India growth story available at a discount this week



22 PSU and SUUTI stocks across 6 diverse sectors including financials, energy, materials, FMCG, industrials and utilities. Focused play on the India growth story. 3% discount at NFO and an annual expense ratio of less than 0.01% p.a.Earnings growth projection stronger than market with a PE ratio that's lower. That's quite an interesting proposition that Raghav and Team ICICI Pru have lined up this week with the launch of Bharat 22 ETF. Read on as Raghav takes us through the investment case for Bharat 22.

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WF: How have PSUs as a group performed in the market as compared to Sensex/Nifty? How do you see the PSU pack performing from a medium term perspective?

Raghav: The PSUs in general have performed well over the last one year with the NIFTY PSE Index (group of 20 stocks that are listed on the National Stock Exchange (NSE) where 51% of company's outstanding share capital is held by the Central Government and/or State Government, directly or indirectly) delivering 18% returns. This is largely owing to the various reforms initiated over the last two years across several sectors. Going forward, we believe that the larger impact of the reforms announced will play thereby aiding the performance of the PSU pack.

The Bharat 22 index comprises of 22 stocks of Central Public Sector Enterprises (CPSEs), Public Sector Banks (PSB) & strategic holdings of Specified Undertaking of the Unit Trust of India (SUUTI), spread across six sectors namely Basic Materials, Energy, Finance, FMCG, Industrials and Utilities. Given below is a snapshot of Government reforms initiatives aligned to BHARAT 22 ETF of which the investors can benefit via this ETF.


WF: Given the sectoral diversification of the Bharat 22 index, would it be fair to say that it represents a good play on the overall domestic story (cyclicals + consumption) but not the overall India story due to the absence of global plays like IT and pharma?

Raghav: For an index to be well diversified, an index requires a set of defensive, cyclical and structural stocks. All three conditions are met by S&P BSE Bharat 22 index. BHARAT 22 ETF presents an interesting combination of fundamentally strong PSU and SUUTI stocks, across six sectors - Basic Materials, Energy, Finance, FMCG, Industrials and Utilities. The composition of stocks present in the ETF is a concentrated play on the domestic India growth story, which is expected to play out in the years ahead. We are positive on large caps and BHARAT 22 ETF in its construction is akin to a pure large cap fund.


WF: While the sector cap has been set at 20%, industrials within the Bharat 22 index are at 22%. Also, financials and energy - at around 19% - are quite close to their caps. How will the caps work when a sector breaches the 20% limit due to relative sector outperformance?

Raghav: For portfolio diversification, weighting of individual index constituent is capped at 15% while weighting of each BSE sector is capped at 20%. These weight constraints are applied during the annual index rebalancing in March each year.Given the cap that has been placed on stock at 15% and sector at 20% in Bharat 22 ETF, it has an in-built mechanism for rebalancing and ability for periodic booking of profits in stocks / sectors that has delivered excellent returns.

WF: How can one buy and redeem units in Bharat 22? Is a demat account necessary - either at the time of purchase or redemption?

Raghav: To begin with a demat account is necessary for purchase and redemption of BHARAT 22 units. A retail investor can apply during the NFO with a minimum application amount of Rs.5000, directly through the AMC or broker/distributor. The other option is during On-going offer period or additional offering period through AMC in multiples of creation unit size or through the Stock Exchange in multiples of one unit.

WF: What is the expense ratio charged on Bharat 22?

Raghav: The expense ratio charged on the ETF is at 0.0095%.

WF: What would you say is the key investment argument for Bharat 22 at this time?

Raghav: BHARAT 22 ETF provides a diversified portfolio with exposure across six sectors namely Basic materials, Energy, Finance, FMCG, Industrials and Utilities. The index is a combination of secular growth prospects and cyclicals. Moreover, the index presents a mix of leaders from various sectors representing balance between stability and growth.

The constituents of the index capture the various key reforms and initiatives of the Government of India like Financial Inclusion, Digital and Cashless Economy, Make in India, GST, Infrastructure Reforms, etc.The ETF presents an attractive investment opportunity given the lower price-to-earnings, price-to-books and higher dividend yield in comparison to BSE Sensex and Nifty 50.And finally, an investor gets access to the jewels of Corporate Indiaat a 3% discount and a low expense ratio.

Index Statistics


Data as on Sep 29, 2017. E: Estimates, P/E: Price to Earnings, P/BV: Price to Book. Data Source: Edelweiss Research. Earnings Growth in CAGR terms. Past Performance may or may not be sustained in future. The statistics pertain to the Index and do not in any manner indicate the returns/performance of the Scheme. S&P BSE Bharat 22 Index: First Value Date - Mar 17, 2006; Launch Date - Aug 10, 2017. The above figures are rounded off.

Reasons to Invest


*Data as on Sep 29, 2017. Dividend received from the scheme constituents shall be reinvested in the scheme in order to minimize tracking error. The above characteristics are in respect of S&P BSE Bharat 22 Index which is the underlying index for BHARAT 22 ETF. GoI has offered a discount of 3% on the Reference Market Price of the underlying index shares of BHARAT 22 ETF. Reference Market Price is the price determined based on the average of full day Volume Weighted Average Price (VWAP) on BSE Ltd. (BSE) during the Non Anchor Investor NFO Period.

WF: The recent spike in oil prices is said to be the cause of the current market correction. What impact on markets do you see if oil prices remain elevated and how would such a possibility impact the prospects of the Bharat 22 fund?

Raghav: The equity markets will be closely watching the oil price movement given its impact on India's macro economy. If Brent moves up to $65, India's current-account deficit will spike up by $5 billion. When it comes to the prospects of BHARAT 22 ETF, the index has a mix of upstream and downstream companies, thereby providing a desirable mix among the energy names present in the index.

WF: What is the incentive to invest during NFO?

Raghav: The Government of India has offered a 3% discount on the Reference Market Price of the underlying index shares of BHARAT 22 ETF, for all the investor categories.


The above details are for illustration purpose only. Actual results may vary. *Reference Market Price: Price determined based on the average of full day Volume Weighted Average Price (VWAP) on BSE Ltd. (BSE) during the Non Anchor Investor NFO Period. Investors should note that the above mentioned discount on the 'Reference Market Price' may not be a discount to the closing market price of the underlying shares of underlying Index on the Allotment date.

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