Bharat-22 ETF receives bids worth Rs 15,436 crore

•  The second tranche of the Bharat-22 Exchange Traded Fund (ETF) received bids worth Rs15,436 crore, much higher than the government's fund raising target.
• Bharat-22 ETF, comprising shares of 22 companies, had been targeted to achieve a fund mop up of Rs 6,000 crore with a green-shoe option for another `2,400 crore.
• At the end of the bidding on June 22, the ETF had been over-subscribed by 2.57 times the base issue size of `6,000 crore. According to ICICI Prudential Mutual Fund, which is managing the follow-on fund offer (FFO), total bids of 1.2 lakh have been made.
• The government is likely to exercise the green-shoe option to retain the additional Rs 2,400 crore worth bids received.

About Bharat 22:

• Bharat 22 is an ETF that will track the performance of 22 stocks the government plans to pare its stake in. An ETF (exchange traded fund) pools money from investors and channels it into a basket of stocks, mirroring an index and its performance.
• An ETF unit represents a slice of the fund; issued units are listed on exchanges for anyone to buy or sell at the quoted price.
• The Bharat-22 ETF will span six sectors — basic materials, energy, finance, FMCG, industrials and utilities.
• Besides public sector banks, miners, construction companies, and energy majors, the ETF will also include some of the government’s holdings in SUUTI (Specified Undertaking of Unit Trust of India).
• In fact, the SUUTI heavyweights (L&T, ITC and Axis Bank) have a 40 per cent weight on the index. Other big names in the long roster include SBI, Power Grid, NTPC and ONGC (5 to 9 per cent each). Tail-enders include NALCO, Indian Oil, Coal India, Bharat Electronics, Bank of Baroda, NBCC (India), Indian Bank and SJVN.
• The Bharat 22 ETF will be managed by ICICI Prudential AMC while Asia Index will be the index provider. The index will be rebalanced annually.

Analysis:

• ETF investment is less risky and provides liquid assets which are traded real time and is a transparent mode of investment.
• Globally ETF assets have grown significantly, with around $4 trillion worth Assets Under Management (AUM). These are expected to touch $7 trillion by 2021. Large Investors (Sovereign/Pension Funds) prefer investing in ETFs.
• The ETF mechanism has proven to be a smart, effective way for the government to help meet its disinvestment targets, a key factor to keep fiscal deficit under control.
• The energy stocks-heavy CPSE ETF, launched in 2014, has raked in a ?11,500 crore or so in three tranches. And the Government seems to be aiming higher this time.
• The Bharat 22 ETF has more than double the 10 stocks in the CPSE ETF and much wider sector coverage.
• The divestment target in 2017-18 is ?72,500 crore, of which just about ?9,300 crore has been raised so far.
• The Government has made no secret of its intent to use the ETF route as a vehicle for disinvestment. So, expect Bharat 22 to make a splash. The timing and the composition of this ETF is also nifty.
• The market is on a roll and the Government can extract top dollar. Also, by mixing and matching the good and the not-so-good, value can be got from stocks which otherwise might have found the going tough.

By: Vishal