On 28 November 2017, the Bharat 22 ETF made its debut and after 29 trading sessions the ETF seems to be losing its sheen with the asset under management (AUM) falling over 40 per cent following profit booking by investors to Rs 8,539 crore as on 31 December 2017 from Rs 14,500 crore garnered from the new fund offer (NFO). The ETF that had seen 3.35 lakh applications during the NFO in which retail investors were issued ETF at 3 per cent discount in price compared to the rest of the investors is trading 5.6 per cent higher than its offer price of Rs 35.97 per unit. While the investors didn't make exponential return in the ETF it's a great way to own state-run companies and play the PSU disinvestment story.
With the follow-on offering round the corner, Business Today's Mahesh Nayak met up with Nimesh Shah, MD & CEO at ICICI Prudential AMC to understand why the AMC which has been in managing active money ventured into passive fund management.
1. What is the reason to launch Bharat 22 ETF?
The Hon. Union Finance Minister announced BHARAT 22 ETF as a part of Government's disinvestment initiative, wherein ICICI Prudential AMC has been appointed to launch and manage the ETF consisting shared of listed CPSEs and other corporate entities.
In the past Government of India has disinvited its holding in select companies through various routes such as Initial Public Offering, Offer for Sale and Institutional Placement Programme.
Also, through this ETF, retail investors who wish to invest in the India growth story get the opportunity to take exposure passively.
2. In the past the mutual fund industry has not had a great experience with ETF so what will be the new strategy by the AMC to keep the interest and momentum going for the new Bharat 22 ETF?
ETFs have been present in the market for over a decade but the investor interest in this segment has been miniscule. Now with the increasing interest in financial assets, many investors who wish to passively take exposure to equities are opting for index ETFs. This is coming at a time when investors have had good investment experience in the past through the previously launched CPSE and gold ETFs.
But, when it comes to Bharat 22 the underlying universe is very unique. Spread across six sectors are the 22 names which stand to benefit from the various reforms initiatives announced by the Government. This makes for an interesting investment proposition.
3. There is a feeling that the rising valuation is restricting the AMC from selling active funds so Prudential AMC have chosen ETF as a new route to keep the business live and active. What is your view on the same and why? Or is the AMC of the view that 5 to 10 years from today ETF will be future as seen in the global market?
India is one the fastest growing economies with interesting opportunities available in the market. The inflows into mutual funds have been robust over the last two-three years, with retail investors preferring financial assets over physical assets, in India. This can be seen through the steadily growing SIP book of the industry. Above all this, the investment experience has been good.
As an AMC we are of the view, that there is still room to generate considerable alpha through active investing. Over the last three years, we have been recommending dynamic asset allocation funds such that new investors are guided to make the most of the market opportunities, even at expensive valuations.
However, as the market matures, say in another decade or so, passive investing may become a viable option for investors, as was the case seen during the evolution of mutual fund industry in advanced economies of the world.
4. How do you see the AMC business in India? Does everyone has a place in this industry? Do we see consolidation or do we see a shake-out in the AMC industry where smaller players will get marginalized and die its own death and why?
As of FY16, mutual funds account for just 2.10 per cent of the household savings pie. This clearly shows that there is enough room for mutual funds to expand its footprint in the country. Also, there is room for new players to take root in the Indian AMC universe. Even in the past we have seen niche players making a mark with their offerings. We believe there is room for serious players in the industry.
5. Do you see you basket of products being complete or do you still see scope for new product launch especially in the equity and fixed income space?
We believe there is room for new products in the industry, both in equity and fixed income space. But surely the launch of these products will happen slowly as the industry evolves. When the financial savings culture in the country improves, the need for more sophisticated products is likely to emerge. When compared to global markets, Indian basket of products is hardly a fraction of the offering in advanced markets.