom Allison	07789 998 020
Ed Orlebar	07738 724 630
Alycia MacAskill	07876 222 703
Ocean Dial Asset Management Limited (Investment Manager)	020 7068 9870
Robin Sellers
David Cornell
Grant Thornton UK LLP (NOMAD)	020 7383 5100
Philip Secrett
Carolyn Sansom
Stockdale Securities Limited (Broker)	020 7601 6115
Robert Finlay
Apex Fund Services (Guernsey) Limited (Administrator)	01481 706 999
Stephen Cuddihee

About India Capital Growth Fund

India Capital Growth Fund Limited ("ICGF"), the AIM quoted investment company registered and incorporated in Guernsey. ICGF was established to take advantage of long term investment opportunities in companies based in India. ICGF predominantly invests in listed mid and small cap companies, although Investments may also be made in large cap Indian companies where the Fund Manager believes long-term capital appreciation will be achieved. www.indiacapitalgrowth.com

CHAIRMAN'S STATEMENT 

2016 will be remembered as a tumultuous year for investors of every persuasion.

The year began with a vicious sell off across all asset classes, provoked by a renewed spike in global deflationary worries, and ended with Trump's election to the White House, triggering quite the opposite. Such is the nature of markets.  Sandwiched between these startling events came the UK's decision to leave the European Union, a momentous decision, which although only needs a passing mention in this report (and thankfully so), created a significant and positive impact on the outlook for the Company. Not only did the weakness of Sterling cause the Indian Rupee to appreciate by 15.2% over the year (supporting a 29% increase in the rebased Net Asset value) but the resultant strength in the Rupee value of the assets prompted the Company's share price to cross the critical threshold of £0.61, dragging the outstanding subscription shares "into the money", and facilitating an increase in the assets under management of close to £23m. Over the year to 31 December, the share price also rose 20%.

I was delighted that this issuance of new ordinary shares was 90% "taken up" by existing subscription shareholders and that the remaining "rump" was immediately placed into good hands, thereby ensuring that, for the first time, total assets in the portfolio exceeded £100m. The fund-raising exercise, initiated by the Board in 2014, forms a part of the longer term strategic plan for the Company, and since this has now been completed, the Investment Manager is undertaking the next part of the plan; namely a focused strategy to drive better share price performance.

Putting this into some context might perhaps be helpful. The first phase, initiated by the appointment of a new Manager in 2010, consisted of a root and branch overhaul of the portfolio and the introduction of a revised, more disciplined investment process. Phase Two involved strengthening the investment advisory team on the ground in Mumbai, and delivering a consistently improved absolute and relative performance which, whilst hopefully remaining as a permanent feature, enabled the third phase, the issuance of subscription shares, subsequently exercised last August.

I now firmly believe that the Company has most of the critical requirements in place to deliver on Phase Four, which is an enduring reduction of the share price discount to the net asset value per share. Since the NAV has now crossed the psychological £100m mark, an important barrier has been overcome, enabling the Company to meet the investible threshold of a far wider group of potential investors and sell side analysts. Underlying liquidity in the stock has also significantly improved. Not only has the average daily traded volume doubled year on year, but the aggregate daily value of trading in the Company's shares has also recently been trading in greater daily volumes than that of our nearest competitor, Aberdeen New India, despite our market capitalisation being substantially smaller. The growth in assets, combined with a focused cost reduction programme over the last three years, have lowered the ongoing charges (expense) ratio to 1.96% (down from 2.7% three years ago), thus bringing the cost ratio more in line with the competition; another key part of the longer-term restructuring plan.

Now the time is right to bring the unique qualities of the Company's investment approach, combined with better liquidity and lower costs, to a much broader audience. The Board has implemented a number of initiatives to achieve this. First, Numis Securities has been replaced by Stockdale Securities as the Company's broker. We were grateful for the work that Numis put in on our behalf, particularly in relation the Subscription Share issue, but the Directors were unanimous in their belief that a change was due. Stockdale have brought new energy to the task in hand, noticeably in the area of research distribution, trading and sales, which meets our current aim of becoming better known and better understood.

