60% of PSU ETF lapped up in two days

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Investors have lapped up over 60 per cent of the Rs 3,000 crore new fund offer (NFO) of the CPSE exchange-traded fund within two days. The NFO of the open-ended fund opened for anchor investors on Tuesday and for non-anchor investors on Wednesday. It is scheduled to close on March 21.

A senior finance ministry official told Financial Chronicle that the scheme received Rs 1,000 crore investment from non-anchor investors and retail investors on Wednesday and Rs 835 crore from anchor investors on Tuesday. “In all, we have received Rs 1,835 crore so far,” the official said.

The anchor investors included Life Insurance Corporation of India (LIC), Bharti Axa Life Insurance, General Insurance Corporation of India, National Insurance Company, New India Assurance and United India Insurance and State Bank of India. A maximum of Rs 900 crore, or 30 per cent of the offer, was reserved for this category.

“Of the Rs 1,000 crore investment received from non-anchor and retail investors, the share of retail and institutional investors has been 50:50,” an official tracking the issue told Financial Chronicle.

ICICI Securities executive vice-president Vineet Arora said the response from retail investors had been strong.

During the new fund offer, the ETF offers 5 per cent discount on market price of the underlying units for retail investors, who will also receive 6.66 per cent loyalty bonus i.e., one loyalty unit will be allocated for every 15 units held continuously.

The ETF is being managed by Goldman Sachs Asset Management (India) and will be listed on the stock exchanges.

The government is using the ETF route to disinvest stakes in public sector undertakings. The fund will invest in 10 maharatnas, navratnas and miniratna companies — including Coal India, GAIL, ONGC, IndianOil, Bharat Electronics, Oil India, PFC, REC, Container Corporation and Engineers India — at a 5 per cent discount to the ‘reference market price’.

The minimum investment limit is Rs 10 crore for anchor investors, Rs 5,000 for retail investors and Rs 2,00,001 for qualified institutional buyers/non-institutional investors. The maximum limit for retail investors is Rs 2 lakh.

Financial planners advise caution on the ETF, pointing out that its composition was heavily tilted in favour policy-heavy cyclical stocks, with 59 per cent of the portfolio in energy stocks, 17 per cent in metals and 13.5 per cent in finance.

Prateek Pant, head of wealth solutions, private banking at Royal Bank of Scotland, said a diversified equity mutual fund would be a better way to invest in equities than a sectoral fund like CPSE ETF, where the outlook is not bright.

“An actively diversified equity portfolio would give more than 15 per cent CAGR returns in five years. The stocks (in the CPSE ETF) would get impacted directly by government policies, as they are from fairly politically-sensitive sectors such as oil and gas, natural resources,” Pant pointed out.

The head of wealth management in another foreign bank said he won’t recommend the ETF to his clients. While valuations of the maharatna companies are fairly attractive at this point, the government policy has not been consistent over the last few years to protect minority shareholders, he said.

“Coal India was made to pay special dividends to the government to address fiscal deficit. The subsidy-sharing arrangement with ONGC is not transparent and keeps changing,” he pointed out, and added that stocks of public sector companies would continue to trade at a substantial discount compared with their peers in the same industry unless the new government took steps or made its policies clear on how they would approach governance in PSU firms.


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