While the fourth issue of Bharat-22 exchange traded fund (ETF) will hit the market on October 3-4 and may help the government raise about Rs 5,000 crore on a net basis, a series of bigger ETF baskets are likely to be on offer over the following few weeks, enabling it to boost the disinvestment mop-up. "Once the Cabinet gives its nod to bring down government holdings in select PSUs to below 51%, there will be a lot of scope to issue bigger Bharat-22 ETF tranches," a senior official said.
In her Budget speech, finance minister Nirmala Sitharaman had said: "The Centre is considering, in case where the PSU is still to be retained under government control, to go below 51% to an appropriate level on a case-to-case basis".
Currently, there is limited headroom to mobilise disinvestment revenue through Bharat-22 ETF because the government stakes are in the 52-53% range in many large PSUs which the institutional and retail investors might find attractive. The threshold of minimum government holding for PSUs to be in ETF baskets is 52%. Bharat-22 ETF is a diversified index of 22 stocks, including IOC, Nalco (weight 3.92% each), GAIL (4.46%) and Engineers India (0.98%).
In fact, even for the forthcoming issue, the ETF managers will have to procure stocks of Indian Oil (4.2% weight as on September 4) and ITC (14.29%) to retain their weights in the relevant index. Two stocks in the index need to be removed for other reasons. The Centre’s holding in L&T (16.72% weight) via SUUTI has been exhausted in FY19, hence it has to be dropped. Similarly, the Centre has sold its 52.63% stake in REC (1.17% weight) to PFC, leaving no further scope to divest in the company.
In February, Bharat-22 ETF manager had to buy three stocks including REC from market to maintain their weight in the index as the government had no more headroom to divest in these companies. According to sources, the latest Bharat-22 ETF tranche will open on October 3 for anchor investors while it will be open subscription for retail investors on October 4. The base offer size of the issue would be Rs 2,000 crore, which could be raised up to Rs 5,000 crore, depending on the investors response.
So far this year, the Centre has mobilised Rs 12,357 crore (or 12% of the annual disinvestment revenue target) including Rs 10,000 crore through CPSE ETF.
A record Rs 45,080 crore via two extant ETFs - Rs 26,350 crore from CPSE ETF and Rs 18,730 crore from Bharat-22 ETF - helped the Centre mobilise 53% of the disinvestment receipts in FY19. It could try to repeat the feat in FY20 as well. Besides the two extant ETFs, it may launch new sectoral ETFs also.
Analysts are of the view that India's ETF market is expected to witness robust growth in the coming years due to a structural shift in asset-class preference from fixed income to equities as interest rates moderate.