Govt plans global ETF to tap investment from large overseas pension funds

Govt was planning to list Bharat-22 ETF in the overseas market but decided not to go ahead with it as investors expressed apprehensions over the cost associated with hedging and currency conversion

The Finance Ministry is planning to launch a global exchange traded fund (ETF) with a view to attracting long-term investment from overseas large pension fund houses.

The new ETF, which will be constituted after studying the appetite of large investors, is being planned for launch in the next financial year, an official said.

Initially, the ministry was planning to list Bharat-22 ETF in the overseas market but decided not to go ahead with it as investors expressed apprehensions over the cost associated with hedging and currency conversion.

"The target is to tap the untapped investors, which is the large overseas pension funds. A new ETF is being thought of which will be constituted based on the sectors for which these investors show their interest," the official told PTI.

The official further said that the CPSEs in which there is substantial scope for further dilution of government equity, like where promoter holding is above 58-60 per cent, will be included in the proposed ETF for global listing.

The government has listed two exchange-traded funds -- CPSE ETF and Bharat-22 ETF-- on the domestic stock exchanges. ETFs function like a mutual fund scheme and have underlying assets of government-owned companies.

The government has already raised Rs 229 billion through two tranches of Bharat-22 ETF and Rs 115 billion through three tranches of CPSE ETF.

Launched in 2017-18, the Bharat 22 ETF, consist of 16 central public sector enterprises (CPSEs), three PSU banks and three private sector companies ITC, L&T and Axis Bank where Specified Undertaking of Unit Trust of India (SUUTI) holds a stake. Bharat-22 ETF basket is diversified and there should be investor demand in the overseas market, the official added.

The state-owned companies or PSUs that are part of the new Bharat ETF-22 include ONGC, IOC, SBI, BPCL, Coal India and Nalco.

The other central public sector enterprises Bharat-22 are Bharat Electronics, Engineers India, NBCC, NTPC, NHPC, SJVNL, GAIL, PGCIL and NLC India. Only three public sector banks -- SBI, Indian Bank and Bank of Baroda -- figure in the Bharat-22 index. The official said the ETF route is a safer mode of disinvestment as it shields investors against stock market volatility.

CPSE ETF was set up in 2014 and the government has so far sold stakes in the 10 bluechip PSUs-- ONGC, Coal India, IOC, Oil India, PFC, Bharat Electronics, REC, GAIL, EIL and Container Corporation of India.

The ministry is also planning a fourth tranche of CPSE ETF.

The government has set a target of Rs 800 billion to be raised from PSU disinvestment this fiscal. So far, it has raised over Rs 90 billion.