Bharat 22 exchange traded fund (ETF) made its debut on the bourses on Tuesday and rose as much as 3.78%. The ETF opened the session at Rs 36.30, 0.91% above its issue price of Rs 35.97. The ETF ended the session at Rs 37.33. Bharat 22 ETF’s new fund offer (NFO) received applications worth nearly Rs 32,000 crore, four times the initial size of Rs 8,000 crore. Following the response from the investors, the issue size was raised to Rs 14,500 crore. The Bharat 22 ETF, comprises scrips of 22 companies including 19 public sector enterprises. The scrips include National Aluminium Company, Coal India, State Bank of India, Axis Bank, Indian Bank, Larsen & Toubro and Bharat Electronics. Siddartha Rastogi, director asset management, Ambit Capital said Bharat 22 ETF is a far superior product compared to the CPSE ETFs launched earlier. “If you look at the earlier ETFs it was mostly government navratnas and they had more weight on the energy producers. Here we have a much more diversified basket, which gives a better construct for the investors,” Rastogi said adding that investors stand to benefit regardless of whether they buy ETFs under NFO or secondary sales.
“ETF is going to act as a superior construct because of the sheer diversification.These PSUs get benefit from government spending and a boom in the economy. The government thought process is that by bundling them in an ETF, the smaller investor is getting an exposure to the India growth story,” he added. Jiju Vidyadharan, senior director, Funds and Fixed income, CRISIL Research said low fund management cost is the biggest benefit of ETF investing. “Active equity funds in India have an expense ratio ranging between 0.6% and 3.18% versus 0.05%-1.50% for equity ETFs, as of October 2017.” ETF is a marketable security that comprises a basket of assets such as stocks and mirrors their performance. Unlike mutual funds, which are unlisted, ETFs trades like stocks on the exchange.
The Bharat 22 ETF is a vehicle used to further the government’s disinvestment programme. The government had budgeted to raise Rs 72,500 crore in FY17 through divestments in PSUs and the strategic sale of shares. So far the government has raised around Rs 52,339 crore from initial public offerings (IPOs), buybacks, offer for sale (OFS) and strategic divestments. Vidyadharan said India is only the second country after Hong Kong to use ETFs as a medium to divest stakes in public sector undertakings (PSUs). “ETF route follows bucket structure wherein government can sell their stake in PSU companies in various proportions, as required, by offering a single product. By taking the ETF route, the government has been able to sidestep procedural complexities of launching multiple divestment issues, while also providing an attractive long-term opportunity to investors.”
Karthik Srinivasan, senior V-P, Financial Sector Rating ICRA said the government could enter the market with more ETFs issues in future, as the last two or three issues have been successful. “This is another alternate route to raise funds,” he said. Govt transfers Rs 39-cr worth NLC shares The government has transferred Rs 39 crore worth shares of NLC India to Bharat 22 ETF, says a regulatory filing. “Ministry of coal… on behalf of the President of India has transferred 39,74,665 equity shares to ‘Bharat 22 ETF’ at a value of Rs 39,39,98,737 which is 0.26% of total equity share capital of the company,” NLC India said in a filing to BSE. Post transfer, the share holding of the President is 128,46,03,208 shares, which is 84.04% of equity shares of the company, the filing said.