LEI: 213800TPOS9AM7INH846

INDIA CAPITAL GROWTH FUND LIMITED

Annual Results for the year ended 31 December 2022

30 March 2023, London - India Capital Growth Fund ("ICGF" or "the Company"), the LSE premium listed 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 2022.

Highlights

·      In 2022 the NAV rose 3.9%, outperforming the BSE Midcap TR Index, which increased 3.2%.

·      The NAV of the portfolio, before deferred tax provision relating to potential Indian Capital Gains Tax, rose by 4.3% outperforming emerging markets as a whole which fell 13% during the year

·      The discount narrowed over the year to just over 7.9% at the year end. The Board intends to continue to repurchase shares when the discount is inappropriately wide, unless in volatile conditions

·      The second Redemption Point will be at 31 December 2023 for eligible shareholders on the register at 30 September 2023 when the Exit Discount will be no more than 3%

·      The Indian Rupee continued to remain relatively stable backed by significant foreign currency reserves helped in part by the rising export of IT services offsetting the cost of fluctuating oil imports

·      On 6 March 2023 AssetCo PLC, founded and chaired by Martin Gilbert, acquired the Company's investment manager, Ocean Dial Asset Management Limited, subject to regulatory approvals from the FCA and regulators in India. The successful investment team in India, led by Gaurav Narain, continues unchanged

Elisabeth Scott, Chair of India Capital Growth Fund, said:

"Despite all the global uncertainties of 2022, it is clear that India and its economy have been resilient and investors in emerging markets have favoured India over the stock markets of other emerging markets.  While it is perfectly reasonable to expect that other emerging markets may catch up in terms of relative performance, the outlook for the Indian economy is positive and Indian companies will benefit from this and from the improvement in governance standards. 

The Board believes that, particularly in this uncertain environment, the Company's focus on high quality companies with strong management capabilities and a clear path to growth will generate positive investment returns over time."

ENQUIRIES

About India Capital Growth Fund

India Capital Growth Fund Limited the LSE premium listed investment company registered and incorporated in Guernsey, 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 and private Indian companies where the Fund Manager believes long-term capital appreciation will be achieved. www.indiacapitalgrowth.com

CHAIR'S STATEMENT

After a very strong year for Indian equity markets in 2021, 2022 saw Indian equities show a positive performance, contrasting with the negative returns experienced in other global equity markets. While the global economy and equity markets suffered from Russia's shock invasion of Ukraine and the consequent increase in energy prices, India's economic momentum gained pace, with capital expenditure growing, the real estate sector showing signs of recovery and consumer demand continuing to rise. With healthy foreign exchange reserves (the fourth largest in the world at USD560bn), the currency has been resilient, compared with previous economic shocks despite the headwind of high oil prices.

Performance

Your Company reported growth in its Net Asset Value (NAV) of 3.9% over the year, which compared favourably to the benchmark index, the S&P BSE Midcap Total Return Index, which rose by 3.2%. The share price rose by 7.7% as the discount narrowed over the year. Key to this outperformance was the overweight position in the financial sector, where the Company's long term holdings in Federal Bank and IndusInd Bank performed well.

The Investment Manager's Report provides more information on the performance of the companies held in the Company's portfolio. The Report illustrates how the Manager's long term active style continues to benefit performance. 

Environmental, Social & Governance ("ESG")

The Board is pleased that the Investment Manager has continued to build its ESG capability. The bespoke in-house process allows the Manager to screen out companies with corporate governance issues. One such example was the Manager's decision to avoid all the Adani Group of companies, which hurt performance in 2021 and 2022, but, following the year end, has been justified by the recent exposure of some alleged doubtful business practices resulting in a sharp fall in the Adani Group companies' share prices.

The Manager continues to engage with the management of portfolio companies to persuade them to improve their disclosures of their ESG practices. In an example of this, JK Lakshmi Cement published its first detailed sustainability report. It is probable that disclosure levels will improve in India. The Securities Exchange of India has announced that the top 1000 companies by market capitalisation will be required to make ESG disclosures.

Redemption Facility

The second redemption point at which shareholders in the Company can request redemption of part or all of their shareholding on the record date of 30 September 2023 will be on 31 December 2023. The Board has agreed that the exit discount at this redemption point will be no more than 3%. Shareholders will be reminded of this in the interim report and again in market announcements before the final notice date.

Further details of the Redemption Facility are available on our website www.indiacapitalgrowth.com

Discount

The Company's share price discount to NAV began the year at 11.1% and closed at 7.9% reaching a month end low of 6.8% during the year. This discount was narrower than or in line with many other closed ended investment companies, especially those investing in emerging markets.

