Infra BeES ETF Review and Analysis- Good though not Great Way to Invest in India's Infrastructure Growth

India suffers from  a lack of variety as well as depth in ETFs compared to developed markets such as USA.Only Benchmark Asset Management Company (AMC) has seriously invested in the ETF space and its NiftyBeES ETF which follows India’s Nifty Index is the most successful one so far.India’s Infrastructure Sector has attracted a lot of investor interest given the stupendous $500 Billion Investment planned over the next 5 years.This will be 2.5x the investment in the past 5 years and will help India’s crumbling ports,roads,railways,power and communications sectors to gear up to India’s 8-9% GDP growth.Recently EGShares launched INXX which also markets itself as a play on India’s Infrastructure Growth in the US Markets.However that ETF was found wanting in a lot of areas.The new InfraBeES ETF launched by Benchmark seems much better than INXX and has been launched in the Indian markets.This ETF is based on CNX Infrastructure Index and its 1 unit will be 1/10th of that Index.Here are some of the key features of this new ETF

1) 4 Sectors form 93% of the ETF Market Cap – The ETF has made 4 sectors Power,Telecom,Construction and Capital Goods.The other sectors like Hotels,Cement,Transportation form the rest.The weightage given to the Transportation sectors is quite low compared to the vast potential that exists,however a lack of big Transportation companies could be a factor in the low weighting.

2) Top 4 Companies form 50% of the ETF– The Top 4 Constituents of the ETF namely NTPC,Bharti Airtel,BHEL and L&T form more than 50% of the ETF’s value.2 of these companies are government owned and all 4 are high quality well managed companies.There are a total of 25 companies in the InfraBeEs ETF with most of them being part of India’s main Nifty Index and Junior Nifty Index.

3) Valuation of the ETF is quite high – The P/E and P/B of the ETF at 29x ad 3.14x is quite high and reflects the current bull run of the Indian market driven by yield hungry FII inflows.It may not be an oppurtune time to invest in this ETF at the present time,however its a good long term buy

4) ETF Costs not cheap nor expensive – The ETF is charging a total expense of 1% of the Weekly Average Assets which is not exactly cheap compared to average ETF costs of 0.6-0.8% and NiftyBees cost of 0.8%.The AMC is charging the maximum investment management fee of 0.75% allowed by SEBI.The AMC could have charged a lower fee  as the success of this instrument is currently not guaranteed.

5) Performace of the CNX Infrastructure Index has been better than the Broader Market – The Index on which the ETF has been based on has outperformed the market over the last  5 years by 2-4 percentage points.With huge investments in India’s Infrastructure sector being planned there is a good chance of future outperformance as well.

Summary

The InfraBeEs ETF adds a new choice for investors looking to invest in India’s Growth Story.There is currently lack of cheap ETFs in the Indian market and so this new ETF provides a welcome addition.However currently the valuation of this ETF is looking frothy and investors might wait for a better entry point.