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New LIC IPO focusing on India: India Fund Limited

ETF Watch - Jul 27, 2016

Update 16/8/2016 - The India Fund IPO has been extended until 29 August 2016.

When most people think of India they probably associate it to its huge population, its rise as an IT services giant, its great icons such as the Taj Mahal and an insatiable love of cricket. Investing directly in India is probably not front of mind for most, with investors interested in emerging markets generally accessing these investments through “BRIC” (Brazil, Russia, India, China) or emerging market type funds.

The latest LIC IPO on offer, the India Fund Limited IPO is attempting to bring the ability to invest directly into India to Australian investors.

The fund's mandate is to:

  • invest in equity or equity linked securities of companies listed on BSE or NSE;
  • focus will be on large cap (top 100 companies) listed Indian companies, with up to 40% of the being available to invest in in mid and small caps companies; and
  • typically hold around 50 investments in companies across all sectors, but limited to holding no more than 6% above the sector weight in the benchmark in any one sector.

The India Fund Limited Prospectus lists a number of interesting facts about India and its growth prospects. Specifically, India has recently undergone a dramatic political transformation in the wake of the election in 2014 of the government led by Prime Minister Narendra Modi. The Modi government was elected on the basis that it would deliver reforms to accelerate economic expansion and growth in financial markets. The Government is in the process of implementing its reform agenda aimed at re-invigorating the Indian economy. India’s GDP exceeded US $2 trillion in 2014 with a growth rate averaging 7.5%pa over the past 10 years. 

The GDP growth forecast for 2015-19 is projected to increase from 7.5%pa to 7.7%pa, an increase from the 6.4%pa to 6.7%pa projected in April 2015.

For investors interested in emerging markets, there are already a few options available, although none focus on India in specifically and all are ETFs, not LICs. Specifically, iShares offer a BRIC and Emerging Markets ETF and Vanguard offers an Emerging Markets ETF. There are also a number of ETFs and LICs that focus on the Asian Region. If the potential growth prospects of India excite you, this IPO will give the only ASX listed exposure specifically to India.

As per the usual LIC IPO process, investors in the IPO will be gifted a free option for every share they purchase. These options have an expiry date of around 18 months after listing (31 May 2018). Shares will be listed at $1.00. We are unable to determine the Net Asset Value of the fund upon listing, however expect it to list at a discount to the $1.00 listing price to cover the costs of listing. Investors in the IPO should be aware of the above 2 facts, as exercise of options in the future will result in dilution of capital, and for every $1 invested, the investor will actually receive less than $1 in shares. Management fees will be 1.25% of assets per annum, with a performance fee of 15% of outperformance.

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IPO Facts

  • Minimum raise of $16m
  • Maximum of $50m
  • $1.00 issue price
  • 1 option attached for each share
  • Offer open date 27 July 2016
  • Offer expected to close 15 August 2016. Update 16/8/2016 - Offer now closing 29 August 2016.
  • Expected trading on the ASX 31 August 2016

This post was prepared with publicly available information available from India Fund and OnMarket Bookbuilds. ETF Watch did not receive any payment from India Fund Limited for this post, but may receive referral payments from OnMarket Bookbuilds.

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