Earlier disinvestment is done through a series of follow-on offers and offers for sale in the market.
Frequent visits to the market by disinvestment candidates led to an oversupply of public sector paper.
This made for sub-optimal timing of the issues and depressed valuations, as their stock prices were inevitably hammered in the run-up to such offers.
ETFs act as a superior alternative to this method of PSU stake sales.
It allows the Centre to sidestep these issues through a one-shot offer.
The government managed to raise Rs.8,500 crore via the second tranche of the CPSE ETF in FY17.
How Bharat 22 is different from CPSE-ETF?
CPSE ETF had exposure of over 62% in the public sector energy giants, with marginal weights in other firms.
This single sector concentration made it quite a risky portfolio to own.
With 22 firms drawn from six different sectors, Bharat 22 fund offers a more diversified, mutual fund-like basket to retail investors.
Bharat 22 plans to maintain its individual stock and sector weights at about 15 per cent and 20% respectively, with an annual rebalancing feature.
Bharat 22 blends sectors with secular growth prospects (like FMCG and utilities), and cyclical ones (like energy, metals, industrials).
The addition of equity stakes held by the SUUTI in private sector blue-chips such as L&T, Axis Bank and ITC should also help Bharat 22 garner better response.
What should be done?
Good packaging is merely not enough to make PSU stakes attractive.
Many investors in India are reluctant of investing on PSUs owing to the Government’s unwillingness to allow them to operate on wholly commercial lines.
e.g irrational dividend and buyback norms, or structuring deals including the recent ONGC-HPCL merger to appropriate their cash coffers.
Repairing this investor-unfriendly image is critical for State-owned firms.
