The government will launch the first tranche of a very broad-based exchange-traded fund (ETF) comprising its stakes in several blue-chip PSUs and private companies next week with an offer size of Rs 8,000 crore and an option to retain some oversubscriptions. The new fund offer of the Bharat 22 ETF will be open for anchor investors on November 14 while retail and other investors would begin from November 15 to 17. The government has offered 3% discount to all category of investors on reference market price. The new ETF consists of stocks of 22 companies including State Bank of India (SBI), Axis Bank, Larsen & Toubro (L&T), ITC, ONGC, Indian Oil Corporation (IOC), PFC, PGCIL, Nalco, BPCL, NTPC and Bank of Baroda. The mega ETF includes as many as six sectors ranging from finance and utilities to FMCG. In the index, L&T has the highest weightage, followed by ITC and SBI.
The ETF’s annual sectoral exposure is capped at 20% while an individual stock’s weightage will not exceed 15%.n “The ETF is a very innovative idea to capture the growth story of six most prominent sectors: Banking, FMCG, energy, industrial, basic materials and utilities,” department of investment and public asset management (DIPAM) secretary Neeraj Kumar Gupta told FE. Reforms across these sectors including the recent public sector bank recapitalisation, insolvency code, goods and services tax and consolidation of companies involving the ones part of the ETF, could give substantial upside to the investors in the long-run. The rock-bottom annual expense ratio of 0.0095% (less than 1 paise) for Bharat 22 compared with around 2.5% charged by mutual funds, could be very attractive for retail investors, for whom 25% of the basic offer size has been reserved.
In allocations over and above the basic offer size, priority would be given to retail investors and retiral funds, Gupta added. The receipts via new ETF would be a key instrument for the Centre to divest its shares and raise a whopping Rs 72,500 crore from disinvestment in 2017-18. So far this fiscal, it has raised around Rs 38,000 crore by listing two insurance companies, selling stakes in a clutch of PSUs and divesting some Suuti holdings. After the NFO, the government will be using the new index for further disinvestment in tranches also.
According to an analysis, returns from Bharat 22 basket stocks were an aggregate 20% in the past year and 11% in the last three years while it was 17% and 9%, respectively, for the BSE Sensex. ETFs are gaining traction in India now, which was evident in the two successful further fund offers (FFOs) of the extant CPSE ETF through which the Centre raised Rs 8,500 crore in 2016-17. Through the CPSE ETF, which invested in a pool of 10 CPSE stocks including ONGC, IOC and Coal India, the government had initially raised Rs 3,000 crore disinvestment revenue in March 2014.