Bharat-22 ETF: Should you go for it?

The Government of India will come out with an additional offering of its Bharat -22 Exchange Traded Fund (ETF) on February 14. Through this issue, the government is looking to mop up Rs. 3,500 crore.

The issue will be open for a single day against the normal practice of four days. For example last time in the month of June 2018, when the government came out with a follow on fund offer it was open for subscription for anchor investors on June 19, while for retail investors it opened on June 20 and closed on June 22, 2018. Moreover, this time investors across all categories will get a 5 per cent discount on the additional offering Reference Market Price on government disinvestment shares. 

The government has so far raised Rs. 22,900 crore through the Bharat-22 ETF, of which Rs. 14,500 crore was raised in November 2017 and another Rs. 8,400 crore was raised in June 2018.

The fund constitutes 22 companies from six different sectors. The weightage in the fund is 60 per cent for the company where Government of India is a major shareholder while 40 per cent of the weightage is to companies like ITC and L&T, where the majority of shares are held in private hands. 

Bharat 22 ETF is a passively managed scheme; its portfolio closely maps the Bharat 22 Index. This scheme aims to replicate the S&P BSE Bharat 22 Index by buying the same stocks in the same proportion as they are in the index. The weight of each individual stock is capped at 15 per cent and each sector is limited to 20 per cent of the overall index weight. The constituents of the index can be revised annually and manager of the fund is ICICI Prudential AMC.

According to S Naren, ED & CIO, ICICI Prudential AMC, "The constituents of ICICI Prudential managed BHARAT 22 ETF are available at very attractive valuations given their lower P/E, offer relatively better Earnings Growth and higher dividend yield in comparison to Nifty 50/ S&P BSE Sensex. Further, the index captures the various key reforms and initiatives of the GoI like Financial Inclusion, Digital and Cashless Economy, Make in India, Goods and Services Tax, Infrastructure Reforms, etc. Given these combinations, we believe, the product is very suitable for a long term investor to partake in India growth story through diversified companies spread across several sectors."

The performance of the Bharat 22 ETF is not that encouraging, although, equity market as a whole also not given better returns for their investors. It has given a negative return in all the time frames since its inception. In the last three months, the fund has given a negative return of 3.9 per cent while the average category return at the same time is 1.97 per cent. The return since inception for this ETF is negative 11 per cent.


* as on February 13, 2019

Looking at the past performance, the discount offered and the attractive valuation,  we feel only long term investors can take a limited exposure to the ETF.