The utility of exchange-traded funds (ETFs) as a principal means for disinvestment might be on the wane as large-scale strategic sales being planned would reduce the availability of stocks for such baskets, department of investment and public asset management (DIPAM) secretary Tuhin Kanta Pandey said on Monday. The government has mobilised a record Rs 45,080 crore which was more than half of its FY19 disinvestment receipts via two ETFs — Rs 26,350 crore from a CPSE ETF and Rs 18,730 crore from Bharat-22 fund. In FY20, Rs 30,868 crore was mopped up via the two ETFs.
Pandey, who is steering the government’s augmented privatisation drive, critical to achieving its all-time high non-debt capital receipts target of Rs 2.1 lakh crore in FY21, however, discounted the feasibility of the Economic Survey 2019-20 proposal that a mechanism similar to Singapore’s Temasek be set up to maximise disinvestment receipts.
Temasek, the investment arm of the city state’s government, manages a net portfolio of over $230 billion as on March 31, 2019 – around four fold jump from $66 billion in 2004. Its compounded annualised total shareholder return since inception in 1974 is 15% in Singapore dollar terms. In comparison, average return was only 4% for BSE CPSE Index against 38% for BSE Sensex during 2014-2019.
“The idea (of emulating Temasek model) needs to be debated. But, if the objective is strategic sales, that in any case is being served through existing mechanism. If the idea is to create some basket of stocks and then sell, that is also being handled through ETFs, both on the bond and equity sides,” Pandey said. “But if the idea is that the government has some surplus money, which can be invested, then that has to be seen in what way this will work,” Pandey said.
The Economic Survey for FY20 has called for creation of a sovereign investment arm on the lines of Singapore’s Temasek Holdings and asked the government to consider transferring its stakes in CPSEs to the new body to infuse professionalism in the disinvestment programme to improve returns on investment and unlock capital for priority areas like infrastructure.
He added the government was using proceeds from disinvestment for meeting capital expenditure and would continue to do so for several projects in the infrastructure pipeline. “So if that’s the idea, then I think then we can continue to also use our existing instruments and possibly monetise them at a much more larger scale to generate funds,” he added.
With big-ticket strategic sales including that of BPCL, ConCor and Air India running behind schedule, the government has cut disinvestment target by Rs 40,000 crore or 40% from budget estimate of Rs 1.05 lakh crore for FY20. For the next fiscal, Pandey said, this pipeline of strategic sales and the proposed listing of LIC would more than suffice to garner the targeted Rs 2.1 lakh crore.