Govt Offers Slice of Blue Chips Via New Exchange-Traded Fund
‘Bharat-22’ comprises stocks of marquee PSUs as well as partial stakes held by govt through SUUTI
ONGC, IOC, BPCL and Coal India
SBI, Axis Bank, Bank of Baroda, Indian Bank, PFC and REC but with a defined asset basket like shares of an index
liquid than mutual funds as they can be traded on stock exchanges
ETF depends on the value of assets held by the fund New Delhi: The government announced a new exchange-traded fund (ETF), Bharat-22, that’s expected to speed up a disinvestment programme budgeted to raise a record .₹ 72,500 crore in the fiscal year to March 2018.
The ETF comprises 22 scrips including blue chips such as Oil and Natural Gas Corp (ONGC), Indian Oil Corp (IOC) and State Bank of India (SBI) — all state-owned companies — along with partial stakes in Axis Bank, ITC and Larsen & Toubro that it holds through the Specified Undertaking of the Unit Trust of India (SUUTI).
Investors can purchase ETF units, which will be listed on the stock exchanges. The value of an ETF unit will rise or fall in line with the value of the 22 stocks. ETFs are similar to mutual funds in a certain manner but are more liquid as they can be sold quickly on stock exchanges like shares. The first government ETF (CPSE ETF) that was launched in March 2014 is up over 22% in the past one year, more than the near-18% rise in NSE’s Nifty index over this period and comparable with returns of large cap mutual funds.
Bharat-22 will have a diversified mix of stocks from six sectors — fast-moving consumer goods (FMCG), finance, energy, minerals, industrials and utilities.
L&T will have the highest weight of 17.1%, followed by ITC at 15.2% and SBI at 8.6%.
The government raised .₹ 8,500 crore through the first ETF in FY17. ICICI Prudential AMC will be the ETF manager for Bharat-22 and Asia Index Pvt Ltd — a joint venture between BSE and S&P Global — will be the index provider.
“While selecting each of these sectors, we have also kept in mind sectoral reforms in each of the sectors which have had direct impact on the valuations of these shares,” finance minister Arun Jaitley said on Friday. “We believe that this ETF will be a fairly successful one.” The large number of 22 companies in the basket means small tranches of government holdings in state-owned companies and public sector banks will be included, Jaitley added. CPSE ETF comprised 10 state-owned companies — ONGC, Coal India, IOC, GAIL (India), Oil India, Power Finance Corp (PFC), Bharat Electronics Ltd (BEL), Rural Electrification Corp (REC), Engineers India Ltd (EIL) and Container Corporation of India Ltd.
There is no cap on funds that can be raised through the ETF, said Niraj Gupta, secretary, Department of Investment and Public Asset Management (DIPAM). “It will be different tranches as per requirement of the government,” he said.
The ETF will give the government another tool to monetise its stakes in state-run companies. Jaitley said government has targeted a “fairly stiff ” .₹ 72,500 crore through disinvestment in the current fiscal, of which about .₹ 9,300 crore has been raised thus far.
SELECTION OF EQUITIES
Of the 22 companies, ONGC, IOC, BPCL and Coal India are from the energy sector. SBI, Indian Bank, Bank of Baroda, Axis Bank, PFC and REC belong to the financial sector; Nalco to minerals; ITC to FMCG; and BEL, EIL and NBCC to industrials. Power Grid, NTPC, Gail India, NHPC, NLC and SJVNL make up the utilities. There is a sectoral cap of 20% and a stock cap of 15% in the ETF.
Jaitley said the inclusion of three state-run banks in Bharat-22 was “consistent” with the government’s policy.