Second, in conjunction with the Investment Manager, the Board has employed the services of Marten and Co to write regular and detailed research on the Company throughout the year. Marten and Co have a broad and growing distribution reach, notably in the more retail end of the market, and I believe their involvement is already helping to bring our story to a wider audience. Both directing and complementing this effort is Ocean Dial as the Investment Manager, who have initiated a structured marketing plan for 2017. This will take India Capital Growth's investment story to a wider investment audience spanning all parts of the country. It must be said that none of this is worth the paper I am writing on, were it not for the fact that as an investment opportunity, India continues to attract growing levels of interest as a credible single country investment destination. More precise details of this can be gleaned from the Investment Manager's report but, after the disappointment of 2015, this year was also tumultuous for India, albeit of a different nature.

Following the State election victories for Prime Minister Modi's ruling party in March, his reform driven agenda gained much needed momentum. Central to this was the passage of the Goods and Services Tax (GST) which, when implemented, will result in huge productivity gains for the Government and corporates alike. In addition, much needed reform of the public banking system was initiated by the Reserve Bank of India (RBI), supported by the Finance Ministry, and further enhanced by the introduction of a new Bankruptcy Law. This remains work in progress, but it was encouraging to see that the changeover at the head of the RBI appears to have done nothing to dampen these efforts. For the first time in three years the country enjoyed a bountiful Monsoon, ensuring a healthy crop yield and refilling reservoirs for future planting seasons. It was this, perhaps, that tipped the balance for PM Modi in deciding to bring about "demonetisation", or the immediate removal of 86% of all currency notes in circulation in early November. The introduction of demonetisation takes "big bang reform" to a higher level, and is ambitious in its attempt to eradicate the shadow economy. Working in tandem with GST, and by encouraging greater use of technology, the Government is proactively forcing individuals and SMEs into the formal banking system thereby helping to eradicate "black money" and corruption.

In spite of these radical reform based policies, India underperformed the broader emerging asset class in 2016. Part of this is because countries such as Brazil and Russia benefited from huge rebounds in the value of their currencies and stock markets as oil and commodity prices recovered from a low base. Not surprisingly, PM Modi's reformist approach has brought about much short-term uncertainty about GDP growth and corporate earnings, and it is inevitable that the market should focus on these issues. But it is this that creates an opportunity, not just to consider India as an investment for the long term, but to continue to do so using India Capital Growth as the most appropriate investment vehicle and I look forward to reporting on the Company's progress at the half way point of 2017.

Finally, on behalf of the Board and the Managers, I would like to thank you all for your encouragement and patience in recent years.

Fred Carr

Chairman

29 March 2017

INVESTMENT POLICY

The Company's investment objective is to provide long-term capital appreciation by investing (indirectly) in companies based in India. The investment policy permits the Company to make investments in a range of Indian equity and equity linked securities and predominantly in listed mid and small cap Indian companies with a smaller proportion in unlisted Indian companies. Investment may also be made in large-cap listed Indian companies and in companies incorporated outside India which have significant operations or markets in India. While the principal focus is on investment in listed equity securities or equity linked securities, the Company has the flexibility to invest in bonds (including non-investment grade bonds), convertibles and other types of securities. The Company may, for the purposes of hedging and investing, use derivative instruments such as financial futures, options and warrants. The Company may, from time to time, use borrowings to provide short-term liquidity and, if the Directors deem it prudent, for longer term purposes. The Directors intend to restrict borrowings on a longer term basis to a maximum amount equal to 25% of the net assets of the Company at the time of the drawdown. It is the Company's declared policy not to hedge the exposure to the Indian Rupee.

INVESTMENT MANAGER'S REPORT

We started 2016 on the back of expectations of a strong year, supported by the initiatives undertaken by the Modi Government through its various reforms initiated since coming to power in 2014. What we saw instead was one of the most volatile periods in the market, driven to a large extent by global developments, and towards the end of the year, India's own attack on black money through demonetisation. The Net Asset Value (NAV) of the Fund during this period rose 20.4% in Sterling terms, though adjusting for the dilution caused by the exercise of the Subscription Shares, the rebased NAV was up 28.5%, in line with the Mid Cap Total Return Index, which was up 28.8%. Within this, the appreciation of the Rupee against Sterling accounted for 15% of the returns, while INR returns were 9% for the year. It was the mid cap stocks which once again performed better as the broader market rose only 1.9% during 2016.