Over the year the company bought back 165,204 of its shares in the market at average price of 102.86p per share. The Board believes that it is in shareholders' interests that the Company's share price should more closely reflect the prospects of the Company. The Board also notes that the repurchase of shares at a discount to NAV is accretive to the NAV of the Company. The Board works with the Company's broker, Shore Capital, in this regard.

Corporate Governance

The Company is a member of the Association of Investment Companies (AIC) and seeks to follow best practice regarding appropriate disclosures and governance. The governance principles that the Board has adopted are designed to ensure that the Company delivers long term value to its shareholders and treats all shareholders equally. All shareholders are encouraged to have an open dialogue with the Board throughout the year, and the Board can be contacted via the Company's website or the Company Secretary.  

We welcomed Nick Timberlake to the Board in July 2022. Nick has considerable experience of the asset management sector and emerging markets in particular.

Investment Manager

On 6 March 2023 we announced that AssetCo PLC, founded and chaired by Martin Gilbert, has acquired the Company's investment manager, Ocean Dial Asset Management Limited, subject to regulatory approvals from the FCA and regulators in India. The Board supports this transaction and welcomes the change in ownership to a more fully resourced UK asset management group. Most importantly, the successful investment team in India, led by Gaurav Narain, continues unchanged.

Investor Relations

Ocean Dial has conducted a number of webinars for current and prospective shareholders in India Capital Growth during the year and the Board has been pleased with the level of engagement from shareholders.  We have made considerable efforts to get in touch with shareholders who hold their shares via platforms and encourage any shareholder to contact us via the Company's website or the Company Secretary if they would like to receive notice of upcoming events.

The Company has presented at a number of investor events hosted by publications, platforms and wealth management companies.

The Company retains the services of a PR agency. With their help, the Company has appeared in more than 30 articles in the UK press, podcasts and webinars during the year. The Board believes that this is an effective mechanism for drawing attention to the Company, encouraging prospective shareholders to buy shares and, in the long term, to improve the discount at which the Company's shares trade.

Outlook

Despite all the global uncertainties of 2022, it is clear that India and its economy have been resilient in the face of these challenges and that investors in emerging markets have favoured India over the stock markets of other emerging markets.  While it is reasonable to expect that other emerging markets may catch up in terms of relative performance, the outlook for the Indian economy is positive and Indian companies will benefit from this and from the improvement in governance standards. 

The Board believes that, particularly in this uncertain environment, the Company's focus on high quality companies with strong management capabilities and a clear path to growth will generate positive investment returns over time.

Thank you for your support over the past year.

INVESTMENT POLICY

The Company's investment objective is to provide long-term capital appreciation by investing 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 current policy not to hedge the exposure to the Indian Rupee.

The portfolio concentration ranges between 30 and 40 stocks; however, to the extent the Company grows, the number of stocks held may increase over time. The Company is subject to the following investment limitations: No more than 10 per cent. of Total Assets may be invested in the securities of any one Issuer or invested in listed closed-ended funds.

INVESTMENT MANAGER'S REPORT

Introduction

2022 may not have been as good as 2021 in terms of absolute performance for Indian equities but it was a great year for India especially against other emerging markets. India also stood out in terms of relative performance against global equities which had their worst year since 2008.

The Company's net asset value (after deferred tax provisions for Indian CGT) rose 3.9% (37.9% in 2021), whilst its index (S&P BSE Midcap Total Return) rose 3.2%, (39.7% in 2021). Emerging Markets as a whole (MSCI EM GBP) fell 13% in 2022, further highlighting India's comparative strength.

The performance is particularly gratifying as it comes on the back of a challenging global environment - the Russia Ukraine War; a spike in oil prices; rising interest rates; and a flight of capital out of emerging markets including India. In the past, the occurrence of any one of these factors would have led to a sell-off in the Indian equity markets.

The economy has shown `resilience', and this is a word we used repeatedly to describe India in the year 2022 which demonstrated that the fundamentals of the economy are stronger than ever. The Government strategy of limiting "freebies" during Covid but instead increasing spending on capex to aid the growth recovery, had a positive impact.

Outlook for 2023

As we enter 2023, we are confronted with divergent commentaries: a) Western economies where discussions are centred around the probability of a recession; and b) positive and optimistic India where sustaining a 6-8% GDP growth for the next decade is the focal point of discussion. The positive outlook is reinforced by IMF / World Bank forecasts which list India as being among the fastest growing large economies in the world in the short term, and over the next decade emerging as the 3^rd largest economy globally (India's GDP surpassed that of the UK in Q4 2022 to make it the 5^th largest economy in the world). The Government has set a target of being a US$ 10tr economy in the next decade (compared with US$ 3.5tr at present). This optimism is also reflected in the management commentary of most corporates.

