The government is looking to raise nearly Rs 8,000 crore by launching the Bharat-22 exchange traded fund, its second low-cost investment alternative, as it looks to meet a steep disinvestment target.
The ETF, which will be managed by ICICI Prudential AMC, is a diversified portfolio of 22 blue chip stocks. The fund will open for anchor investors tomorrow, and for non-anchor investors on Nov. 15. “Bharat 22 ETF aims at bringing broad-based ownership pattern to public sector enterprises. The disinvestment programme now forms the core of government's investment strategy,” Joint Secretary at the Department of Investment and Public Asset Management Anuradha Thakur told reporters in Mumbai.
The ETF is well diversified with investments across six core sectors, including industrials, finance, utilities, energy, FMCG and basic materials, and offers good investment opportunity and expect an overwhelming response to this new fund offerAnuradha Thakur, Joint Secretary, DIPAM
ETFs are passively managed funds having a diversified portfolio of stocks and can be traded like securities. Still at a “nascent stage” in India, they are a proven investment vehicle in mature markets like the U.S., Ashishkumar Chauhan, chief executive of Asia’s oldest stock exchange BSE Ltd. told BloombergQuint. The U.S. has seen a record year of inflows as investors pumped in $375 billion to the low-cost investment alternatives till October, according to Bloomberg.
Bharat 22 ETF is part of the government disinvestment programme through which it targets raising Rs 72,500 crore this fiscal.
The government also wants Indian citizens to benefit while it raises funds, according to Nimesh Shah, chief executive of ICICI Prudential AMC. It could’ve just as easily tapped foreign institutional investors and the equity would’ve been lapped up, Shah told BloombergQuint.
To sweeten the deal, the government has set a 3 percent discount for all categories of investors. This, however, is lower than the 5 percent discount it had offered on its first CPSE ETF through which it had raised around Rs 8,500 crore. Unlike the CPSE ETF, Bharat 22 ETF will feature private sector investments of the government such as ITC Ltd., Axis Bank Ltd., and Larsen and Toubro Ltd., in addition to state-owned companies, Shah added.
The index will be rebalanced every year in March to ensure that the weightage of a stock does not go above the 15 percent limit, said Shah. Hence, some profit booking can be expected on a regular basis, he added.
One of the reasons ETFs are important is because the fund management costs are low compared to other investment options, said Ashishkumar Chauhan. The Bharat 22 ETF’s fund management costs will less than one basis point on an annual basis he added.
If you’ve invested Rs 100, less than one paisa would go towards fund management. That’s phenomenally low than the active funds you see.Ashishkumar Chauhan, CEO and MD, BSE
ETFs also add to transparency in investments as the list of stocks is open and investors know which of the stock is getting what portion of their money, Chauhan said.
Should You Invest?
Amol Joshi, founder, PlanRupee Investment Services said investors seeking diversification in their existing portfolio may apply with medium to long term investing horizon. “But definitely do not apply only looking at the 3 percent discount,” he told BloombergQuint.
The companies forming part of the ETF are market leaders and their valuation still don’t completely capture the recent structural reforms undertaken by government, said Tarun Birani, founder and CEO at TBNG Capital Advisors
“Superior risk adjusted return and higher dividend yield compared to broader markets along with low cost structure offered by ETFs makes this NFO more attractive. Investors who prefer low volatility on their investments and are unable to find value in current market can invest in this ETF,” he said.
(With inputs from PTI)