The government plans to garner up to Rs 8,000 crore by selling units of the Bharat 22-ETF, the second ETF (exchange traded fund) launched by the finance ministry after the CPSE ETF. (Central Public Sector Enterprises) ETF. The government plans to raise Rs 8,000 crore from the Bharat 22-ETF to meet its ambitious Rs72,500-crore disinvestment target for the current fiscal. A 3% upfront discount has been offered to lure investors to invest in this fund. The Bharat 22 ETF (exchange traded fund) managed by ICICI Prudential Asset Management Company is all set to open for public subscription on November 15 for the public. Anchor investors could participate in the new fund offer (NFO) a day earlier.
About ETFs (Exchange Traded Funds)
An ETF, or exchange-traded fund, is a marketable security that tracks a basket of assets such as stocks. In contrast to mutual funds, it trades like a stock as it is listed on the stock exchanges. ETFs are passively managed funds and provide exposure to a diversified portfolio of stocks akin to mutual funds. Being passively managed, ETFs are characterized by a very low expense ratio.
The ETF mechanism has proven to be a better way for the government to help meet its disinvestment targets, as every time the Government announced a big stake sale in a PSUs, the stock process used to plummet and there have been instances of protests by trade unions too. . The ETF route provides a nice workaround as it allows the government to pare small chunks (2-4 per cent) in a big basket employees do not fear threatened that they will loose the PSU status.
Bharat 22-ETF NFO Details:
|Scheme Name||Bharat 22 ETF NFO|
|NFO Period Opens||15th Nov. 2017|
|NFO Period Closes||17th Nov. 2017|
|Face Value of Each Unit||Rs. 10|
|Issue Size||~ Rs. 8,000 crore|
|Discount Offered||A discount of 3% on the reference market price|
|Benchmark Index||S&P BSE Bharat 22 Index|
|Sponsor||ICICI Prudential Asset Management Company Ltd.|
|NFO Period – Anchor Investors)||14th Nov. 2017|
|Name of Fund Manager||Mr. Kayzad Eghlim|
|Trustee||ICICI Prudential Trust Ltd.|
|Investment Manager||ICICI Prudential Asset Management Company Ltd.|
|Registrar||Computer Age Management Services Pvt. Ltd.|
|Custodian||SBI SG Global Securities Services Pvt. Ltd.|
|Anchor Investor Allocation||Upto 25% of maximum amount to be raised|
|Retail Individual Investor (RII) Allocation||Upto 25% of maximum amount to be raised|
|Retirement Funds (RF) Allocation||Upto 25% of maximum amount to be raised|
|QIBs & NIIs||upto 25% of maximum amount to be raised|
|Minimum investment Retail Investor||Rs. 5,000 and in multiples of Rs.1 thereafter|
About Bharat 22 ETF:
BHARAT 22 ETF (Exchange Traded Fund) is an open-ended Exchange Traded Fund shall track the S&P BSE Bharat 22 Index. This ETF shall consist of stocks of Central Public Sector Enterprises (CPSEs), Public Sector Banks (PSB) and some strategic holdings of SUUTI (Specified Undertaking of the Unit Trust of India). Bharat 22 ETF is being offered to investors through a New Fund Offer (NFO).
The Bharat 22-ETF would mirror the S&P BSE Bharat 22 Index. The SUUTI heavyweight stocks L&T, ITC and Axis Bank have a ~40 per cent weight in the index. The Bharat 22 ETF will be managed by ICICI Prudential AMC while Asia Index will be the index provider. The index will be re-balanced annually.
The composition of Bharat 22 ETF is as follows
In order to reduce the concentration risk, the weight-age of each individual stock is capped at 15% and each sector is capped at 20% of the index.
The index resembles a broader index and covers key sectors like, financials, energy, basis materials, industrial utilities and It comprises of well established companies from the CPSE category, public sector banks and the companies where the government has a minority stake. These companies have a free float market capitalization of more than Rs. 10 billion, consistently pay dividends and are available in F&O.
- The Bharat 22 ETF presents an opportunity to investors to take exposure to some of the best performing but government controlled companies across different sectors with relatively less stock specific risk as the risk gets diversified among the basket of stocks from different sectors.
- The Bharat 22 ETF has more than double the 10 stocks in the CPSE ETF and has much wider sector coverage. Despite this it is not a fully diversified or thematic fund as it is restricted only to sectors where the government has a presence.
- The companies that form part of Bharat 22 ETF have witnessed reasonable earnings and some are these are among the market leaders from different sectors.
- A comparison of returns by BSE Bharat 22 Index vis a vis other indexes is depicted below:
- As can be seen from tables above BSE Bharat 22 index has outperformed NIFTY, BSE Sensex as well as CPSE Index for most of the time periods, indicating strong fundamentals of underlying stocks.
- Comparative valuations are depicted below:
- BHARAT 22 ETF is available P/E and P/BV multiple which is lower than NIFTY, BSE Sensex and the dividend yield of the index is around 2.4% as against 1.2% of the S&P BSE index and NIfty 50.
- Bharat 22 ETF has a very low expense ratio of up to 0.001%. The AMC claims that this is the to be the lowest expense ratio among all ETFs.
- Bharat 22 ETF is likely to attract global pension funds, which lay more emphasis on moderate but safe returns.
- In past 5 years, NIFTY CPSE Index gave absolute returns of 37% (till Dec 30, 2016). The PE ratio of NIFTY CPSE index stands at 11.4x vis-à-vis 21.9x of NIFTY 50 index. The poor discounting of the NIFTY CPSE index is on account of lower confidence of investors in Government controlled PSUs.
- This could be the first tranche of Bharat 22 ETF and further follow on issues can be expected in due course of time.
- The fund shall be allotted and traded after few days of closing of NFO and as in this ETF, The government has trimmed down the discount level to 3%. This coupled with likely jobbing difference on listing and present volatile market conditions, investors are not as safe as the last ETF.
- Investors with low exposure to PSUs stocks can subscribe with a medium term perspective as a bit conservative and defensive bit. With market volatility & inability to withstand higher levels, a good degree of caution seems prudent.
The Bharat 22 ETF is more suited for conservative investors with long term horizon. For those looking for quick returns, the risk reward is only marginally favorable with enhanced risk from last CPSE ETF follow on offer. I have not yet decided to subscribe to this NFO mainly because of my existing significant equity exposure.
- 16/11/2017; Have put in on application of medium size in Bharat 22 ETF primarlity to take exposure in a ETF which is not linked to sensex and consists a mix of private & go t sector companies. Though for medium term, will book profits if returns exceed net 2-3% in a months time from listing.
- Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.