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.
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.
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.
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 | |
(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.
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