The Indian Government has introduced Bharat 22 ETF in recent times. After the efficacious launch of CPSE (Central Public Sector Enterprises ) ETF during January 2017, the Government of India has once again risen to the occasion with the second exchange-traded fund, Bharat 22 ETF.
Bharat 22 is an exchange-traded fund. The chief objective of introducing this ETF is to inspire and enhance its disinvestment enterprises. These ETFs are similar to the mutual funds; nevertheless, they can be bought and sold on exchanges just like stocks.
Bharat 22 ETF is about showing the performance of 22 business corporations in which the Indian Government hold the stocks and want to divest it of the stakeholdings. Divestment is the procedure of selling an asset or stake for either monetary, societal or political goal. The Bharat ETF will accumulate the money from the ETF subscribers and will invest that money in these 22 stocks. Along with this, it will also reveal the performance of the index.
Bharat 22 ETF comprises of the investing the money in top public sector undertakings (PSU) in addition to blue-chip public and private sector business corporations in which government owns stakes through SUUTI i.e. Specified Undertaking of the Unit Trust of India (SUUTI).
How is CPSE ETF Performing?
The performance of the CPSE ETF has been unpredictable as they are more like the thematic fund with in excess of half portfolio in only 10 public sector undertakings energy stocks. Moreover, during last 3 years, it has provided a return of nearly 2%, whereas the broad market indicator S&P Sensex has provided a return of around 6%.
The other downside is that during the year 2015, CPSE ETF provided a negative return of 14% whereas BSE Sensex went down by only five percent. However, during the course of 2016, CPSE delivered the return of 18% and S&P Sensex delivered only 2%. In addition, in 2017, so far the CPSE ETF has provided a return of 5% and Sensex has been up by 17%.
Why ETF Is A Significant Opportunity?
The ETF machinery is recognized to be a well-designed and an effectual system for the government in order to help them meet their disinvestment objectives, which plays an important role in keeping the fiscal deficit under control. Previously, when the government had decided on monetizing the family silver by means of selling large stakes in distinct PSUs, the stocks had customarily been beaten down in the build-up to the offer and had also invited the employees’ fury. The ETF course offers a well-ordered arrangement by allowing the government cut back small stakes by 2 to3 percent in a big basket. That leaves everyone happy, the state will receive its funds, investors will get a portion in PSUs, and employees will be able to remain under the PSU canopy.
Launched in 2014, the CPSE ETF in energy stocks has collected around ₹11,500 crores in three tranches. And now with Bharat 22, the Government appears to be targeting higher this time. The Bharat 22 ETF is covering more than the double of the 10 stocks in the CPSE ETF and covering more sectors as compared to CPSE ETF. The divestment target of the government for the fiscal year 2017-18 is ₹72,500 crore, out of which about ₹9,300 crore has already been achieved so far. The Government has been completely open about its purpose to divestments using the ETF route. Therefore, you can believe that Bharat 22 is going to make a long jump. The scheduling and the configuration of this ETF have also been nicely designed. The markets are doing well and the Government can get top money. In addition, by making a nicely researched combination of the stakes that are performing and not performing so well, the value can be achieved from those stocks that otherwise may not have given great returns.
Bharat 22 Is A Diversified Tool
Bharat 22 is greatly diversified using 22 stocks have been recommended in its name. The Bharat-22 ETF will be trading in six sectors, comprising of basic materials, FMCG, finance, energy, industrials, and utilities. The finance sector has the highest share of 20%. In addition to public sector banks, construction companies, miners, and energy corporations, the Bharat 22 ETF will also take into account some of the government’s assets in SUUTI.
Indeed, the SUUTI heavyweights including L&T, ITC and Axis Bank holds a 40% weight on the index. Other large names in the long list include State bank of India, Power Grid, NTPC, and ONGC each of them holding the weight between 5 to 9% on the index. And the remaining lower-end names consist of NALCO, Coal India, Indian Oil, Bharat Electronics, NBCC (India), Bank of Baroda, Indian Bank and SJVN. ICICI Prudential Asset Management Company will be operating as the fund manager and the ETF will be rebalanced once a year. And Asia Index will be providing the Index.
Should You Invest In Bharat 22?
The government was providing a 5% discount at the time when CPSE ETF was launched to market investors and then after that those who retained the ETF for no less than a year received the one-fifth loyalty bonus. However, so far no such discounts have been declared with Bharat 22, which might have managed to attract more investors than what it is doing at present. Moreover, many market experts believe that the Bharat 22 ETF has not been designed for the common investors.
According to them, these types of funds are for investors who are more advanced as compared to the small or common investors. A common investor should deal only with diversified funds. Although Bharat 22 is more diversified than CPSE ETF, it is still a thematic fund whose primary focus is on PSUs. The performance of the thematic funds can be quite inconsistent, as they do not perform well consistently over a certain period of time and only in parts. As a result, a common investor may not be able to afford the intricacies that come with investing in Bharat 22.
Taking everything into account, Bharat 22 can be a great opportunity for the large and long-term investors. For small market investors, it is not something to be very enthusiastic about.