ESG Considerations

We believe the integration of ESG factors in our investment decision making will help to improve the Company's long term risk adjusted returns. Consequently, ESG measurement and risk impact scoring have become an integral part of our investment process facilitated by the ongoing development of our bespoke internal ESG scoring model which compares and rates each company within our portfolio. An illustration of this scoring model is provided in the ESG report which highlights our focus on the direction of travel, rather than the absolute numbers in isolation, in reporting upon and reducing the climate impact factors of companies in the portfolio. In order to truly understand the direction of travel and the actions being taken by portfolio investment companies in respect of ESG and the sustainability of their business, constructive engagement with management is at the core of our investment process. Our investment advisers in India meet and interact regularly with both investee companies and potential portfolio holdings. They meet onsite where possible and will take the opportunity of visiting manufacturing facilities as well as corporate headquarters in order to build a clearer picture. In addition, they also endeavour to meet employees outside of the senior management team, as this also helps to strengthen the overall understanding of the business and better establish if the ESG and sustainability ethos projected by senior management filters down through the business.

Portfolio Attribution and Positioning

Over the year, the net asset value of the portfolio rose by 4.3% (before deferred tax provisions for Indian CGT, 3.9% is the performance post CGT) compared to the benchmark S&P BSE Midcap TR index returning 3.2% in sterling terms. The portfolio is positioned to take advantage of key themes we see playing out over the next few years - namely a) mainstreaming of digitization; b) China+1 and de-risking of global supply chains; c) consumption revival and d) domestic capex recovery. These have played out well. Sector allocation was the main driver of positive performance, though stock selection also contributed.

Reflecting on the performance during 2022

At a sector level, the main contributors to positive performance were healthcare, financials, energy, consumer staples, materials and communication services. Sectors that dragged performance lower were led by information technology, utilities and industrials.

At a stock level, financials led the way with all four banks in the portfolio led by Federal Bank (up 71%) and IndusInd Bank (up 39%) delivering positive returns on the back of strong operating performance. Ramkrishna Forgings (auto ancillary) also rose 40% driven by a bounce back in the domestic commercial vehicle sales and new order wins in exports. In the Industrial space, Skipper (engineering products) rose 61% while PSP Projects (construction company) rose 46%. Both companies have seen a rise in their order books as the capex cycle picks up pace. Another notable performer was Jyothy Labs (consumer staples) which rose 51% on the back of consistently delivering above market revenue growth with market share gains. Within materials, JK Lakshmi was among the top performing Cement companies.

Adverse stock performers were led by the global facing companies, all of which corrected in anticipation of slowdown in growth rates. This was led by Welspun India (Textiles) down 46%. Both our IT service companies, Tech Mahindra (down 40%) and Persistent (down 20%) also de-rated, even though earnings remained robust. Sona BLW (Auto Ancillary) also declined 43% on fears of a global auto slowdown.  At an index level, our absence in Varun Beverage (consumer staple) which rose 125% and Adani Power (utility) which rose 201% also detracted from our performance.

We continue to hold on to our underperforming companies as the business models remain robust and do not alter our long-term thesis on these businesses. Moreover, the price correction makes valuations even more compelling as it has not been accompanied by a similar downgrade in earnings.

The portfolio finished the year with 35 stocks. Gujarat Gas (city gas distribution), Aegis Logistics (gas and liquid logistics), Star Healthcare (general insurance) and Divis Laboratories (pharmaceuticals) were sold during the year. Six portfolio additions were made including Vedant Fashions (garments), Coforge (IT Services), Cholamandalam Investments (non-bank financial company), Star Healthcare (general insurance), Ashok Leyland (commercial vehicle) and Uniparts (auto ancillary). Star Healthcare was added and exited during the year because of the strong run-up in price (over 30%) during our holding period.  Our portfolio turnover remained low at 12.6%. We have been actively and consciously managing the individual stock weights and have used the volatility to book gains or add weight to several stocks within the portfolio.

Current positioning and expectations thereof 

As we enter 2023, our largest sector exposure is in the financial space which has a long runway on growth, low risk on credit quality for the next 2 years (at the very least), and yet valuations are reasonable. Credit growth is trending in double digits and banks are well capitalised.

Our second largest exposure is in consumer companies which are our earnings compounders. We have a wide range of consumer businesses from staples, building materials, quick service restaurants, garments and even electronic manufacturing services.  The consumer portfolio has seen a decisive tilt towards more discretionary plays over staples. We are playing the pick-up in domestic growth and real estate revival through exposure in cement (11%) and industrial (5%) stocks. At the same time we are also well positioned to capitalise on the gains India is likely to make as economies rebalance supply chains out of China. There are several stocks across sectors which are already seeing a positive impact including Dixon & Kajaria (consumer), Welspun (textiles), Skipper (industrial). Others like PI Industries & Aarti (specialty chemicals) are also potential gainers.

