NFO review: ICICI Prudential Private Banks ETF, a concentrated private bank stock portfolio, opens from Aug 1

The portfolio will consist of 10 large capitalised stocks which reflect the behaviour and performance of the private sector banks.

Kumar Shankar Roy Jul 30, 2019

privatebanksETFCountry’s leading fund-house ICICI Prudential AMC is launching ICICI Prudential Private Banks ETF. The exchange-traded fund (ETF) will be open for investments from August 1 and the new fund offer period will close on August 6. This product is an open-ended ETF replicating/tracking Nifty Private Bank Index. The portfolio will consist of 10 large capitalised stocks which reflect the behaviour and performance of the private sector banks. If the timing is right, investors may experience a good return experience as private sector banks are poised to grow faster than growth in nominal GDP of the country. Read on to know more.

Why ETF route

ETFs are generally passively managed mutual fund schemes tracking a benchmark index and reflect the performance of that index. The benefits offered by ETFs include lower cost as compared to actively managed mutual fund schemes, diversification benefit, trades at real-time NAV, transparency in holdings and price, and adequate liquidity with AMC and on the stock exchange.

Why Nifty Private Bank index

The ETF will track the Nifty Private Bank index. Do note the name of the ETF is ICICI Prudential Private Banks ETF. The index represents the 10 large capitalized stocks which reflect the behavior and performance of the private sector banks. These top private-sector lenders may grow faster than growth in Nominal GDP of the country as market share of private sector banks rises due to easier access to capital. Private sector banks are known for good asset-liability management, high CASA (Current And Savings Account) franchise and broad-based financial services presence.

The index looks very concentrated. Five stocks i.e. HDFC Bank Ltd., ICICI Bank Ltd., Kotak Mahindra Bank Ltd., Axis Bank Ltd. and IndusInd Bank Ltd. have 70% total allocation. This will make the ETF highly concentrated.

Here are the constituent and their individual weight in the index.

Nifty Private Bank index stock listWhy Buy This ETF, but not Nifty ETF

As per ICICI Prudential, as the economy grows, banks tend to grow along with the economy. The current phase of consolidation in banks makes it a good investment opportunity. There is evidence of outperformance against broader market indices over the period of time.

While most of the private banks are part of the Nifty 50 index, the ICICI Prudential Private Banks ETF provides a more focussed investment vehicle. By investing in this ETF, you have access to invest in major banks with a minimum investment of 1 unit on the exchange.

Take a look at the past performance of the index.

Historical returns of Nifty Private Bank index

Other fund details

NFO Period – August 01, 2019 to August 06, 2019
MICR Cheques – Till end of business hours on August 06, 2019
RTGS and transfer cheques – Till end of business hours on August 06, 2019
Switches – Are not allowed
Min. Application amt. during the NFO – Rs. 5,000/- (plus in multiple of Re.1 thereafter)
Benchmark – Nifty Private Bank Index
Fund Manager – Kayzad Eghlim
Basket size – 15,000 units. (Approx Rs.24,45,000)
Listing – Units will be listed on NSE & BSE.

RupeeIQ take

In the short run, history has shown that the Nifty Private Bank Index can be volatile. In rising market situations, Nifty Private Bank index may outperform the broader market indices. During a falling market scenario, Nifty Private Bank index has fallen less in comparison to broad market indices. If you are planning to buy ICICI Prudential Private Banks ETF, you have to be long-term as the Nifty Private Bank index captures the GDP growth of the country due to it being a recipient of benefit from all sectors of the economy. In fact, Nifty Private Bank Index has convincingly outperformed broader market indices over the long run. From an index creation of point of view, these 10 stocks are more or less the companies that enjoy a lot of confidence.

We do have to tell you that many years ago fund-houses launched PSU bank ETFs i.e. Reliance ETF PSU Bank BeES and Kotak PSU Bank ETF. PSU banks have not done well, at least in the last 12 months. The thing about taking concentrated bets on stocks inside a sector means that the timing of entry becomes crucial. If the timing is wrong, you could be required to be very patient before you see good returns.

Disclaimer: The article is only for informational purposes. Investors are requested to consult their financial, tax and other advisors before taking any investment decision.


Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.

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