Grant Thornton India Watch Index outperforms all major London indices in the third quarter

Thursday, October 13, 2011 | Posted by: Grant Thornton
Categories: India, India Watch Issue 14 | Tags: India, Grant Thornton, India Watch, investors, Capital Markets, FTSE, London listing, Real Estate, equity, oil companies, gas companies

The India Watch small-cap index* outperformed all major London indices in the third quarter of 2011, falling by only 8.12% compared to the FTSE 100 (-13.74%) and FTSE AIM 100 (-20.6%).

Even as investors bailed out of some of the largest Indian shares – the full India Watch Index plunged, losing 32.27% of its 1 July value, nearly triple the loss of the FTSE 100 (-13.74) – the India Watch small-cap index remained relatively unbroken, a reflection of either greater ownership by investors knowledgeable about the companies or the degree to which large caps are now globally correlated.

The Indian small-cap performance was exceptional because although the current financial crisis might have been made in Europe, it is emerging companies in India and the other emerging markets that have suffered most from the ‘flight to quality’ – or rather, a flight to the familiar, given that the fundamentals of most Indian companies remain strong and the Indian economy itself is still expected to grow by more than 7% this year.

Although losers outnumbered winners by more than two to one in the full India Watch Index, the quarter did have a few bright spots. Despite the macro-worries that dented leveraged companies and commodities companies everywhere, certain commercial real estate and oil and gas companies led India Watch winners.

Top performer in Q3 was Hardy Oil & Gas, an oil and gas production company focused on India, which gained 21.19%, perhaps boosted by the news that it had discovered three new gas reserves.

Hardy was followed close behind by Hirco, a £56.30 million real estate investment company that gained 19.85% in the third quarter. The Isle of Man company focuses on the development of large-scale, mixed-use communities in India, sometimes co-located in special economic zones. Hirco currently has 66.4 million square feet in development in its Hiranandani Palace Gardens projects in Chennai and Panvel, outside Mumbai.

Next best was also a real estate company, Unitech Corporate Parks, an office park owner and developer that gained 13.64% for the quarter. Unitech was followed by Jubilant Energy, another oil and gas exploration company, which brought home 13.48%.

Among the losers, worst suffering was India Capital Growth. The closed-end fund dropped -50% in the third quarter, and is now down -82% for the year. An August note by fund adviser David Cornell blamed market volatility brought on by the July 50 basis point interest rate hike by the Reserve Bank of India and Standard & Poor’s downgrade of the United States’ AAA rating.

Other names were caught in the global avalanche of falling mineral prices. Despite revenue that rose 44% in FY2011 and $2.42 billion in free cash flow, Vedanta Resources dropped 47.42% in Q3, including 13% on a single day, 24 September, trapped in a global sell-off along with many other mining companies.

Anuj Chande
Corporate Finance Partner
and Head of South Asia Group
Grant Thornton UK LLP
T +(44) (0)20 7728 2133
E .(JavaScript must be enabled to view this email address)

* The India Watch Index consists of 31 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 Datastream, a Thomson Reuters product and is weighted by Market Value. To avoid distortion of index trends, the two largest market cap entities, Essar Energy and Vedanta Resource, are excluded.

** Data sourced from Thomson Reuters.

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