Bharat 22 ETF's second follow-on-offer opens for subscription by both retail and institutional investors for today only as it is an on-tap issuance and not a regular ETF offer that is opened to make bids for 4 days, the first being reserved for anchor investors.
Here is an analysis of whether or not you should put your bet on the offer:
All about Bharat 22 ETF:
Bharat 22 ETF or B22ETF is a passively managed fund with the benchmark S&P BSE Bharat 22 index. 22 stocks across six sectors, of which 3 stocks are from the private space including Axis Bank, ITC and Larsen & Toubro, form the index. Remaining constituents of B22ETF include public sector undertakings. This diversification in the ETF is of help to investors as the performance of the fund is not linked to any particular stock or sector.
Private sector companies account for 44% of the total investment, and allocation to each of the stock is capped at 15% while sector allocation is fixed at 20% i.e. no sector can receive over 20% of the invested money.
Positives of the B22ETF for investors
1. Cost advantage: Expenses charged to investors for running the scheme are less than one basis point or 0.0095%, thus making the investment cost-effective.
2. Major allocation towards large cap companies: As per the index, as much as 93% of the investment in the scheme is put to large-cap company stocks.
3. Positive macro outlook and government policies should augur well for ETF constituents: Recent rate cut by the RBI and measures in the direction of recovering bad loans are expected to boost the ailing PSU banks, which make up 23.5% of the index. Likewise, relatively favourable global crude oil price should come as a help to the oil marketing companies that also are the part of Bharat 22 ETF index.
4. Attractive valuation: Constituents or different company stocks that make up the index are available at attractive valuations due to their lower P/E multiple. Also through investment in the ETF offer, one can wholly participate in the India growth story as it captures the different reforms as well as initiatives of the government including GST, digital India, financial inclusion etc. Further, the ETF provides improved earnings growth and higher dividend yield in comparison to benchmark indices, Sensex and the Nifty.
Also, as the major constituents of the index i.e. PSU companies lost heavily in the recent past, valuations of the investment avenue have been rendered attractive. Nifty PSE index was dragged 25% last year.
5. Higher dividend yield of 2.61% in comparison to 1.16% of S&P BSE Sensex.
Past performance and future outlook:
Investment in Bharat 22 ETF since its launch in November 2017 has lost 8.7%. Also, past one year returns from the fund have underperformed Nifty, with Nifty gaining 2.55% whereas B22ETF lost a staggering 9.66%.
Assuming a stable government at the centre aiming to spearhead the fortunes of state-run companies, one may see prices of PSU stocks constituting the ETF rising over a period of time, which then will reflect as gains for investors in the Bharat 22 ETF.
Conclusion: Savvy investors who understand markets reasonably and have a penchant for volatility should place their bets in the investment avenue. As per experts, if you solely look to invest in large-cap stocks, ETF that tracks Nifty can be a better alternative.