Upcoming Bharat 22 ETF offers a good opportunity to retail investors to own Jewels of Corporate India. The ETF comprises of 6 Core Sectors, 22 stocks and will be available at 3% discount for all investor categories. Over the last three years, the inflows into equity markets have been steadily rising owing the flat to negative performance of the physical assets such as gold and real estate. Thereafter demonetization helped further accentuate the shift to financial assets. Amidst all of this, the encouraging trend has been that the new investments into capital markets are increasingly coming through the SIP route. Currently, the monthly inflow into equity markets via SIP route alone is pegged at Rs. 5,000 crore.
The Indian equity markets are currently hovering close to its all-time highs. We believe investors should be cautious in one’s investment approach and strictly adhere to one’s asset allocation.
We do not think the market is in a bubble, but is in a mid-cycle. From a cyclical perspective, the market is yet to reach its peak as capex cycle, credit growth, corporate earnings and capacity utilization is yet to improve. Improvement in capacity utilization is likely to be the next trigger which could lead to a rebound in corporate earnings. On valuation basis, when compared to mid and small cap names, large caps are relatively better valued, at this point in time.
We have been recommending investors to opt for dynamic asset allocation/balanced advantage category of funds. The reason being,when investing in this category of funds, an investor gets exposure to both debt and equity asset classes. This arrangement ensures that when the market rallies, profits are booked at regular interval and the allocation to debt increases, thereby cushioning the downside when the market turns volatile.
On the other hand, when the market corrects, the allocation towards equity increases, thereby effectively allowing the investor to buy low and sell high. Interestingly, as a fund house, it is this category which has seen significant traction over the last one year. For example: ICICI Prudential Balanced Advantage Fund can have an equity allocation between 30-80%, depending on the prevailing market condition.
Another attractive opportunity for long term investment is the BHARAT 22 ETF. This ETF is being launched as a part of Government of India’s disinvestment initiative.
The ETF comprises of CPSEs, Public Sector Banks (PSB) & SUUTI names and is spread across six sectors namely Industrial, Energy, Utilities, Finance, FMCG and Basic Materials – providing a diversified portfolio. This ensures that the underlying index blends sectors with secular growth prospects (FMCG and utilities), and cyclical (energy, metals, industrial). Just so that the portfolio is well diversified, the Bharat 22 index has capped the weightage of each stock to 15% and the sectoral exposure limit is set at 20% to avoid undue over-exposure.
Through this ETF, one gets to participate in the India growth story as most of the names present are largely strong companies which are leaders in their respective categories with robust fundamentals. Also, these companies stand to gain from the various Government reform initiatives such as Financial Inclusion, Digital and Cashless Economy, Goods and Services Tax (GST), Infrastructure Reforms, Make in India and Direct Benefit Transfer of subsidy, to name a few.
Additionally, investors across all categories will get 3% upfront discount, thereby enhancing the overall returns profile. The NFO for Anchor investor is on November 14, 2017 and Non-Anchor shall be between November 15, 2017 and November 17, 2017.