Bharat 22 ETF – February 2019 Additional Offer

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at shivskukreja@gmail.com

ICICI Prudential AMC has launched an additional offer for Bharat 22 ETF in order to raise a minimum of Rs. 3,500 crore for the government to meet its disinvestment target for FY 2018-19. This additional offer will remain open for today only and the company will accept its applications till 8 pm in the evening today.

As the name suggests, Bharat 22 ETF has 22 companies as its constituents, 3 of which are private companies – Axis Bank, ITC and L&T, and rest 19 are public sector enterprises, few of them are ONGC, SBI, IOC, Coal India, NTPC, Power Grid, BPCL and GAIL.

Bharat 22 ETF closely tracks “S&P BSE Bharat 22 Index”. This index has been designed by the Bombay Stock Exchange (BSE) in consultation with the government.

Before we check how the issue looks from an investment point of view, let us take a look at some of its key features:

Investment Objective – Bharat 22 ETF intends to generate returns that closely correspond to the total returns earned by the securities as represented by the Bharat 22 Index. However, the performance of the scheme may differ from that of Bharat 22 Index due to tracking error and also due to the scheme expenses.

Offer Timeline – Unlike its NFO in November 2017, this additional offer will remain open for just one day only i.e. today, January 14, 2019. It is a very short period of time provided for this investment, but that is how it should be for the offers for sale (OFS) and exchange traded funds (ETFs).

Reference Market Price/NAV – As Bharat 22 ETF is already listed on the stock exchanges, you will not get its units allotted at its face value of Rs. 10. Its last trading price on the NSE today was Rs. 32.98. So, the investors should expect the allotment price to be around this price only, adjusted for a discount of approximately 3.9% for the individual investors.

The daily NAV of this scheme is based on the Bharat 22 Index, and the allotment price would be approximately equal to 1/100th of Bharat 22 Index and calculated post adjusting approx. 3.9% discount offered by the government to Bharat 22 ETF for buying the underlying Bharat 22 Index shares.

Approximately 3.9% Discount for Investors – Investors making an investment during the offer period will be given a discount of approximately 3.9% on their investment. Yes, you have read it right here. The discount you must have heard or read elsewhere would have been 5%. But, actually it is not 5%. The government is offering 5% discount to the investors of the ETF on the shares of the companies to be sold by the government. These are 20 such companies which carry a cumulative weightage of 78% in the Bharat 22 ETF. There will be no such discount on the remaining 2 companies, which carry a cumulative weightage of 22% in the Bharat 22 ETF.

Target Amount to be Raised – The government is targeting to raise Rs. 3,500 crore from this offer. However, in case of oversubscription, the government would like to retain the whole of oversubscription in order to bridge its disinvestment target gap. So, it is highly likely that full allotment will be made to the investors.

Minimum/Maximum Investment Size – Retail individual investors can invest in the scheme with a minimum investment amount of Rs. 5,000. To remain a retail investor, the investment limit has been set at Rs. 2 lakhs.

Demat Account Mandatory – As you cannot hold and trade ETFs in physical form, it is mandatory to have a demat account for you to invest in this scheme. Applications without relevant demat account details are liable to be rejected.

No Lock-In Period – As this is an ETF which gets traded on the stock exchanges, the investors can sell these units anytime post allotment.

Should you invest in Bharat 22 ETF Additional Offer?

Indian markets have underperformed the global markets by a huge margin this calendar year. We are down by approximately 3.5% year to date, as compared to an average positive return of 7% in global markets. But, this negative 3.5% too does not reflect the true picture of the kind of bloodbath we are having in our markets. Many of the mid-cap and small-cap stocks are trading below their 2014 levels, and many of them are down 50-80% from their January 2018 highs. It has been a very painful period for the investors post January 2018. So, if there is any stock or fund or a portfolio which has given a positive return, or has fallen less than 10% in the past 1 year or so, then the investors of that stock or fund or portfolio should actually thank God for saving their hard earned money.

This Bharat 22 ETF too has fallen less than 10% in the past one year, and I was really surprised to know that. Actually, Axis Bank and ITC have given positive returns in the past one year, and these two are the only stocks in this Bharat 22 ETF which have succeeded to remain in the green, while L&T and all its public sector enterprises have given negative returns.

When Bharat 22 ETF was launched in November 2017, most of its constituents were trading close to their 52-week highs, the momentum was favoring the stock markets, there was buoyancy all around and the government successfully raised Rs. 17,000 crore. The picture is pretty much different this time around. Most of its constituents are trading close to their 52-week lows, the momentum is not favoring the stock markets at all, there is pessimism all around and the government is targeting to raise only Rs. 3,500 crore, and might even fail to raise that.

Like earlier as well, I think it is the government’s policies which are going to drive the share prices of these companies and thereby this ETF. If you have a view that Modi government has done a good job for the country and its economy, and it could win the general elections in May 2019, then you should invest in this ETF for the medium to long term. However, if you think it is difficult for the BJP to make a comeback this time around, then I think you would do better to skip it for now, and wait for the markets to suffer a fall due to a knee-jerk reaction to the elections outcome and then deploy your money for long-term wealth creation.

ICICI Prudential Bharat 22 ETF Application Form

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