Exchange traded funds (ETFs), through which the Centre raised bulk of the disinvestment revenue in FY19, will likely be tapped aggressively in FY20 as well, thanks to the wide popularity of these funds which fetch fairly good returns among short-term and long-term investors, reports Prasanta Sahu in New Delhi.
On the day of its listing on April 4 2014, the CPSE ETF rose 10.3% to Rs 19.25 (NSE) compared with its allotment price of Rs 17.45, letting short-term institutional investors book profits. For long-term investors too, the ETFs run by the Centre haven’t been disappointing. The CPSE ETF has given annualised return of about 7% since its inception five years ago and 10.6% in the past three years. Bharat-22 ETF, which was listed on November 29, 2017, also gave similar high returns to short-term investors at 10% or thereabouts. But Bharat-22’s returns were about 3.4% in the one-year horizon owing to volatility in the underlying shares, primarily PSU stocks.
The CPSE ETF invested in 10 stocks with four blue chip PSUs (ONGC, NTPC, Coal India and Indian Oil) accounting for 77% of the ETF portfolio. The top five holdings (L&T, ITC, SBI, Axis Bank and NTPC) of Bharat-22 ETF account for 54.57% of its portfolio of 22 stocks. “Investors are comforted by the fact that ETFs contain the blue chip profit-making PSUs, which have been there for a long time. The discount (3-5%) offered on the reference price acts as an added incentive for investors,” said Pranav Haldea, managing director of PRIME Database.
In February 2019, the Centre had received bids of over Rs 46,000 crore or 13 times the Bharat-22 ETF’s base offer size of Rs 3,500 crore. The offer size was therefore enhanced to Rs 10,405 crore. In March, the Centre mopped up `10,000 crore from the fourth further fund offer of the CPSE ETF, 2.8 times the base offer size of Rs 3,500 crore as it received bids worth 8 times the offer size.
What makes these two ETFs popular is the extremely low fund-management fee of 0.01% compared with 2.5-3% charged by mutual funds. The ETFs, therefore, are a low-cost route to invest in private sector (SUUTI holdings in ITC, Axis Bak and L&T are made part of Bharat 22 ETF) and public-sector blue chip companies.
Analysts are of the view that India’s ETF market is expected to witness robust growth in the coming years due to a structural shift in asset-class preference from fixed income to equities as interest rates moderate. Investors poured in `45,730 crore into the two ETFs run by the Centre — CPSE ETF and Bharat-22 ETF — helping it mobilise 54% of the total disinvestment receipt of `84,972 crore in FY19.