India Watch

India Watch Index: growth slows in Q4 2016

Anuj Chande Anuj Chande

We look at how Grant Thornton's India Watch Index and India Watch Small Cap Index performed in Q4 2016.

Year-on-year growth summary

In 2016 the Grant Thornton India Watch Index[1] closed 107.3% higher than at the end of 2015. The Grant Thornton India Watch Small Cap Index also rose 47.8%, in comparison to the FTSE 100 and FTSE AIM 100, which were up 14.4% and 15.6% in 2015, with only the Grant Thornton India Watch Small Cap Index seeing a decline in Q4.

Both indices showed greater improvement than in 2015, which saw the Grant Thornton India Watch Index rise by 25.5%, and the Grant Thornton India Watch Small Cap Index up by 6.3%.  (See Chart 1)

Chart 1: India Watch Index 2016 Chart 1: India Watch Index 2016

Source: Reuters

Growth slowed down in Q4 2016

The Grant Thornton India Watch Index rose by 12.9% during Q4 2016 compared with rises in the FTSE 100 and FTSE AIM 100 of 3.5% and 3.6%, respectively. Although this growth has continued for four successive quarters, growth slowed from 38.4% in Q3. Growth has eased up across the board with both FTSE 100 and FTSE 100 AIM indices experiencing slower growth since Q3. 

The Grant Thornton India Watch Small Cap Index suffered a 11.7% decline in Q4, although overall it was up by 47.8% over the course of the year. The drop was due to a number of poor-performing stocks such as Kolar Gold, with many firms reporting a decrease in share price over Q4.

Winners and losers

Vedanta Resources Plc, the natural resources company with interests in zinc, lead, silver, copper, iron ore, aluminium, power, oil and gas, was Q4’s biggest winner boasting a share price increase of 50.9%. With a 219.6% increase from 1 January 2016 to 31 December 2016, it’s one of the highest growing companies on the Index.

Its growth has been due to a number of assets with good growth potential and improved financial risk (although this is still comparatively high) as a result of its merger with Cairn India. The company is expected to continue to see steady growth in the medium-to-long-term.

Alpha Real Trust Limited, a real estate investment, development and financing company, was Q4’s second-largest winner with a share price gain of 8.1%. A steady performer on the Index, with growth of 11.8% in Q3, it is a good reflection of the Indian real estate market as whole.

Mortice Limited, the AIM-listed facilities management company, was in third place with share price gains of 8% over Q4, compared with the 0% growth in Q3. The rise was due to strong trading, a £2.3 million fundraising in December to reduce debt and help take advantage of growth opportunities, and the signing of a £60 million London universities cleaning framework agreement.

With a share price fall of 39.6%, Kolar Gold Limited, a gold exploration and development company, was Q4’s biggest loser. The company posted a pre-tax loss of £930,000 resulting in its second successive year of pre-tax losses (2015:£11.3 million).

After suffering a share price fall of 39.6% Mytrah Energy Limited, the sustainable energy company focused on becoming the premier owner and operator of wind farms in India, was the second biggest loser of Q4. The company's share price has been falling since September 2016, however it has yet to release any information explaining the drop in its share price.

Trinity Capital Plc, which invests in Indian real estate and infrastructure, was the quarter's third biggest loser in Q4 with a share price fall of 36.4% following the company’s distribution of £2.1 million to shareholders in September. The company is currently in a wind down and only has three remaining investments.

Country outlook

Although the Indian economy gained steam in 2016, it did not perform as strongly as anticipated. Public sector pay rises and a near normal monsoon contributed to the growth in GDP, but a sharp fall in investment and reduced performance from the private sector, meant that growth, while strong, did not hit market expectations.

Momentum in the economy fell due to the Indian government’s bold demonetisation programme and the ensuing cash shortage. These effects are expected to be short-term and in the long run the economy should benefit. 

Outlook for the Indian economy in 2017

The outlook for the Indian economy this year is optimistic and forecasts suggest solid economic growth could be ahead. Foreign investment in India has been strong and it is expected that this trend will continue. High consumption and solid consumer confidence in India should continue to drive further consumption and GDP growth in 2017.

In the midst of a weak global economy, the International Monetary Fund expects Indian GDP to grow by 7.6% FY 2017, while the Asian Development Bank forecasts stable economic growth of 7.8% [2].

The India Watch Index consists of 19 Indian companies listed on AIM or the Main Market (excluding GDRs). We only consider companies to be Indian if they are domiciled in India and/or foreign companies holding Indian assets or Investment companies with Indian promoters. The index has been created via Thomson Reuters and is weighted by Market Value. To avoid distortion of index trends, the largest market cap entity, Vedanta Resource, is excluded from the India Watch Small Cap Index.

Sources:

1. The India Watch Index consists of 19 Indian companies listed on AIM or the Main Market (excluding GDRs). We only consider companies to be Indian if they are domiciled in India and/or foreign companies holding Indian assets or Investment companies with Indian promoters. The index has been created via Thomson Reuters and is weighted by Market Value. To avoid distortion of index trends, the largest market cap entity, Vedanta Resource, is excluded from the India Watch Small Cap Index.

2. India Economic Outlook 2017: Robust Growth Could Be Ahead