With respect to our benchmark, our overweights are in financials, IT and metals. Our metals exposure is not through any global commodities but instead through cement and speciality chemicals companies. We are underweight healthcare, having exited Divis Laboratories. One of our biggest underweights remains utilities.

We are entering Indian Fiscal FY24 (year ending 31 March 2024) with one of the highest aggregate earnings growth for our portfolio. This does include above average numbers with sectors like cement and banks benefiting due to a low base effect. In parallel, we expect margins across portfolio companies to rise as commodity prices settle.

We remain confident with our positioning as we enter the year with a portfolio having higher growth and lower valuation than the broader market.

PRINCIPAL INVESTMENTS OF THE GROUP

As at 31 December 2022

PORTFOLIO STATEMENT

As at 31 December 2022

AUDITED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2022

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 in Note 1.

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.

AUDITED STATEMENT OF FINANCIAL POSITION

 As at 31 December 2022

AUDITED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2022

For the year ended 31 December 2021

AUDITED STATEMENT OF CASH FLOWS

  For the year ended 31 December 2022

NOTES TO THE AUDITED FINANCIAL STATEMENTS

1. 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 2022 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, and subsequently revised in November 2019, 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 made an assessment of the Company's ability to continue as a going concern for the twelve months from the date of approval of these financial statements taking into account all available information about the future including the liquidity of the investment portfolio held both by the Company and its subsidiary, ICG Q Limited (74.1% of the portfolio can be liquidated within 5 days); the performance of the investment portfolio (the net asset value of the Company increased 3.9% in the year); the overall size of the Company and its impact on the Ongoing Charges of the Company (the net asset value of the Company exceeded £100m throughout the year); the level of operating expenses covered by highly liquid investments held in the portfolio (operating expenses are 50 times covered by highly liquid investments); and the length of time to remit funds from India to Mauritius and Guernsey to settle ongoing expenses (no more than 10 working days to have investments liquidated and sterling funds in Guernsey).

Given the Company's previous performance, the Directors proposed a continuation ordinary resolution at the Extraordinary General Meeting held on 12 June 2020, at which the Shareholders approved that the Company continue as currently constituted and introduce a redemption facility which gives the ordinary shareholders the ability to redeem part or all of their shareholding at a Redemption Point every two years. The first Redemption Point was on 31 December 2021 when valid redemption requests were received in respect of ordinary shares which were subsequently redeemed under the redemption facility in accordance with the announced timetable.

The next date at which shareholders will be able to request the redemption of some or all of the shares will be 31 December 2023. There is therefore a possibility that redemptions requests may impair the future viability of the Company. This creates material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern. Based upon the investment performance of the Company to date and the increase in the proportion of retail and institutional shareholders seeking long term value growth on the share register since the last Redemption Facility on 31 December 2021, the Board believes shareholder redemptions at the forthcoming Redemption Facility on 31 December 2023 are likely to be at such a level not to impact the going concern of the Company.

The Directors are satisfied that the Company has sufficient liquid resources to continue in business for the next twelve months, therefore the financial statements have been prepared on a going concern basis.

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.

Dividend income

Dividend income is recognised when the right to receive payment is established.

Expenses

Expenses are accounted for on an accrual 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.

Deferred taxation

Deferred taxation is recognised in respect of all temporary differences at the Statement of Financial Position date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Statement of Financial Position date. This is subject to deferred taxation assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred taxation assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise, using enacted taxation rates that are expected to apply at the date the deferred taxation position is unwound.

Financial instruments

The Company's investment in ICGQ Limited is designated at fair value through profit or loss as the Company meets the definition of an investment entity under IFRS 10. 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.

Financial assets

Portfolio investments held by the Company are stated at the mid-market price quoted on the Indian Stock Exchanges. Purchases and sales are recognised on the trade date - the date on which the Company commits to purchase or sell the investment. Realised gains and losses are calculated with reference to book cost on a FIFO (First in First out) basis.

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.

Impairment of financial assets

The Company holds only cash and cash equivalents with reputable institutions at amortised cost and, as such, has chosen to apply an approach similar to the simplified approach for expected credit losses (ECL) under IFRS 9. Therefore, the Company does not track changes in credit risk, but instead, recognises a loss allowance based on lifetime ECLs at each reporting date. The Company's approach to ECLs reflects a probability-weighted outcome, the time value of money and reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

Receivables and Payables

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method (EIR), less impairment, such impairment to be determined using the simplified expected credit losses approach in accordance with IFRS 9. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in profit or loss. The losses arising from impairment are recognised in profit or loss.

Other financial liabilities include all financial liabilities, other than those classified as at FVPL. The Company includes in this category short-term payables.

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 presentational 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 consists 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.

