CPSE ETF oversubscription boosts Modi government’s coffers; here’s how much it has raised so far in FY20

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Updated: July 20, 2019 9:30:47 AM

After the sixth tranche of the CPSE ETF was oversubscribed by investors, the Narendra Modi-led government increased the offer size of the issue, boosting its disinvestment receipts.

CPSE ETF,  CPSE Exchange Traded Fund, CPSE ETF tracks shares, Rural Electrification Corp, ONGC, Power Finance CorpThe government was looking to raise up to Rs 10,000 crore through the follow-on fund offer (FFO) of CPSE Exchange Traded Fund (ETF).

After the sixth tranche of the CPSE ETF was oversubscribed by investors, the Narendra Modi-led government increased the offer size of the issue, boosting its disinvestment receipts. Notably, the CPSE ETF’s 5th FFO was received subscription of  more than 5 times. Against the CPSE ETF base issue size of Rs 8,000 crore, a subscription amount of more than Rs 40,000 crore was received, The government exercised green shoe option taking the offer size to Rs 11,500 crore. However, the receipts to the central government would be lower by Rs 1,500 crore due to purchase of Indian Oil shares from market to maintain the stock’s weight in the index..

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This is because the government’s stake in the company is at the threshold of 52% (a norm applicable to all the stocks in the index). Notably, after this exercise, the Modi government has raised about Rs 12,400 crore so far in FY20 or 12% of the full year disinvestment revenue target of Rs 1.05 lakh crore. In the previous fiscal year, Rs 45,080 crore was raised via two ETFs — Rs 26,350 crore from CPSE ETF and Rs 18,730 crore from Bharat-22 ETF — helping the centre to garner up to 53% of the disinvestment target of Rs 90,000 crore in FY19. The CPSE ETF tracks shares of 11 Central Public Sector Enterprises (CPSEs) — ONGC, NTPC, Coal India, IOC, Rural Electrification Corp, Power Finance Corp, Bharat Electronics, Oil India, NBCC India, NLC India and SJVN. Stock market experts points out that the fund is highly concentrated.

While the issue has been oversubscribed many analysts are of the view that the ETF is not well diversified, and there are better opportunities in the market. The sixth tranche of CPSE ETF is highly risky as the companies are cyclical and commoditized businesses. To add to it, the exposure to oil and gas sector is huge and given the current volatility in oil prices, it would be better to stay away, Umesh Mehta, Head of Research, SAMCO Securities said, adding that retail investors must avoid investing in this ETF from a long-term perspective as these companies do not seem to be compounders.

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