The year started (up to mid-February) and ended (from late-October) with dramatic declines not just in India, but across emerging markets. The Chinese slowdown, changing views on US Fed rate hikes and global growth, Brexit and the US elections all contributed to the uncertainty. This is best reflected in FII fund flow movement, with India witnessing a net equity outflow of US$ 2.9bn during January and February, followed by net equity inflows of US$10.3bn during March to September, and once again, net outflows of US$4.6bn in the last three months of 2016. Panic caused by India's demonetisation in November 2016 further added to this uncertainty. Such sharp outflows, should ideally have led to a significantly steeper fall in the Indian markets, but the global outflows were more than matched by net domestic equity inflows, which totalled over US$5bn during the year.

But for the global developments pulling India back, we believe India emerged as a stand out economy in 2016 when compared to other emerging economies. On virtually every macroeconomic parameter there was improvement. The fiscal deficit was well under control at 3.5% of GDP, with a healthy growth in tax revenues (~17%), partly aided by increased taxes on petroleum products. Inflation at 3.4% was at a five year low, prompting a series of cuts in interest rates by the Reserve Bank of India. The current account deficit of 0.5% was also at historic lows when compared to a peak of 5% in 2012. Even the foreign exchange reserves have been sustained at US$360bn+ despite the outflows in the last three months of the year, to the extent that the Rupee was among the most stable currency against the US Dollar during the year. Another significant change being witnessed is the shift in household savings from physical assets (gold / real estate) to financial assets. This is being reflected in deposit growth exceeding credit growth in the banking system, as well as steady inflows in domestic equity mutual funds which are averaging almost US$700m a month. Should this be sustained, it could greatly alter the volatility in the Indian equity market.

The main concern was the persistent slowdown in the growth of the economy. Though India remained the fastest growing economy during the year, even outpacing China, GDP growth at ~7% has been trending downwards. Credit growth at 5% is at a record low. The primary reason is the lack of investment by the private sector, which is still operating at low capacity utilisation or is still in deleveraging mode. The fact that the global economy remained weak did not help matters as export growth was also negative during the year, though the trend has reversed in the last quarter. Consequently the banking sector continues to see record high 'non-performing assets' in the system, and though these have peaked, the trend downward is slow in the absence of credit growth.

Corporate earnings growth for the BSE Sensex companies, which was initially projected at 18%-20% for FY17, is now expected to be closer to 5%-6%.

What was however pleasing was the continued initiatives being taken by the Government in reforms as well as taking the initiative of kick-starting the investment cycle. We are already seeing a sharp upswing in the order flows coming out of the Road and Rail sector. The economy for the first time has a situation of surplus power and even coal output is exceeding demand. Moreover, various initiatives taken by the Government in 'Ease of Doing Business', 'Make in India' etc. continue to gather pace. A test of its success can be seen by the record FDI inflows of US$32bn in the first nine months of the calendar year, an increase of 21% over the same period in 2015.

We would however like to highlight two significant initiatives taken during the year, which we believe will be transformational going forward. The first is the passage of the Goods & Services Tax (GST) bill, which will be implemented from 1 July 2017. This has been almost 10 years in the making, but would possibly be the single biggest reform measure since the economy was opened up in the 1990s. It would provide a uniform tax structure across the country and enhance the efficiency across the system, reducing cost of operations and at the same time creating a level playing field with those avoiding paying taxes. The second measure was the surprise decision of the Government on 8 November to overnight demonetise all outstanding Rs500 and Rs1,000 currency notes. Thus overnight, 86% of currency in circulation by value became non legal tender. With holders of the currency being given 50 days to deposit the currency into the banking system, in one swoop the entire stock of unaccounted currency was forced back into the banking system. Having already built a huge IT infrastructure, the Government is now analysing the data and hopes to structurally raise the tax to GDP ratio and also transform the economy from a cash economy towards a cashless economy.

