Government is all set to launch the second tranche of Bharat-22 exchange-traded fund (ETF) next week, but the question remains what should investors expect out of this offering? Market experts are not too keen on the index — which has depicted lackluster performance since its launch in November 2017 — for the short term. They advise investors to look at individual stocks in the fund rather than the ETF as a whole entity.
However, they bet on good long-term returns.
“The ETF has underperformed the markets. While the Nifty is up 3.5% from the day of the ETF’s listing, the ETF is down 2% from the issue price,” said V K Sharma, Head Private Client Group & Capital Market Strategy, HDFC Securities. “With the government in the last year of its tenure, the chances of it beating the index are bleak,” Sharma said to FE Online, adding, “Investors will be better placed to choose individual stocks from the ETF than participate in the ETF.”
Not only this, the Bharat-22 ETF Index currently trades at a discount of around 1% from its issue price. However, on the other hand, the fund has done relatively well as compared to the performance of Nifty PSE, which has lost 11% during the same period, said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services. Even so, he does not recommend buying Bharat-22 ETF at this point with an objective to earn short-term gains.
“The market is unlikely to perform very well in the coming months. The foggy emerging political environment, worsening macros and the selling by FIIs are likely to cap the upside to the market. In this environment, Bharat-22 ETF is not likely to perform very well,” Vijayakumar told FE Online.
A safe bet for long term?
“Also, the investor response to the coming issue is not likely to be as great as it was for the first tranche since the investors have not made money. However, long-term investors can invest in the fund,” Vijayakumar said, adding that long-term investors with a three-year time horizon can expect good returns. “For long-term investors we would advice investing in the fund since there are attractive features such as upfront discount of 2.5%, very low charge of 1 bp, highly diversified portfolio of stocks and blue chips like ITC, L&T, Axis Bank etc in the portfolio,” he said.
The second tranche of Bharat-22 ETF will open for anchor investors on June 19 and for other institutional and retail investors on June 20. The ETF follow-on offer will remain open till June 22. Through the follow on offer on Bharat 22 ETF, the government aims to mop up Rs 6,000 crore, with a green-shoe option to retain another Rs 2,400 crore which may help raise up to Rs 8,400 crore from the markets.
In the second offering, investors will get a discount of 2.5 per cent across all categories at the time of subscription. In the first offering in November last year, the government had raised Rs 14,500 crore.