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Should You Invest In Bharat-22 ETF? Know Here...

08 August 2017

Bharat-22 is in the news of late. It's the latest offering in the series of Exchange Traded Funds (ETFs) launched by the Government to offload its stake in some listed companies. Besides having exposure to CPSEs (Central Public Sector Enterprises), Bharat-22 will also capture a few of the holdings of SUUTI (Specified Undertaking of Unit Trust of India). The Government has set a divestment target of Rs 72,500 crore for the fiscal year 2017-18, and as per the official figures, the Government has so far raised Rs 9,300 through 9 transactions.

Where will the ETF invest?

As the name suggests, the Bharat-22 is set to comprise of 22 companies. The tentative allocation of the ETF would be as follows:

Constituents of Bharat-22

Basic Materials
1 National Aluminium Co Ltd. 4.4
Total 4.4
Energy
2 Oil & Natural Gas Corp Ltd. 5.3
3 Indian Oil Corp Ltd. 4.4
4 Bharat Petroleum Corp Ltd. 4.4
5 Coal India Ltd. 3.3
Total 17.5
Finance
6 State Bank of India 8.6
7 Axis Bank Ltd. 7.7
8 Bank of Baroda 1.4
9 Rural Electrification Corp Ltd. 1.3
10 Power Finance Corp Ltd. 1
11 Indian Bank 0.2
Total 20.3
FMCG
12 ITC Ltd. 15.2
Total 15.2
Industrials
13 Larsen & Toubro Ltd. 17.1
14 Bharat Electronics Ltd. 3.3
15 Engineers India Ltd. 1.5
16 NBCC (India) Ltd. 0.6
Total 22.6
Utilities
17 Power Grid Corp of India Ltd. 7.9
18 NTPC Ltd. 6.7
19 Gail India Ltd. 3.7
20 NHPC Ltd. 1.2
21 NLC India Ltd. 0.3
22 SJVN Ltd. 0.2
Total 20.0
Figures in %
(Source: Ministry of Finance)

Commenting on the sectoral exposure of Bharat-22, Finance Minister Mr Arun Jaitley said, "While selecting each of these sectors, we have also kept in mind sectoral reforms in each of the sectors which have had direct impact on the valuations of these shares." This means the table above may undergo some alterations at the time of creation of an index and thereafter.

In other words, the finance minister has tried to highlight that all companies it is divesting from are potential beneficiaries of the reforms introduced in the recent past. For example, Progressive liberalisation policies that permit FDI in most sectors under the automatic route will be beneficial to sectors such as industrials and finance. Similarly, reform measures such as the introduction of daily fuel pricing and direct benefit transfer of LPG subsidies will be beneficial to companies belonging to the energy and utility sector.

Who will manage the scheme?

ICICI Prudential Asset Management Company will manage Bharat-22 and Asia Index Pvt. Ltd. will offer index services to it.

Should you invest in Bharat-22?

Bharat-22 is one of the most diverse ETFs offered so far by the Government, as a part of its divestment programme. However, it may still not be the one for you.

Simply because top-5 stocks may account for over 50% of the overall portfolio and the top-5 sectors will form over 90% of the portfolio. Such aggressive allocation will expose you as an investor to sector specific risk. Even if you are a very aggressive investor, consider investing only a diminutive portion of your entire portfolio in Bharat-22 ETF.

The underlying portfolio of Bharat-22 might be well-positioned to take advantage of the opportunities created by the recent reforms, but that doesn't make it better than those of the well-managed diversified equity funds. In fact, experienced fund managers can take exposure to companies that are expected to be the beneficiaries of economic reforms, without exposing you to an elevated risk of concentration associated with Bharat-22.

To identify such winning mutual fund schemes we recommend you to subscribe to PersonalFN's latest unbiased mutual fund research report-Strategic Portfolio For 2025. If you're looking for "high investment gains at relatively moderate risk", the Strategic Portfolio For 2025 is perfect for you. In this report PersonalFN will provide you with a readymade portfolio of its top recommended equity mutual funds schemes for 2025 that have the ability to generate lucrative returns in the long run. We highly recommend you to opt for the report.


Disclaimer:
The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader.

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