These two reform measures, though structurally make India an even more promising growth story in the longer term, have made the short term outlook more challenging, generating uncertainty as well as disruptions. GST, given the scale of implementation and lack of knowledge base, particularly among small and medium enterprises, will have its challenges and push back investment plans. Demonetisation on the other hand has led to huge disruptions across the country. In the first week post-demonetisation, the economy virtually came to a halt. Even two months post, there are still pockets in the country which are severely affected, particularly in rural India. Many smaller businesses will need to permanently change the way they operate, and some may need to shut down. Hence it is only likely to be in H2FY18 that we will see a revival in earnings. At the same time, the global outlook from an Indian perspective is also not as favourable. A rise in commodity prices, protectionist policies by the US (IT and Healthcare are India's biggest exports to the US) and rising interest rates in the US (will hit FII flows) are all headwinds going into 2017.

Portfolio performance

Our strategy of following a bottom-up approach to buying stocks has helped during this period and we have ridden this volatility well. Due to the demonetisation impact on the economy, the forecast earnings growth for companies in our portfolio for FY17 has decreased to 14% vs. 27% at the beginning of the year. However most of the downgrade has been temporary in nature, with little or no impact on their forecast FY18 earnings, which has now grown in excess of 30%.

Positive attribution from the portfolio during the year came from Essel Propack (up 86%), Finolex Cables (up 65%), Max Financial Services (up 64%) and Yes Bank (up 61%), whilst negative attribution came from Ramkrishna Forgings (down 46%), Welspun India (down 35%) and Divis Laboratories (down 31%).

During the year, we entered into five new stocks and exited two. All the companies we have added to the portfolio are businesses which we have been tracking for some time, but waiting for the right entry price. Consequently we deployed all the subscription share proceeds and ended the year with a cash balance of 1.6% of NAV and a portfolio of 41 stocks. Over the next year we plan to reduce the number of stocks in the portfolio.

Portfolio additions and exits

Companies added	Sector	Companies exited	Sector
Essel Propack	Materials	Eicher Motors	Consumer Discretionary
Kitex Garments	Materials	KPIT	IT
Manpasand Beverages	Consumer Staples
Skipper	Materials
Welspun India	Consumer Discretionary

Top 10 companies

Company name	% of company NAV	Sector	Description
Yes Bank	5.1%	Financials	5th largest private sector bank
Federal Bank	4.4%	Financials	Long established private sector bank
Jyothy Laboratories	4.2%	Consumer Staples	Consumer company with interest in fabric care, utensil cleaners, etc.
Dewan Housing	3.9%	Financials	3rd largest private sector housing finance company
Motherson Sumi	3.8%	Consumer Discretionary	India's largest auto wiring company and one of the largest auto component makers
PI Industries	3.4%	Materials	Agrochemical and custom synthesis manufacturer for leading agrochemical innovators globally
Dish TV India	3.3%	Consumer Discretionary	Largest "Direct To Home" TV provider with 27% market share in India
Kajaria Ceramics	3.1%	Industrials	Largest tile manufacturer in India
City Union Bank	2.9%	Financials	Small regional bank focusing on small/medium enterprises
Indusind Bank	2.9%	Financials	6th largest private sector bank

