Govt to rejig fund with 4 new stocks, including MOIL & KIOCL; issue later this month.
As its ambitious disinvestment plans for this year are being staggered — the latest Coal India offer for sale has mopped up just Rs 5,266 crore against some Rs 15,000 crore targeted and the annual estimate of Rs 80,000 crore is increasingly looking a tall order — the Centre has firmed up a strategy to use the exchange traded fund (ETF) route more aggressively.
According to official sources, it will launch a new ETF issue comprising only CPSE stocks in later half of this month, with a target to garner Rs 8,000 crore.
If the goal is achieved, the ETF mop-up this time around would be higher than the previous pure CPSE ETF (January 2017) which fetched Rs 6,000 crore for the government. The government reckons that given the volatile market conditions and the low appetite for individual stocks, the ETF route may lure more retail investors.
“There are too many holidays (in the first half of this month). The offer will hit the markets later this month when we have continuous four days to execute the transactions,” an official told FE.
A CPSE ETF was first launched in March 2014 and it held 10 CPSE stocks, including that of ONGC, IOC and Coal India, among the maharatna CPSEs. Two more tranches of the fund have since been issued. While Rs 3,000 crore was mobilised via the first CPSE ETF issue, the government later sought to make the ETF basket more attractive by including the stocks of private companies like Axis Bank, ITC and L&T, and this strategy seems to have worked (see chart). In June this year, the government raised `8,325 crore via the further-fund-offer (FFO) of Bharat-22 ETF that consisted of both CPSEs’ and private firms’ stocks.
So far this fiscal, the government has raised around `15,289 crore via disinvestment. ETFs,which are less volatile compared to individual stocks, have emerged as a successful tool to disinvestment stocks in the past two years. All the ETF issues in the last two years received overwhelming response, with some getting subscribed over four times.
The composition of the stocks in the coming ETF issue would include stocks of CPSEs where government holding is significantly more than 53%. So Engineers India in which government holds only 52.02%, GAIL India (53.46%) and Container Corporation (54.8%), could be excluded. Manganese ore producer MOIL and iron-ore miner KIOCL could be among the four new stocks to be in, taking the number of CPSEs in the basket to 11.
Last month, fund manager Reliance Nippon Asset Management had filed draft scheme information document with market regulator Sebi for the fourth tranche of CPSE ETF.
GAIL India, Container Corp and EIL have weightage of 17.24%, 6.94% and 1.82%, respectively in the CPSE ETF. Four new PSU stocks that are being included to replace them would together have the same weightage in the index.
With the ETFs gaining traction in India, the government could also contemplate to bring one more ETF issue in the fourth quarter of this year if other disinvestment plans fail to go through due to choppy market conditions ahead of general elections next year.