India: CPSE ETF set to raise up to $879m; issue to open on 17 January

The government is all set to raise up to Rs6,000 crore from sale of the second tranche of central public sector enterprise (CPSE) exchange traded fund (ETF), to be launched on 17 January.

The issue size of the fund will be Rs4,500 crore, with the option of raising another Rs1,500 crore, a government official said on condition of anonymity. The issue will remain open till 20 January.

Prithvi Haldea, chairman, Prime Database, said though ETF is a good instrument to diversify risk, it does not have reach because small investors do not understand the concept. “It is better for the government to directly sell individual stocks at a 10-15% discount to retail investors to enlarge the investment base,” he added.

The CPSE ETF was launched by Goldman Sachs Asset Management India on 18 March 2014, and comprises 10 firms: Oil and Natural Gas Corp. Ltd, GAIL (India) Ltd, Coal India Ltd, Rural Electrification Corp. Ltd, Oil India Ltd, Indian Oil Corp. Ltd, Power Finance Corp. Ltd, Container Corp. of India Ltd, Bharat Electronics Ltd and Engineers India Ltd.

Currently, Reliance Mutual Fund manages the CPSE ETF after Goldman Sachs exited the mutual fund business in India. Individual investors can invest a minimum of Rs5,000 in the CPSE ETF, while the maximum is Rs10 lakh. Non-institutional investors and qualified institutional buyers can invest a minimum amount of Rs10 lakh.

The government had offered a 5% discount to all investors during the launch of the ETF. Retail investors were also offered one loyalty bonus unit for every 15 units held for a year. The fund overshot the target of Rs3,000 crore, collecting Rs4,400 crore and allotting units proportionately to unit holders at Rs17.45 apiece. The government official quoted earlier said the finance ministry is also hoping to get “a significant portion of investment” from the Employees’ Provident Fund Organisation’s (EPFO) funds earmarked for equity investment in the CPSE ETF.

EPFO invested Rs6,577 crore in 2015-16 and will pump over Rs13,000 crore into equities in 2016-17 after the labour ministry-controlled retirement fund manager decided to double its equity exposure from 5% of its incremental corpus to 10%. EPFO manages a corpus of over Rs8.5 trillion, with some 40 million subscribers contributing to the fund every month.

EPFO entered the Indian equities market in August 2015, channelling its investments through two ETFs—SBI-ETF Nifty and SBI Sensex ETF. While 75% of the corpus went to SBI Nifty, the rest was invested in SBI Sensex. Both ETFs mimic the Nifty and Sensex indices.

The department of investment and public asset management (DIPAM) has also started preparations for launching a new ETF comprising shares of listed CPSEs and some of the stocks of Specified Undertaking of Unit Trust of India (SUUTI) such as ITC Ltd, Larsen and Toubro Ltd (L&T) and Axis Bank Ltd.

The National Democratic Alliance government has so far in the current financial year garnered Rs23,528.73 crore through disinvestment, which includes Rs21,432.38 crore through minority stake sales in 14 public sector units and Rs2,096.35 crore through strategic disinvestments. The government had set a disinvestment target of Rs56,500 crore for the current financial year.

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This article was first published on Livemint.com