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Bharat 22 ETF
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Bharat 22 ETF (exchange-traded fund) has opened a window to allow in new investors on 14 February 2019 with an issue size of Rs. 3500 crore. The issue is being managed by ICICI Prudential Asset Management Co. Ltd. allowing investors to get a 5% discount on the reference price, which is the volume weighted average price of its constituents on the offer date.

BHARAT 22 ETF, an open-ended Exchange Traded Fund, is a passively managed fund that tracks the S&P Bharat 22 Index which comprises of 22 companies—19 public sector companies (PSUs) and 3 private sector firms. However, as far as the weightage goes, the 3 private sector companies represent a noteworthy 44% portion of the ETF with the balance 56% in PSUs.

The Index was introduced to measure the performance of select companies disinvested by the Central Government of India in its disinvestment program.

Stocks (along with their weightage) that constitute Bharat 22 ETF are:

   Stock

Weightage

  ITC Ltd

16.38%

  Larsen & Toubro Ltd

15.89%

  Axis Bank Ltd

12.21%

  State Bank of India

9.94%

  NTPC Ltd

6.80%

  Oil & Natural Gas Corp Ltd

5.00%

  National Aluminium Co Ltd

4.83%

  GAIL India Ltd.

4.52%

  Coal India

3.67%

  Indian Oil Corp Ltd

3.57%

  BPCL

3.28%

  Bharat Electronics Ltd

1.66%

  Bank of Baroda

0.98%

  Rural Electrification Corp Ltd

0.90%

  NHPC Ltd.

0.85%

  Power Finance Corp Ltd

0.83%

  Engineers India Ltd

0.78%

  NBCC (India) Ltd

0.68%

  Power Grid Corp of India Ltd

0.66%

  Indian Bank

0.18%

  SJVN Ltd.

0.16%

  NLC India Ltd

0.11%

 

Sectors constituting Bharat 22 ETF: Basic Materials (4.85%), Energy (15.43%), Finance (25.33%), FMCG (16.45%), Industrials (18.99%) and Utilities (18.95%)

To invest or not to invest:

The ETF has already lost 8.51% since its launch in November 2017. In the wake of gathering an aggregate of Rs. 22,900 crore in 2 membership windows previously, the present AUM of the ETF is currently Rs. 5,179 cr, almost a fourth of its initial AUM.

Despite the fact that the ETF is available at an attractive valuation, given their low P/Es, the ETF has no solid investment rationale of its own and is just a consequence of government’s divestment needs.

While the Nifty 50 has given absolute return of 5%, S&P Bharat 22 ETF Index is down by more than 13% since inception of ETF in Nov’17. The 5% mardown may look attractive, negative returns delivered by the ETF cannot be overlooked.

There is an added risk of the portfolio being rebalanced in accordance with government’s divestment needs as its purpose seems to be far away from servicing investment needs. Even though we can expect positive returns from bluechips like ITC, Axis Bank and L&T; the PSU’s are bound to drag down the overall returns.

 

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