As part of the government's disinvestment target, ICICI Prudential mutual fund house is all set to launch the second tranche of Bharat 22 ETF Further Fund Offer on June 19. Here's a breakdown with all the relevant details on the FFO issue and what it offers retail investor class?
Issue objective: The FFO for Bharat 22 ETF is being launched by the AMC after almost six months of the launch of the Bharat 22 ETF fund that came up in November 2017. The FFO issue goes in line with the government's overall disinvestment target. Also, through the offer, the government of India will be able to comply with the minimum public shareholding norm in PSUs such as Coal India.
The centre aims to mop up a sum of Rs. 80,000 crore via disinvestment in the current financial year.
Issue details: The asset management company aims to raise Rs. 6,000 crore via the offering with an option to retain over subscription of up to Rs 2,400 crore, subject to the government's approval. The FFO will remain open from June 19 to June 22.
Eligibility: All categories of investors including retail investors, non-institutional investors, anchor investors, QIBs, retirement funds and FPIs can invest in the Bharat 22 ETF FFO. As part of the offering, all investor classes are eligible for an upfront discount of 2.5% over the issue price.
Portfolio of the Bharat 22 ETF: Bharat 22 ETF comprises of 22 stocks that includes PSUs, PSBs, L&T, ITC and Axis Bank. The underlying benchmark for the scheme is S&P BSE Bharat 22 Index which is to undergo annual re-balancing. It is to be noted that companies comprising the ETF primarily are the ones in which the government holds major stake.
Performance of the earlier Bharat 22 ETF NFO issue: The issue received bids for Rs. 32,000 during its initial launch but the government retained only Rs. 14,500 crore.
When speaking about the performance of the NFO of Bharat 22 ETF it is doing reasonably well given the other indexes that have declined by a huge amount during the same period such as Nifty PSU Bank, Nifty PSE and BSE PSU Bank Index.
"The success of Bharat 22 ETF NFO managed by ICICI Prudential AMC highlighted investor confidence in the India growth story as represented by the industry leading stocks of the ETF. The NFO was oversubscribed by all investor categories including retail investors. With a view to encourage further participation by the existing investors and also bring in new investors we are happy to launch follow on offer of Bharat 22 ETF", said Atanu Chakraborty, Secretary DIPAM, Ministry of Finance.
Positives of the issue: The fund boasts of the lowest expense charges of less than1 basis points or 1 paise that is the lowest among other ETFs in the market. 1 basis points or 1bps is one-hundredth of a percentage point.
The dividend yield of the benchmark index of the fund is close to 2.6%.
Conclusion: Investors with a long-term investment perspective of close to 3-5 years can bet on the issue as it offers a diversified portfolio of companies that enjoy a distinctive competitive advantage. It shall be a defensive bet to participate in the India growth story. Also, given the current condition which throws uncertainty for stocks from the energy and PSB space, investors in Bharat 22 ETF follow-on-offer, need not worry as the fund is not entirely a public sector fund and private sector companies such as ITC, L&T and Axis Bank roughly account for 40% weight in the fund.
Notably, the stocks within the fund can be attained at a reasonable valuation through the FFO.