The Cabinet has approved the setting up of a CPSE Exchange Traded Fund (ETF) which is expected to speed up disinvestment programme, check volatility in share price movement and encourage retail participation. "(The ETF) comprise CPSE stocks (from amongst the listed CPSE stocks). Each stock would have a fixed weightage in the basket," an official statement said.
The proposal was cleared by Cabinet Committee on Economic Affairs (CCEA) headed by the Prime Minister. The composition of the basket, the launch of the New Fund Offer (NFO), the discount to be provided and other issues relating to contribution and pricing of the ETF would be decided by the Empowered Group of Ministers (EGoM), it added.
"This will help in minimising market disruptions seen in public offerings of listed CPSEs; increase ability of the government to monetise partial stakes in listed CPSEs, some of which have low liquidity and free float; broad base retails participation of shares of CPSEs...," it said. The ETF is also expected to deepen the equity market and will be beneficial to government from a pricing perspective. The move, the statement said, "will help fulfil the domestic investors' appetite for an equity ETF products as the domestic Indian investor is vastly under-served vis-a-vis the foreign investor community".
The Department of Disinvestment in the Finance Ministry has already appointed global investment banker Goldman Sachs for setting up and managing the PSU ETF. The government is planning is raise Rs 40,000 crore through disinvestment in the current fiscal and has lined up a host of companies, including Indian Oil, Engineers India, Coal India and Hindustan Aeronautics for divesting minority stake. In the last fiscal (2012-13), the government has raised Rs 23,920 crore through disinvestment. ETFs were introduced in India in 2001. Currently, there are 33 ETFs having assets under management of close to Rs 11,500 crore and held by 6.2 lakh investors. Gold ETFs dominate ETF market in India.