Treasury shares are equity instruments which are created when the Company reacquires its own ordinary shares. Treasury shares are recognised at the consideration paid, including any attributable transaction costs net of income taxes. Where such shares are subsequently sold or reissued, any consideration received, net of transaction costs, is included in the shareholders' equity. No gain or loss is recognised on the purchase, sale, issue or cancellation of the Company's own ordinary shares.

Changes in accounting policies

New and revised standards

The following standards and interpretations (some of which are amendments to existing standards) are effective for the first time for the financial period beginning 1 January 2022:

·      Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets: Onerous Contracts - Cost of Fulfilling a Contract (applicable for annual periods beginning on or after 1 January 2022)

·      Annual Improvements to IFRS Standards 2018-2020 (applicable for annual periods beginning on or after 1 January 2022)

Other changes to accounting standards in the current year had no material impact.

Standards and interpretations published, but not yet applicable for the annual period beginning
on 1 January 2022:

·      Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current (applicable for annual periods beginning on or after 1 January 2023, but not yet endorsed in the EU)

·      Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies (applicable for annual periods beginning on or after 1 January 2023)

·      Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (applicable for annual periods beginning on or after 1 January 2023)

·      Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (applicable for annual periods beginning on or after 1 January 2023, but not yet endorsed in the EU)

Other standards in issue, but not yet effective, are not expected to have a material effect on the financial

statements of the Company in future periods and have not been disclosed.

Definition of Accounting Estimates - Amendments to IAS 8

In February 2021, the IASB issued amendments to IAS 8, in which it introduces a definition of 'accounting estimates. The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors. Also, they clarify how entities use measurement techniques and inputs to develop accounting estimates.

The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and apply to changes in accounting policies and changes in accounting estimates that occur on or after the start of that period. Earlier application is permitted as long as this fact is disclosed.

The amendments are not expected to have a material impact on the Company.

Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2

In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements, in which it provides guidance and examples to help entities apply materiality judgements to accounting policy disclosures. The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their 'significant' accounting policies with a requirement to disclose their 'material' accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.

The amendments to IAS 1 are applicable for annual periods beginning on or after 1 January 2023 with earlier application permitted. Since the amendments to the Practice Statement 2 provide non-mandatory guidance on the application of the definition of material to accounting policy information, an effective date for these amendments is not necessary.

The Company is currently assessing the impact of the amendments to determine the impact they will have on the Company's accounting policy disclosures.

Prior period errors

During the year ended 31 December 2021, the Company redeemed 412,444 shares from shareholders. When calculating the Earnings per Ordinary Shares and Diluted earnings per Ordinary Shares, the closing number of shares in issue of 112,089,729 was used as opposed to the correct weighted average number of shares during the year of 112,476,020 in an error resulting in reported Earnings per Ordinary Shares and Diluted earnings per Ordinary Shares of 37.12 pence/share. Management corrected the error in the current period resulting in the restated Earnings per Ordinary Shares and Diluted earnings per Ordinary Shares of 36.99 pence/share.

2.    Critical accounting judgements

Management make judgements, estimates and assumptions that affect 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 judgements 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.

3. Operating expenses

¹ Audit fees

The audit fee as agreed upon in the letter of engagement for the 2021 financial year was £ 50,000.

The audit fee expense as disclosed in the annual report of 2021 was lower as result of an over accrual from the prior year that was adjusted accordingly in the 2021 financial year.

4. Earnings/(loss) per share

Earnings/(loss) per Ordinary Share and the fully diluted loss per share are calculated on the profit for the year of £3,773,000 (2021 - profit of £41,604,000) divided by the weighted average number of Ordinary Shares of 97,279,178 (2021 - 112,476,020*).

*During the year ended 31 December 2021, the Company redeemed 412,444 shares from shareholders. When calculating the Earnings per Ordinary Shares and Diluted earnings per Ordinary Shares, the closing

number of shares in issue of 112,089,729 was used as opposed to the correct weighted average number of shares during the year of 112,476,020 in an error resulting in reported Earnings per Ordinary Shares and Diluted earnings per Ordinary Shares of 37.12 pence/share. Management corrected the error in the current period resulting in the restated Earnings per Ordinary Shares and Diluted earnings per Ordinary Shares of 36.99 pence/share.

5. Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss consists of investments in securities listed on Indian Stock Exchanges, namely the National Stock Exchange or the Bombay Stock Exchange, as well as investment in the wholly owned subsidiary, ICG Q Limited. A summary of movements is as follows:

The net realised and unrealised gains totalling £4,374,000 (2021: £42,315,000) on financial assets at fair value through profit and loss comprise of gains on the Company's holding in ICG Q Limited to the extent of £2,554,000 (2021: gains of £40,229,000) and gains of £1,820,000 (2021: gains of £2,086,000) arising from investments in securities listed on Indian stock markets. The movement arising from the Company's holding in ICG Q Limited is driven by the following amounts within the financial statements of ICG Q Limited, as set out below.

