A Central Public Sector Enterprises (CPSE) Exchange-Traded Fund is likely to hit the market in February.
According to Finance Ministry officials, the Department of Disinvestment has identified 11 listed public sector enterprises, including blue chips, such as Coal India, ONGC, Indian Oil, Power Grid, Rural Electrification Corporation and Power Finance Corporation. These firms have been selected on the basis of their five-year dividend record. Now, an Empowered Group of Ministers will finalise the composition of the proposed fund. It will also take a call on the timing, the official added. Goldman Sachs will manage the ETF.
The Cabinet Committee on Economic Affairs has already approved setting up a fund. The Ministerial panel will also decide on the discount to be provided. An ETF is like an equity mutual fund scheme that consists of shares of many companies. It tracks an index and is traded on a stock exchange. Its constituent stocks are listed and actively traded.
One unit is enough Since this fund has shares from various sectors providing for diversification, an investor can buy just one unit of such an ETF and get the benefits of trading in the constituent stocks. This fund will also help investors reduce their investment risk.
The usual mode of taking a partial disinvestment offering of a CPSE to the market includes initial or further public offering, offer-for-sale through stock exchange and institutional placement.
The proposed CPSE-ETF will serve as an additional mechanism for the Government to monetise its shareholding in those CPSEs. The fund will include a small percentage of shares, say, 2-3 per cent, in the proposed instrument.
It will have stocks from various sectors, except banks.
The fund will also help minimise market disruptions seen in public offerings of listed CPSEs. Officials feel this will be beneficial for the Government from a pricing perspective, as part of the discounts can be back-ended. It will also help fulfil domestic investors’ appetite for an equity ETF product as such investors are vastly underserved vis-a-vis foreign investors.
ETFs were introduced in India in 2001 with the launch of Nifty BeES. At present, there are 33 ETFs with assets under management close to Rs 11,500 crore, held by 6.2 lakh investors.
Gold ETFs dominate the ETF market in the country.