Bharat-22 offers better value than Sensex and Nifty: Nimesh Shah

Diversification across sectors to benefit from govt policies, relative attractiveness to benchmark indices will draw investors to the NFO, says MD & CEO of ICICI Prudential AMC

The centre is looking to raise at least Rs 8,000 crore this week by divesting holdings in 22 companies through the Bharat-22 exchange-traded fund (ETF). Nimesh Shah, managing director & chief executive of ICICI Prudential AMC, which is managing the ETF, tells Samie Modak that diversification across sectors poised to benefit from government policies and relative attractiveness to the benchmark indices will draw investors towards the new fund offer (NFO). Edited excerpts:

The Bharat-22 index is a basket of companies from diversified sectors. What will be the selling point for the Bharat-22 ETF?

The stocks on the index can be equated to the jewels of corporate India, as 16 of the 22 companies in the ETF are Maharatna, Miniratna-I and Navratna companies. They are a mix of leaders from six different sectors, including industrials, energy, utilities, finance and FMCG – representing a balance between stability and growth. Besides, the constituents of the index capture the various key reforms and initiatives by the Government of India, such as financial inclusion, digital and cashless economy, ‘Make in India’, GST and infrastructure reforms.

 

The ETF is an attractive investment opportunity, with its lower price-to-earnings and price-to-book value than the BSE benchmark Sensex and the National Stock Exchange’s Nifty 50. Also, the index composition has historically yielded higher dividend yield than the benchmark indices. To sum up, an individual investor gets the opportunity to access all of these benefits at a discounted rate (three per cent) during the NFO period. The index is highly liquid, as more than 99 per cent of its constituents are traded in the derivatives segment.

What according to you makes an index diversified?

For an index to be adequately diversified, there need to be a set of defensive, cyclical and structural stocks. Bharat-22 ETF meets this requirement. Investors can partake of a variety of stocks spanning across six sectors and the index blends sectors with secular growth prospects (FMCG and utilities), and cyclicals (energy, metals, industrials). This can help reduce volatility and improve long-term investor returns.

How different is Bharat-22 from the existing ETFs?

Compared to other existing ETFs, Bharat-22 has a well-diversified portfolio. To keep away from sector or stock concentration, a sector level cap of 20 per cent and stock level cap of 15 per cent have been introduced. This makes it more diversified than several other indices. More importantly, most of the constituents of the index stand to gain from the various developmental initiatives of the government.

Is there a correlation between the Bharat-22 ETF and the benchmark Sensex or Nifty indices?

Over the past year, the correlation with Sensex and Nifty is 0.9120 and 0.9095, respectively.  

What’s the core issue size and green shoe? Will there be more tranches of Bharat-22?

The core issue size is Rs 8,000 crore. There is a provision for additional amount which the fund house, on the instruction of the government, shall notify to investors after the closure of non-anchor investor period. With regard to future tranches, it shall be the discretion of the government.

A lot of equity mobilisation has taken place over the past few months. Do you think fatigue is building among investors? Will this impact the Bharat-22 NFO?

Given the lacklustre performance of physical assets like gold and real estate, retail investors are increasingly opting for financial assets. The encouraging aspect in this trend is that such investors are opting for balanced categories of funds. As a fund house, we are positive on large-caps and we believe Bharat-22 ETF is a good long-term investment opportunity.

Are there any perks being offered to small investors applying in the NFO?

Investors across all categories, including small investors, will get a three per cent upfront discount on the reference market price during the NFO.

Do you expect the EFPO to participate in a big way?

We expect large institutions across the board to participate in this NFO.

Equity ETFs haven’t done as well in India as active investments. What’s the reason?

Active investing has been popular in India, as there is a sizeable opportunity to generate alpha. We believe, as the markets evolve over time, the demand for passive investing will also pick up. This has been a trend even in developed markets globally.

How will the NFO benefit the fund house?

Given that investor centricity has been at the core of ICICI Prudential AMC, we hope to continue delivering a good investment experience with the addition of this ETF to our existing product basket.