The equity investment represents ICG Q Limited, the Company's wholly owned subsidiary. ICG Q Limited is incorporated and has its principal place of business in the Republic of Mauritius. The Company holds Participating Shares in ICG Q Limited, which confer voting rights to the Company, hence controlling interests.

6.    Taxation

Guernsey

India Capital Growth Fund Limited is exempt from taxation in Guernsey on non-Guernsey sourced income. The Company is exempt under The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended) and paid the annual exemption fee of £1,200 in 2021. For the year ended 31 December 2022, the Company had a tax liability of £Nil (2021: £Nil).

India

Capital gains arising from equity investments in Indian companies are subject to Indian Capital Gains Tax Regulations. Consequently, with effect from April 2020, the Company and its subsidiary, ICGQ Limited, have been subject to both short and long term capital gains tax in India on the growth in value of their investment portfolios at the rate of 15% and 10% respectively. Although this additional tax only becomes payable at the point at which the underlying investments are sold and profits crystallised, the Company and its subsidiary must accrue for this additional cost as a deferred taxation liability, notwithstanding that they seek to minimise the impact of these taxation rates applicable to capital gains by maintaining its investment strategy of investing in a concentrated portfolio for long term capital appreciation. The deferred taxation liability relating to Indian capital gains tax for the Company was £397,000 at 31 December 2022 (2021: £198,000) and for its subsidiary was £4,187,000 at 31 December 2022 (2021: £4,388,000).

Dividend withholding tax

The Company and its subsidiary are also subject to withholding tax on their dividend income in India. The withholding tax charge for the Company for the year ended 31 December 2022 was £24,000 (2021: £19,000) and for its subsidiary was £199,000 (2021: £226,000).

7.    Segmental information

The Board has considered the provisions of IFRS 8 in relation to segmental reporting and concluded that the Company's activities are from a single segment under the standard. From a geographical perspective, the Company's activities are focused in a single area - India. The subsidiary, ICG Q Limited, focuses its investment activities in listed securities in India. Additional disclosures have been provided in this Annual Report as elaborated in the Directors'' Report to disclose the underlying information.

8.    Share capital

Authorised Share Capital

Unlimited number of Ordinary Shares of £0.01 each

The Ordinary Shares of the Company carry the following rights:

(i)    The holders of Ordinary Shares have the right to receive in proportion to their holdings all the revenue profits of the Company (including accumulated revenue reserves) attributable to the Ordinary Shares as a class available for distribution and determined to be distributed by way of interim and/or final dividend at such times as the Directors may determine.

(ii)   On a winding-up of the Company, after paying all the debts attributable to and satisfying all the liabilities of the Company, holders of the Ordinary Shares shall be entitled to receive by way of capital any surplus assets of the Company attributable to the Ordinary Shares as a class in proportion to their holdings.

(iii)  Subject to any special rights or restrictions for the time being attached to any class of shares, on a show of hands every member present in person has one vote. Upon a poll every member present in person or by proxy has one vote for each share held by him.

Treasury shares

There was a total buy back of 15,574,076 ordinary shares during the period ended 31 December 2022. These shares were transferred from Issued Share Capital Account to Treasury Shares Account and were purchased at a discount to the Net Asset Value per share, as per below:

* Redemption facility resulted in 15,408,872 net shares bought back (not through the market) and transferred from Issued Share Capital to Treasury Shares Account.

^ 165,204 Shares bought back in the market and transferred to Treasury Shares Account.

9. Fair value of financial instruments

The following tables show financial instruments recognised at fair value, analysed between those whose fair value is based on:

·      Quoted prices in active markets for identical assets or liabilities (Level 1);

·      Those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and

·      Those with inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

The analysis as at 31 December 2022 is as follows:

The analysis as at 31 December 2021 is as follows:

The Company's investment in ICG Q Limited, the Company's wholly owned subsidiary is priced based on the subsidiary's net asset value as calculated as at the reporting date. The Company has the ability to redeem its investment in ICG Q Limited at the net asset value at the measurement date therefore this is categorised as level 2. The classification within the hierarchy does not necessarily correspond to the Investment Manager's perceived risk of the investment, nor the level of the investments held within the subsidiary. All the underlying investments (apart from Aarti Pharmalabs') of ICG Q Limited are categorised as level 1 at 31 December 2022 and 2021. The year-end fair value of those investments, together with cash held in ICG Q Limited, comprise all but an insignificant proportion of the net asset value of the subsidiary.

There has been no movement between levels for the year ended 31 December 2022. There were no changes in valuation techniques during the year ended 31 December 2022.