Ocean Dial Asset Management

29 March 2017

PRINCIPAL GROUP INVESTMENTS

AS AT 31 DECEMBER 2016

Holding	Market     cap size	Sector		Value £000		% of Company NAV
Yes Bank	L	Financials		5,129		5.10
Federal Bank	S	Financials		4,407		4.39
Jyothy Laboratories	S	Consumer Staples		4,237		4.22
Dewan Housing	S	Financials		3,943		3.92
Motherson Sumi Systems	M	Consumer Discretionary		3,858		3.84
PI Industries	S	Materials		3,387		3.37
Dish TV India	S	Consumer Discretionary		3,363		3.35
Kajaria Ceramics	S	Industrials		3,070		3.06
City Union Bank	S	Financials		2,963		2.95
Indusind Bank	L	Financials		2,948		2.93
Welspun India	S	Consumer Discretionary		2,904		2.89
Max Financial Services	M	Financials		2,829		2.82
Finolex Cables	S	Industrials		2,760		2.75
Tech Mahindra	L	IT		2,719		2.71
NIIT Technologies	S	IT		2,673		2.66
The Ramco Cements	S	Materials		2,672		2.66
Sobha Developers	S	Real Estate		2,650		2.64
Essel Propack	S	Materials		2,636		2.62
Exide Industries	M	Consumer Discretionary		2,624		2.61
Berger Paints India	M	Materials		2,473		2.46
Total top 20 equity investments				64,245		63.94
Other Small Cap		(16 companies)		24,913		24.80
Other Mid Cap		( 3 companies)		5,808		5.78
Other Large Cap		( 2 companies)		3,909		3.89
Total equity investments				98,875		98.41
Cash less other net current liabilities of ICG Q Limited				1,499		1.49
Total net assets of ICG Q Limited				100,374		99.90
Cash less other net current liabilities of the Company				104		0.10
Total net assets				100,478		100.00
Market capitalisation
L: Large Cap - companies with a market capitalisation above US$7bn (£5.6bn)						16.84
M: Mid Cap - companies with a market capitalisation between US$2bn and US$7bn (£5.6bn - £1.6bn)						36.17
S: Small Cap - companies with a market capitalisation below US2$bn (£1.6bn)						45.40
						98.41

AUDITED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2016

				Year to	Year to
				31.12.16	31.12.15
		Revenue £000	Capital £000	Total £000	Total £000
Income
Net gains on financial asset at fair value through profit or loss		-	17,385	17,385	5,073
Expenses
Operating expenses		(336)	-	(336)	(285)
Foreign exchange loss		(2)	-	(2)	(1)
Investment management fees		76	-	76	-
Total expenses		(262)	-	(262)	(286)
(Loss)/profit for the year before taxation		(262)	17,385	17,123	4,787
Taxation		-	-	-	-
(Loss)/profit for the year after taxation		(262)	17,385	17,123	4,787
Earnings per Ordinary Share (pence)				19.04	6.38
Fully diluted earnings per Ordinary Share (pence)				19.04	6.38

The total column of this statement represents the Company's statement of comprehensive income, prepared in accordance with IFRS as adopted by the EU. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies, as disclosed in the Basis of Preparation note.

The profit after tax is the "total comprehensive income" as defined by IAS 1. There is no other comprehensive income as defined by IFRS and all the items in the above statement derive from continuing operations.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2016

			31.12.16		31.12.15
			£000		£000
Non-current assets
Financial asset designated at fair value through profit or loss			100,374		60,509
Current assets
Cash and cash equivalents			144		96
Receivables			139		21
			283		117
Current liabilities
Payables			(179)		(146)
Net current assets/(liabilities)			104		(29)
Net assets			100,478		60,480
Equity
Ordinary share capital			1,125		750
Reserves			99,353		59,730
Total equity			100,478		60,480
Number of Ordinary Shares in issue			112,502,173		75,001,463
Net Asset Value per Ordinary Share (pence) - Undiluted			89.31		80.64
Net Asset Value per Ordinary Share (pence) - Diluted			89.31		74.09

AUDITED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2016

		Share Capital £000	Capital Reserve £000	Revenue Reserve £000	Other Distributable Reserve £000	Total   £000
Balance as at 1 January 2016		750	(4,240)	(8,880)	72,850	60,480
Issue of shares		375	-	-	22,500	22,875
Gain on investments		-	17,385	-	-	17,385
Revenue loss for the year after taxation		-	-	(262)	-	(262)
Balance as at 31 December 2016		1,125	13,145	(9,142)	95,350	100,478

For the year ended 31 December 2015

		Share Capital £000	Capital Reserve £000	Revenue Reserve £000	Other Distributable Reserve £000	Total   £000
Balance as at 1 January 2015		750	(9,313)	(8,594)	72,850	55,693
Gain on investments		-	5,073	-	-	5,073
Revenue loss for the year after taxation		-	-	(286)	-	(286)
Balance as at 31 December 2015		750	(4,240)	(8,880)	72,850	60,480

