ICICI Prudential Mutual Fund has announced the additional offering period (AOP) of ICICI Pru MF Bharat 22 ETF. This Addional offering is part of disinvestment program by the Department of Investment and Public Asset Management (DIPAM), Ministry of Finance, through the ETF route. ICICI Prudential AMC intends to garner up to Rs 3,500 crore in this AOP and an additional amount depending on the over subscription and instructions of Govt. Bharat 22-ETF is an open-ended Exchange Traded Fund which tracks the S&P BSE BHARAT 22 Index. The BHARAT 22 Index comprises 22 stocks of Central Public Sector Enterprises , Public Sector Banks and strategic holdings of SUUTI (Specified Undertaking of the Unit Trust of India). The Bharat 22 ETF (exchange traded fund) is to open for subscription on Feb 14, 2019.
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 as the employees do not fear threatened that they will loose the PSU status.
About Bharat 22 ETF & Current Additional Offereing:
BHARAT 22 ETF (Exchange Traded Fund) is an open-ended Exchange Traded Fund that tracks the S&P BSE Bharat 22 Index. There are total 22 stocks under S&P BSE Bharat 22 Index which comprises shares of Central Public Sector Enterprises Public Sector Banks and some of the strategic holding of Specified Undertaking of Unit Trust of India across six sectors. There is a capping of 15% at the stock level and 20% at the sector level.The Bharat 22 ETF is managed by ICICI Prudential AMC wand the the index is re-balanced annually.
Out of the proceeds of the Additional Offering of the Scheme, the AMC shall purchase the shares of the Underlying Constituents in similar composition
and weightages as they appear in the S&P BSE Bharat 22 Index. The Seller, acting through DIPAM, will sell the shares to the Scheme at a Discount of 5% and the AMC will, in turn, create and allot Units of the Scheme to Unit holders. In case of partial purchase of the underlying Index constituents from the Seller, the Scheme shall purchase the remaining portion of the Underlying Constituents from the open market, on behalf of the investors. No discount will be offered on the purchase of index constituents from open market.
Retail can put in maximum application for Rs. 2,00,000 and minimum application of Rs. 5000.
Salient Points & Assessment
- The government had raised Rs.14,500 crore in Nov 2017 and an amount of Rs. 8,400 crore in Jun 2018 from Bharat 22 ETF.
- The weight age in the Bharat 22 Fund is 60 % for companies wherein Govt. has a majority stake and remaining 40% is in pvt. companies like ITC,L&T, Axis bank. < li>Bharat 22 ETF has a very low expense ratio.
- The performance of the Bharat 22 ETF has been poor with a trailing return of 11% since inception.
- The Price shall be determined based on the full day volume weighted average price (VWAP) of the Underlying Constituents
- Investors across all categories will get a 5 per cent discount on additional offering Reference Market Price on the government disinvestment of shares. There are indications that the Govt will not part with its ITC and EIL stake in Bharat 22 ETF. Government may like to keep its stake in EIL at 52%. This may necessitate purchase of shares by Government from open market on which no discount shall be available. This is likely to push the overall discount levels in Bharat 22 ETF in the region of 4%.
- Given that most of the stock that comprise the Bharat 22 ETF have given reasonable results and are currently trading at lows, investors with some dash of luck may succeed in getting an arbitrage opportunity due to discount.
- However this is not assured as markets have been showing considerable weakness.
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.