10. Financial instruments and risk profile

The primary objective of the Company is to provide long-term capital appreciation by investing predominantly in companies based in India. The investment policy permits making investments in a range of equity and equity linked securities of such companies. The portfolio of investments comprises of listed Indian companies, predominantly mid cap and small cap. The specific risks arising from exposure to these instruments and the Investment Manager's policies for managing these risks, which have been applied throughout the period, are summarised below:

Capital management

The Company is a closed-ended investment company and thus has a fixed capital for investment. It has no legal capital regulatory requirement. The Board has the power to purchase shares for cancellation thus reducing capital and the Board considers on a regular basis whether it is appropriate to exercise such powers. In the year ended 31 December 2022, the Board determined that it was inappropriate to exercise such powers, although continuation of these powers will be sought at the Annual General Meeting.

The Board also considers from time to time whether it may be appropriate to raise new capital by a further issue of shares. The raising of new capital would, however, be dependent on there being genuine market demand.

Environmental and social ("E&S") impact risk

E&S impact risk is a transverse risk that impacts most of our other risks: market risk, foreign currency risk, credit risk, liquidity risk, operational non-financial risk, legal and regulatory risk and reputation risk. Our Investment Manager has developed a qualitative scoring model which measures climate and other environmental impacts and the reporting thereof by the Company's investment portfolio companies.

The Investment Manager considers all factors that may have a financially material impact on returns. Climate change is such a key factor. The related physical and transition risks are vast and are becoming increasingly financially material for many investments. Not only in the obvious high-emitting sectors, such as energy, utilities and transportation, but also along the supply chain, providers of finance and in those reliant on agricultural outputs and water. It is important that the financial implications of material climate-change risks are assessed across all asset classes, including real assets, and make portfolios more resilient to climate risk. Comparable climate-related data is necessary to enable effective decision making, and is

something the Investment Manager actively sources and incorporates into its process and scoring model. Regular engagement with all investee companies allows the Investment Manager to better understand their exposure and management of climate change risks and influence corporate behaviour positively in relation to climate risk management.

Market risk

Market price risk arises mainly from the uncertainty about future price of the financial instrument held by the Company and its subsidiary, ICG Q Limited ("the Group"). It represents the potential loss the Group may suffer through holding market positions in the face of price movements.

The Group's investment portfolio is exposed to market price fluctuations which are monitored by the Investment Manager in pursuit of the investment objectives and policies and in adherence to the investment guidelines and the investment and borrowing powers set out in the Admission Document. The Group's investment portfolio is concentrated and, as at 31 December 2022, comprised investment in less than 35 companies. Thus, the Group has higher exposure to market risk in relation to individual stocks than more broadly spread portfolios.

The Group's investment portfolio consists predominantly of mid cap and small cap listed Indian securities, and thus the effect of market movements is not closely correlated with the principal market index, the BSE Sensex. The BSE Mid Cap Total Return Index provides a better (but not ideal) indicator of the effect of market price risk on the portfolio. Assuming perfect correlation, the sensitivity of the Group's investment portfolio to market price risk can be approximated by applying the percentage of funds invested (2022: 96.0%; 2021: 93.7%) to any movement in the BSE Mid Cap Total Return Index. 

At 31 December 2022, with all other variables held constant, this approximation would produce a movement in the net assets of the Group's investment portfolio of £13,423,000 (2021: £14,584,000) for a 10% (2021: 10%) movement in the index which would impact the Company via a fair value movement of the same magnitude in its holding in ICG Q Limited and its investments.

Foreign currency risk

Foreign currency risk arises mainly from the fair value or future cash flows of the financial instruments held by the Group fluctuating because of changes in foreign exchange rates. The Group's investment portfolio consists of predominantly Rupee denominated investments but reporting, and in particular the reported Net Asset Value, is denominated in Sterling. Any appreciation or depreciation in the Rupee would have an impact on the performance of the Company. The underlying currency risk in relation to the Group's investment portfolio is the Rupee. The Group's policy is not to hedge the Rupee exposure. The Group may enter into currency hedging transactions but appropriate mechanisms on acceptable terms are not expected to be readily available.

At 31 December 2022, if the Indian Rupee had strengthened or weakened by 10% (2021: 10%) against Sterling with all other variables held constant, pre-tax profit for the period would have been £13,913,000 (2021: £14,281,000) higher or lower, respectively, mainly as a result of foreign exchange gains or losses on translation of Indian Rupee denominated financial assets designated at fair value through profit or loss in ICG Q Limited, the consequent impact on the fair value of the Company's investment in ICG Q Limited and in the Company's investment portfolio.

