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Nov 14, 2017 09:51 AM IST | Source: Moneycontrol.com

Top 5 reasons why investors should apply to Bharat 22 ETF: ICICIdirect

These are high dividend yielding companies that are available at reasonable valuations. The selection criteria of the index say the company should have paid dividend of not less than 4 percent including a bonus for the seven years immediately preceding or for at least seven out of the eight or nine years immediately preceding.

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Bharat 22 Exchange Traded Scheme (Bharat 22 ETF) provides investors an opportunity to invest in large cap PSUs and other companies with government holdings. These companies are being offered as a part of the government’s disinvestment program for FY18.

The Bharat-22 ETF aims to raise an initial amount of Rs 8,000 crore for the government and will open for non-anchor investors on November 15 and end on November 17.

Several of the companies forming part of the ETF are market leaders in their area of operations.

These are high dividend yielding companies that are available at reasonable valuations. The Indian economy is currently enjoying a favourable macroeconomic environment.

A number of far-reaching structural reforms such as GST, financial inclusion, digitisation, Make in India and infrastructure reforms among others have been initiated by the government over the past few years.

Hence, Bharat 22 ETF provides an attractive investment opportunity given that the benefits of these reforms along with corporate growth revival may benefit these companies going forward.

Also, the government has offered a 3 percent discount to NFO investors, which is an additional incentive to invest in the Bharat 22 ETF. ICICIdirect advise investors to subscribe to Bharat 22 ETF.

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Here is a list of five factors which makes Bharat 22 a smart buy according to ICICIdirect:

Strong fundamentals:

Companies forming part of the index are fundamentally strong with many among them being market leaders and enjoying healthy market shares.

Many companies have a vast asset base in terms of reach, distribution network and enjoy economies of scale. Any improvement in efficiency of operations especially PSUs will lead to significant wealth creation for all stakeholders.

Attractive valuations:

The performance of PSU companies over the last few years has not been very encouraging. Lack of policymaking in the oil & gas space, delays in power sector reforms, environmental issues and lack of raw materials restricted the growth potential of many of the companies in the index.

However, current stock prices do not factor in the reforms undertaken by the government in the last six months, like bank recapitalisation roadmap, reforms in the oil & gas and power sector, along with lower interest rate environment.

Many stocks in the Bharat 22 Index (including the SUUTI A Group companies) are trading at lower valuations as compared to their private sector peers.

Diversification:

The Bharat 22 Index has 22 stocks from 6 sectors, viz. Industrials, Finance, FMCG, Utilities, Energy and Basic Materials.

Exposure to a single stock is capped at 15 percent and to a single sector is capped at 20 percent, with rebalancing once every year in March.

These limits are designed to provide reasonable diversification benefit and reduce concentration risk. The Index provides a good mix of government-owned and private sector companies.

High dividend yield index:

The stocks in the Bharat 22 index are high dividend paying companies. The selection criteria of the index say the company should have paid dividend of not less than 4 percent including a bonus for the seven years immediately preceding or for at least seven out of the eight or nine years immediately preceding.

The current weighted average dividend yield of the Bharat 22 index is around 2.4 percent.

Credit worthiness:

The government is a majority shareholder in the PSUs that form a part of the Bharat 22 Index. Other non-government owned companies are bluechip names that enjoy wide trustworthiness and investor faith.

The same effectively leads to almost risk-free investment from the credit risk perspective.
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