How ETFs Helped Government’s Divestment Goals
For a government looking at buybacks and dividends to bridge the budget gap, it’s the exchange-traded funds that have contributed more to divestment since the first such fund was launched in April 2016.
Offloading shares of state-run companies to investors through ETFs has been the second-biggest contributor to the proceeds, behind initial public offers and strategic sales, according to data on the website of Department of Investment and Public Asset Management.
The government has raised Rs 1.27 lakh crore through divestment since April 1, 2016, according to data collated by BloombergQuint. About Rs 48,300 crore (nearly $7 billion), or 38 percent of it, came through ETFs. IPOs and strategic sales contributed 41 percent, while buybacks by state-run companies accounted for 20.3 percent.
The proceeds, however, exclude Rs 16,332 crore raised by selling the government’s holding in private companies held by SUUTI, and also off-market transactions like the Rs 36,915 crore sale of its stake in Hindustan Petroleum Corporation Ltd. to Oil and Natural Gas Corporation Ltd.
Still, this financial year the government has announced a similar deal to sell its holding in power sector financier REC Ltd. to state-run peer Power Finance Corporation Ltd.. It’s also identified companies for share buybacks.
Volatility Not A Concern For ETFs
ETFs are like mutual fund schemes that are listed and traded on exchanges and attract retail investors. And while IPOs and stake sales depend on market conditions and investor appetite, exchange-traded funds allow the government to lower its holding in public sector companies without being concerned about the volatility in the market. That’s on display this year.
Both CPSE ETF and Bharat-22 ETF have lagged behind the benchmark Nifty 50 but the funds have contributed Rs 25,325 crore of the Rs 34,000 crore raised so far in this financial through divestment, according to data collated by BloombergQuint. The target for the fiscal is Rs 80,000 crore.