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  3. Cabinet likely to clear PSU ETF proposal soon

Cabinet likely to clear PSU ETF proposal soon

09 Apr 2013 Evaluate

In order to minimise the post divestment volatility in the shares of state-owned companies, the cabinet will probably clear the proposal of setting up a PSU Exchange Traded Fund (ETF) brought forward by the Department of Disinvestment (DoD). This proposal is likely to be taken up in the next meeting of the CCEA scheduled to be held later in the week. The proposed ETF comprising shares of listed CPSEs would also serve as an additional mechanism for the government to monetise its shareholdings in those companies.

The Empowered Group of Ministers (EGoM) on disinvestment will discuss on the structure of the ETF and the methodology for inclusion and exclusion of scrips from the fund. Further, it is expected that the proposed ETF will comprise 2-3 per cent of shares of listed public sector undertakings (PSUs) and the returns of PSU ETF would be benchmarked against CPSE Index Fund. The Fund will be listed on the stock exchanges and will have shares of all PSUs barring PSU banks. The DoD has already appointed legal advisers for the PSU ETF and is in the process of appointing asset management companies for managing the fund.  

For the current fiscal, the government is planning to raise Rs 40,000 crore by way of PSU stake sale in various companies including Indian Oil, Engineers India, Coal India and Hindustan Aeronautics for divesting minority stake. During the last fiscal (FY13), the government raised around Rs 23,920 crore through disinvestment.

In India, ETFs were introduced in 2001 and currently, there are 33 ETFs with close to Rs 11,500 crore assets under management held by 6.2 lakh investors. Gold ETFs dominate the domestic ETF market. Globally, ETFs have been growing at a rapid pace with an annual growth rate of over 34 per cent in the last decade, with Assets under Management of $ 1.5 trillion.

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