Credit risk

Credit risk arises mainly from an issuer or counterparty being unable to meet a commitment that it has entered into with the Group. Credit risk in relation to securities transactions awaiting settlement is managed through the rules and procedures of the relevant stock exchanges. In particular settlements for transactions in listed securities are affected by the custodian on a delivery against payment or receipt against payment basis. Transactions in unlisted securities are affected against binding subscription agreements.

The principal credit risks are in relation to cash held by the custodian. Kotak Mahindra Bank Limited ("Kotak") acts as the custodian to the Group. The aggregate exposure to Kotak at 31 December 2022 was £4,897,000 (2021: £1,688,130).

Kotak acted as custodian of the Group's assets during the period. The securities held by Kotak as custodian are held in trust and are registered in the name of the Group. Kotak has a long-term credit rating of AAA (CRISIL Ratings - a S&P company).

Interest rate risk

Interest rate risk represents the uncertainty of investment return due to changes in the market rates of interest. The direct effect of movements in interest rates is not material as any surplus cash is predominantly in Indian Rupees, and foreign investors are not permitted to earn interest on Rupee balances.

Liquidity risk

Liquidity risk arises mainly from the Group encountering difficulty in realising assets or otherwise raising funds to meet financial commitments. As the trading volume on the Indian stock markets is lower than that of more developed stock exchanges the Group may be invested in relatively illiquid securities. The Group has no unlisted securities and its focus is to invest predominantly in mid and small cap listed stocks. However, there remain holdings where there is relatively little market liquidity, which may take time to realise. The Directors do not believe that the market is inactive enough to warrant a discount for liquidity risk on the Group's investment portfolio. ICG Q Limited seeks to maintain sufficient cash to meet its working capital requirements. The Directors do not believe it to be appropriate to adjust the fair value of the Company's investment in ICG Q Limited for liquidity risk, as it has the ability to effect a disposal of any investment in ICG Q Limited's investment portfolio at the prevailing market price and the distribution of proceeds back to the Company should it so wish.

All liabilities are current and due on demand.

Taxation risk

Taxation risk arises mainly from the taxation of income and capital gains of ICG Q Limited and the Company increasing as a result of changes in the tax regulations and practice in Guernsey, Mauritius and India. The Company and ICG Q Limited are registered with the Securities and Exchange Board of India ("SEBI") as a foreign portfolio investor ("FPI") with a Category I licence, and ICG Q Limited holds a Global Business Licence in Mauritius and has obtained a Mauritian Tax Residence Certificate ("TRC") which have been factors in determining its resident status under the India-Mauritius Double Taxation Avoidance Agreement ("DTAA") and General Anti Avoidance Rules ("GAAR") under the Income Tax Act 1961 ("ITA").

However, with effect from April 2017, the DTAA was amended such that the advantages of investing in India via Mauritius were removed and capital gains arising from investments in Indian companies are subject to Indian Capital Gains Tax regulations. Consequently, tax on short term capital gains (for investments held less than 12 months) of 15% and long-term capital gains (for investments held for 12 months or longer) of 10% apply to the investment portfolio.

The Group seeks to minimise the impact of these changes in the taxation rates applicable to its capital gains by maintaining its investment strategy of investing in a concentrated portfolio for long term capital appreciation.

11. Related party transactions and material contracts

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. The Directors are responsible for the determination of the investment policy and have overall responsibility for the Company's activities. Directors' fees are disclosed in the unaudited Directors' remuneration report.

During the year 2022, the investment management fee was equivalent to 1.25 per cent per annum of the aggregate value of its assets less current liabilities, calculated and payable monthly in arrears. The Investment Manager earned £1,370,000 in management fees during the year ended 31 December 2022 (2021: £1,507,000) of which £125,000 was outstanding at 31 December 2022 (2021: £144,000).

Under the terms of the Administration Agreement, Apex Fund and Corporate Services (Guernsey) Limited is entitled to a minimum annual fee of US$41,000 or a fee of 5 basis points of the NAV of the Company, whichever is greater. The Administrator is also entitled to reimbursement of all out-of-pocket expenses recoverable by way of a fixed disbursement charge of US$50 per month excluding all international calls and

courier. The Administrator earned £77,000 for administration and secretarial services during the year ended 31 December 2022 (2021: £55,000) of which £19,000 was outstanding at 31 December 2022 (2021: £30,000).

12. Contingent liabilities

The Directors are not aware of any contingent liabilities as at 31 December 2022 and at the date of approving these financial statements.

13. Subsequent events

There have been no material events since the end of the reporting period which would require disclosure or adjustment to the financial statements for the year ended 31 December 2022.

On 6 March 2023 AssetCo PLC, founded and chaired by Martin Gilbert, acquired the Company's investment manager, Ocean Dial Asset Management Limited, subject to regulatory approvals from the FCA and regulators in India. The successful investment team in India, led by Gaurav Narain, continues unchanged.