AUDITED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2016

	Year to		Year to
	31.12.16		31.12.15
	£000		£000
Cash flows from operating activities
Operating profit	17,123		4,787
Adjustment for:
Net gain on financial asset at fair value through profit or loss	(17,385)		(5,073)
Foreign exchange losses	2		1
Increase in receivables	(118)		(13)
Increase in payables	33		7
Net cash flows from operating activities	(345)		(291)
Cash flows from financing activities
Proceeds from issue of shares	22,875		-
Cash flows from investing activities
Sale of investments	120		340
Purchase of investments	(22,600)		-
Net cash flows from investing activities	(22,480)		340
Net increase in cash and cash equivalents during the year	50		49
Cash and cash equivalents at the start of the year	96		48
Foreign exchange losses	(2)		(1)
Cash and cash equivalents at the end of the year	144		96

ACCOUNTING POLICIES

Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and interpretations adopted by the International Accounting Standards Board (IASB). 

Basis of preparation

The financial statements for the year ended 31 December 2016 have been prepared under the historical cost convention adjusted to take account of the revaluation of the Company's investments to fair value.

Where presentational guidance set out in the Statement of Recommended Practice (SORP) for Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies (AIC) in November 2014 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. In particular, supplementary information which analyses the statement of comprehensive income between items of a revenue and capital nature has been presented alongside the statement of comprehensive income.

Going concern

The Board has concluded the going concern basis of accounting is appropriate because there are no material uncertainties related to events or conditions that may cast significant doubt about the ability of the company to continue as a going concern for the next 12 months.

Impact of IFRS 10 'Consolidated Financial Statements'

As set out under IFRS 10, a parent entity that qualifies as an investment entity should not consolidate its subsidiaries. The Company meets all the following criteria to qualify as an investment entity:-

(i)   Obtaining funds from one or more investors for the purpose of providing those investors with investment management services - the Board of Directors of the Company has delegated this function to its investment manager, Ocean Dial Asset Management Limited;

(ii)  Commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both - funds are invested in ICG Q Limited for the sole purpose of achieving capital appreciation via further placements in Indian listed securities; and

(iii) Measures and evaluates the performance of substantially all of its investments on a fair value basis - on a monthly basis, the Company's investment in ICG Q Limited is revalued at the prevailing Net Asset Value at the corresponding valuation date.

The IFRS 10 Investment Entity Exemption requires investment entities to fair value all subsidiaries that are themselves investment entities. As the subsidiary meets the criteria of an investment entity, it has not been consolidated.

On the basis of the above, these financial statements represent the stand-alone figures of the Company.

Expenses

Expenses are accounted for on an accruals basis. Other expenses, including management fees, are allocated to the revenue column of the statement of profit or loss and other comprehensive income.

Taxation

Full provision is made in the statement of profit or loss and other comprehensive income at the relevant rate for any taxation payable in respect of the results for the year.

Investments

The Company's investment is designated at fair value through profit or loss at the time of acquisition. It is initially recognised at fair value, being the cost incurred at acquisition. Transaction costs are expensed in the statement of comprehensive income. Gains and losses arising from changes in fair value are presented in the statement of comprehensive income in the period in which they arise.

The investment is designated at fair value through profit or loss at inception because it is managed and its performance evaluated on a fair value basis in accordance with the Company's investment strategy as documented in the Admission Document and information thereon is evaluated by the management of the Company on a fair value basis.

The basis of the fair value of the investment in the underlying subsidiary, ICG Q Limited, is its Net Asset Value. ICG Q Limited's investments are designated at fair value through profit and loss.

Purchases and sales are recognised on the trade date - the date on which the Company commits to purchase or sell the investment.  

The financial asset is derecognised when the rights to receive cash flows from the investment have expired or the Company has transferred substantially all risks and rewards of ownership.

Receivables and Payables

Receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment. Due to their short-term maturities, their fair values approximate their costs.

Payables are recognised initially at fair value and subsequently measured at amortised cost. Due to their short-term maturities, their fair values approximate their costs.

Foreign currency translation

The Company's shares are denominated in Sterling and the majority of its expenses are incurred in Sterling. Accordingly, the Board has determined that the functional currency is Sterling. Sterling is also the presentation currency of the financial statements.

