Investors will get a discount of 3% on Bharat 22 ETF during its NFO, announced Anuradha Thakur, Jt. Secretary, Department of Investment and Public Asset Management (DIPAM), Ministry of Finance. She was speaking at the launch of ICICI Prudential MF Bharat 22 ETF through which the government plans to divest its stake in 22 companies.
The new fund offer (NFO) opens for subscription on November 15 and closes on November 17 for non-anchor investors that include retail investors and HNIs.
While the earlier government ETFs had a sectoral focus, this ETF will have a well-diversified portfolio with exposure to six sectors such as basic materials, energy, finance, FMCG, industrials & utilities. Bharat 22 consists of 22 stocks of Central Public Sector Enterprises (CPSEs), Public Sector Banks (PSBs) and strategic holdings of Specified Undertaking of the Unit Trust of India (SUUTI). The Bharat 22 Index will be rebalanced annually.
The Bharat 22 constitutes companies like National Aluminium, ONGC, Coal India, IOC, BPCL, SBI, Axis, Bank of Baroda, Rural Electrification Corporation, Power Finance Corporation, Indian Bank, ITC, Bharat Electronics, Engineers India NBCC, Power Grid, NTPC, Gail India, NHPC, NLC India and SJVN. The Government of India holds a majority stake in most of these companies.
The government is planning to raise Rs.8000 crore from this ETF with an option to raise additional amount subject to approval. “While our initial issue size for BHARAT 22 ETF is Rs. 8000 crores, we can also consider going beyond, looking at the response in the market,” informed Anuradha Thakur.
Nimesh Shah, MD & CEO, ICICI Prudential MF said, "We believe the ETF offers an attractive long term investment opportunity to partake in the India growth story by way of a diversified blend of companies spread across several sectors and are available at attractive valuation and a good subscription discount. The highlight of the scheme is its in-built mechanism for rebalancing and ability for periodic profit booking in stocks which have delivered better returns.”
The fund house will charge a fund management fee of up to 0.0095% of daily NAV. Kayzad Eghlim will manage the fund.
While ICICI Prudential AMC will be the ETF manager, Asia Index Private Limited (JV BSE and S&P Global) will be the index provider.
Experts say that investors could consider Bharat 22 ETF. Pankaj Mathpal of Optima Money feels that 3% discount limits the downside risk for investors. “Some of these companies are good and on top of that the government is offering a 3% discount. Investors should consider allocating only up to 10% of their equity investments in such instruments as active funds offer better returns,” he added.
However, a few advisors have a different view. A Mumbai-based advisor requesting anonymity cautions that the government has created Bharat 22 ETF index with the sole purpose of divestment. He says, “There is no fundamental aspects of investments such as top down or bottom up approach used in the construction of this index. ETFs index are created based on many factors such as market capitalization, cash flows and volume of underlying stocks. Also, unlike other index ETFs where underlying stocks can be changed based on certain criteria, these 22 stocks will remain static. Another aspect is high concentration in some companies such as Axis, L&T and ITC. These three companies constituting 40% of the overall portfolio defeats the purpose of creating a diversified portfolio.”