The Bharat 22 exchange traded fund (ETF), once launched, will raise a pool of money from investors and channel it into a basket of pre-determined 22 stocks, mirroring an index and its performance ie. S&P, BSE Bharat 22 Index. The ETF will be managed by ICICI Prudential AMC and will include companies from the Central Public Sector Enterprises or CPSEs where the direct holding of the Government or other CPSEs is more than 51 per cent.
Then there are public sector banks where a majority of the stake (more than 50 per cent) is held by the Government and the remaining are companies held under the Specified Undertaking of the Unit Trust of India (SUUTI), including Axis Bank, larsen & Toubro ltd and ITC.
What is significant in this ETF is that most of the stocks in its portfolio have been instrumental in aiding the economic growth of the country and are highly sought after by institutional investors that show the conviction in their growth story. The composition of the index as on July 31, 2017 has the highest weightage of about 17 per cent to larsen & Toubro, followed by ITC at 15.2 per cent, SBI at 8.6 per cent, Power Grid Corporation at 7.9 per cent and Axis Bank at 7.7 per cent.
According to Koel Ghosh, Business Head (India), S&P Dow Jones Indices, "The Bharat 22 index is a diversified index which offers exposure to six sectors and avoids over exposure in any stock or sector as they are capped at 15 per cent and 20 per cent respectively." Recently, Finance Minister ArunJaitley had said the sectors were selected keeping in mind the sectoral reforms in each of them, which had direct impact on the valuations of the stocks.
Considering the index is not restrictive to any theme and with sector weightage capped at 20 per cent, it is far more diversified than most other indices. For adequate diversification, an index requires a set of defensive, cyclical and structural stocks. According to S Naren, ED & CIO ICICI Prudential AMC, all three conditions are met by S&P BSE Bharat 22 index.
“Investors can partake in a variety of stocks that spans across six sectors like industrials, energy, utilities, finance, FMCG and basic materials, with an overweight on the former three. The index blends sectors with secular growth prospects (FMCG and utilities), and cyclicals (energy, metals, industrials). This will help reduce volatility and improve long term investor returns," he said.
Nearly 90 per cent of the S&P BSE Bharat 22 index weight is dominated by large-cap stocks. It also gives a flavor of mid-caps and small-cap stocks to the tune of 8 per cent and 2 per cent, respectively. To ensure optimum portfolio diversification, the weightage of each stock is capped at 15 per cent. The index will be rebalanced on an annual basis.
like any other ETF, it will be easy for investors to buy and sell units of the Bharat 22 ETF on the stock exchange and that too on a real time basis. Considering the underlying investments have ample liquidity, trading in the ETF is also expected to bring enough liquidity with a large investor base. This will ensure a lower impact cost of transacting. ETF's in general bear a lower expense ratio and the Bharat 22 ETF will be a low cost ETF in India which will add to your overall return. What is noteworthy about the S&P BSE Bharat 22 Index is the back tested returns, which have outperformed the broader market i.e. the BSE Sensex.
“Our research shows that the index has outperformed the S&P BSE Sensex on a risk adjusted basis over a 10 year horizon - offering a higher yield historically, for example in the financial year 2016 - 2017 the S&P BSE Bharat 22 delivered a dividend yield of 2 per cent compared to 1.3 per cent of the S&P BSE Sensex,” said Koel Ghosh of S&P Dow Jones indices.