Monetary foreign currency assets and liabilities are translated into Sterling at the rate of exchange ruling at the statement of financial position date. Investment transactions and income and expenditure items are translated at the rate of exchange ruling at the date of the transactions. Gains and losses on foreign exchange are included in the statement of comprehensive income.

Cash and cash equivalents

Cash comprises of Bank current accounts. Cash equivalents are short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant changes in value.

Share capital

The share capital of the Company consists of Ordinary Shares which have all the features and have met all the conditions for classification as equity instruments under IAS 32 (amended) and have been classified as such in the financial statements.

Standards, interpretations and amendments to published statements not yet effective

Certain current standards, amendments and interpretations are not relevant to the Company's operations. Equally, certain interpretations to existing standards which are not yet effective are equally not relevant to the Company's operations.

At the date of the authorisation of these financial statements, the following standards and interpretations which were in issue but not yet effective have not been early adopted in these financial statements.

·     Amendments to IFRS 7 and IFRS 9 - Mandatory effective date  and Transition disclosures is effective for periods beginning on or after 1 January 2018

·     Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39 is effective for periods beginning on or after 1 January 2018

·     IFRS 14 - Regulatory Deferral Accounts is effective for periods beginning on or after 1 January 2016

·     Amendments to IAS 16 and  IAS 41 - Agriculture: Bearer Plants is effective for periods beginning on or after 1 January 2016

·     Amendments to IAS 16 and IAS 38 - Clarification of Accountable Methods of Depreciation and Amortisation is effective for periods beginning on or after 1 January 2016

·     Amendments to IFRS 11 - Accounting for Acquisition of Interests in Joint Operations is effective for periods beginning on or after 1 January 2016

·     Amendments to IAS 27 - Equity Method in Separate Financial Statements is effective for periods beginning on or after 1 January 2016

·     IFRS 9 - Financial Instruments (issued in 2014) is effective for periods beginning on or after 1 January 2018

·     IFRS 15 - Revenue from Contracts with Customers beginning on or after 1 January 2018

The Board has not yet assessed the impact of these standards as they have been recently published. The Directors believe that other pronouncements which are in issue but not yet operative or adopted by the Company will not have a material impact on the financial statements of the Company, but these will continue to be reviewed. These are:-

·     Amendment to IAS 36 - Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets

·     Amendment to IAS 32 - Offsetting Financial Assets and Financial Liabilities

·     Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment Entities

·     Amendment to IAS 39 - Novation of Derivatives and Continuation of Hedge Accounting

·     IFRIC 21 - Levies

·     Amendments to IAS 19 - Defined Benefits Plans: Employee Contributions

·     Annual improvements to IFRSs 2010-2012 cycle

·     Annual improvements to IFRSs 2011-2013 cycle

SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

IFRS require management to make judgments, estimates and assumptions that effect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equate to the related actual results. The main use of accounting estimates and assumptions occurs in the calculation of the sensitivity. In relation to the valuation of unlisted investment, actual results may differ from the estimates. It is management's judgement that the Net Asset Value (NAV) of ICG Q Limited is an appropriate proxy for fair value as the Company can control the sale of the subsidiary's investments and therefore no liquidity discount is required.

EARNINGS PER SHARE

Earnings per Ordinary Share and the fully diluted earnings per Ordinary Share are calculated on the profit for the year of £17,123,000 (31.12.15 - £4,787,000) divided by the weighted average number of Ordinary Shares of 89,950,429 (31.12.15 - 75,001,463). There was no dilutive impact of the 37,500,710 Subscription Shares in issue which were exercised and cancelled in August 2016.

This announcement was approved by the Board on 29 March 2017. It is not the Company's statutory accounts, but has been prepared on the same basis as those accounts. The statutory accounts for the year ended 31 December 2016 have been approved and audited and received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report.

The full Annual Report together with the audited accounts for the year is expected to be mailed to shareholders by 5 April 2017 and a copy will be posted on the Company's website www.indiacapitalgrowth.com in accordance with AIM Rule 26.

Disclaimer: Neither the contents of the Company's website, nor the contents of any website accessible from hyperlinks on the Company's website (or any other website), is incorporated into, or forms part of, this announcement.

 

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