The government is considering including state-run banks in its next proposed CPSE ETF – the exchange-traded fund of public sector enterprises, ET Now reported citing unidentified government sources.
Earlier last month, Disinvestment Secretary Neeraj Kumar Gupta had said that the government is contemplating launching a new exchange traded fund comprising public sector undertaking stocks, close to the launch of the follow on issue of shares of its first such ETF. The government is keen to promote another ETF, which it will launch by the next financial year, 2017-18, Gupta had said in an interview to ET Now.
The ET Now report said that the government is looking to mobilise funds to cater to the future needs of the PSU banks, and it intends to reduce the stake in the state-run lenders to 51%. Finance Minister Arun Jaitley in Union Budget 2017-18 allocated Rs 10,000 crore for recapitalisation of the state-run banks, sparking concerns that amount may not meet the requirements to the full. The stake sale in ETFs may help the banks raise money to augment its capital adequacy ratio.
Earlier last month, the government launched a follow on public offer for its first CPSE ETF, raising Rs 6,000 crore in the issue. The CPSE ETF, which mirrors the performance of the CPSE index, invests in 10 PSUs, namely, ONGC, Coal India, Indian Oil Corp, Gail India, Oil India, Power Finance Corp, Bharat Electronics, Rural Electrification Corp, Engineers India and Container Corporation of India.
You may also like to watch:
The next proposed ETF will also have 10-12 PSU stocks but will have a different basket. The Department of Investment and Public Asset Management (DIPAM) is discussing the option of including PSU banks in the second ETF with the Department of Financial Services, ET Now said.
Indian government has undertaken strategic sale of stake in profitable PSUs to help boost up state revenue and bridge the fiscal deficit, but has repeatedly fallen short of its disinvestment targets in the past. It has a target to earn Rs 56,500 crore by divesting its stake in public sector undertakings in the current financial year 2016-17, and Rs 72,500 crore in the next financial year.
The CPSE ETF has given impressive effective returns at over 70% since inception to the original investors, helped by bonus units and allotment discounts. While the CPSE ETF trades at a much lower PE multiple of 11.44, compared to Nifty’s 22 times, its low expense ratio of 0.065% prevents the costs into the gains for the investors.