The present government has specially constructed a fund to sell the equity stakes in PSUs. It is called CPSE Exchange Traded Fund.
CPSE ETF was originally managed by Goldman Sachs MF, which was acquired by Reliance MF in October 2015.
The government had raised Rs 6,000 crore through the second tranche of CPSE ETF in January 2017 and Rs 3,000 crore from first tranche in March 2014.
The fund-raising will help the government inch towards its Rs 56,500 crore disinvestment target for the current fiscal.
CPSE ETF, which functions like a mutual fund scheme, comprises scrips of 10 PSUs — ONGC, Coal India, IOC, GAIL (India), Oil India, PFC, Bharat Electronics, REC, Engineers India and Container Corporation of India.
During the offer, the CPSE ETF is available at a 5% discount to prevailing market prices.
But if you miss this window, the ETF is listed on the stock exchanges and you can buy or sell units in the secondary market.
Why is it important?
When the Centre floats its disinvestment offers one at a time, the investor response is often dependent on market conditions.
So if markets are soaring and the sector to which the PSU belongs is favoured, the offer gets lapped up.
But if markets are downbeat the offer bombs, prompting LIC or another state institution to do the rescue act.
When the Centre disinvests through the ETF route, a bunch of PSUs can be disinvested at one shot.
Thus, the offer can be timed to good market conditions with a high decibel marketing campaign.
A healthy mop up from disinvestment will mean lower burden on tax payers.
Why should I care?
If you’re a big fan of state-run firms, the CPSE ETF offer is a good opportunity to buy a basket of them.
With a price earnings ratio of about 11 times, compared to the Nifty index’s 22 times, the CPSE basket is inexpensive too.
Investors who bought into the first tranche of the CPSE ETF have made a 54% return on their buy price. They also received bonus units.
What are the risks involved?
The past performance is no guarantee of future returns.
PSUs do suffer from constant government intervention in their business and pricing decisions.
With nearly 74% of its portfolio dedicated to energy stocks, the CPSE basket is heavily reliant on the commodity and economic cycle.
An investment can work out splendidly for either the seller or the buyer. So if the Government wins, you lose.
