Bharat 22 ETF: Should you invest in them?
Continuing with its drive of disinvesting through ETF, Government of India, after a gap of seven months, is coming out with the second tranche of Bharat-22 exchange-traded fund (ETF). It is going to be launched on June 19, 2018. The follow-on fund offer (FFO) would be open for subscription for anchor investors from June 19, while for retail investors it is June 20. The FFO closes on June 22. There is a discount of 2.5 for all category of investors. The fund constitutes 22 companies from six different sectors. Out of total weightage of companies in the fund, approximately 60 per cent is for the companies where Government of India is a major shareholder like SBI, ONGC etc. While rest 40 per cent of the weightage is of companies like ITC and L&T where the majority of shares are held in the private hands.
Through this offer, the government plans to raise Rs. 6,000 crores with an option to retain additional Rs. 2,400 crores in green shoe option. Therefore, a total of Rs. 8,400 crore is likely to be raised through this issue. ICICI Prudential AMC is appointed by Government of India as ETF Manager for this fund.
The government raised Rs. 14,500 crore through the first issue of Bharat 22 ETF. The performance of the Bharat 22 ETF is not that glittering. It has given a negative return in all the time frames since its inception. In the last six months, it has given a negative return of 5.02 per cent, while the average category return at the same time is 2.11 per cent. The return since inception for the ETF is negative 6.43 per cent, while for the category average is 11.66 per cent.
Looking at the past performance, we do not feel it will be right decision to go for the issue. Even if this is offering 2.5 per cent discount the negative performance of the fund is a dampener. Nevertheless, if you believe that public sector units are going to beat the market performance in the next few years, you can apportion small part of your portfolio to the ETF, with a long-term investment horizon.