Second CPSE ETF to be more diversified

The central government’s soon-to-be-launched second central public sector enterprises exchange-traded fund (CPSE ETF) is being planned as an attractive, diversified offering, which may constitute 20-25 stocks from across sectors.

The first CPSE ETF basket had 10 stocks, mostly drawn from the minerals and energy sectors.

The “alternative mechanism” for the second CPSE ETF, which was cleared by the Cabinet Committee on Economic Affairs, was close to finalising the constituents of the basket, sources said. The stocks will include listed state-owned companies, public sector banks and financial institutions, and the stake that the Centre holds in non-public sector undertakings (PSUs). These include the government’s shareholding through Specified Undertaking of the Unit Trust of India (SUUTI). These are Axis Bank, Larsen & Toubro and ITC. Hindustan Zinc is another non-PSU in which the Centre holds a stake and may form a part of the new ETF basket.

“The Centre offered a successful and safe investment product with the first CPSE ETF. We will not only try to replicate that but provide a financial product wherein the risks are more diversified and can provide much better returns,” said a senior official from the department of investment and public asset management (Dipam).

Among the PSUs, the stocks that are likely to form part of the basket will be from sectors as varied as power, steel, coal, railways, construction, defence, trading, transportation infrastructure, and a number of other verticals, Business Standard has learnt.

A number of discussions have taken place between Dipam and the asset manager, ICICI Mutual Fund. The final decision on the constituent stocks will be taken by the alternative mechanism, headed by Finance Minister Arun Jaitley.

The second ETF will draw on the success of the first one, launched in March 2014. It is managed by Reliance Mutual Fund and has so far garnered Rs 11,500 crore for the exchequer in three tranches. A fourth tranche is expected later this year.

An ETF is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. It provides diversification to investors and is cheaper than investing in a fund.

The constituent firms of the first ETF are Coal India, Oil and Natural Gas Corporation (ONGC), GAIL, Rural Electrification Corporation, Power Finance Corporation, Container Corporation of India, Indian Oil, Oil India, Bharat Electronics and Engineers India. Of these, the largest are ONGC, with a 23.62 per cent weight, Coal India (17.18 per cent), and GAIL (16.81 per cent). The other companies’ weights range between one per cent and 8.5 per cent.

Planning attractive offering

* Exchange-traded fund  could have as many as 20-25 constituent stocks, compared with 10 in first CPSE ETF

* Centre’s aim is to provide a diversified option to investors with better returns

* Constituent stocks to include public sector units, public sector banks, state-owned insurers

* Basket to also include Centre’s stake in non-CPSEs, including Axis, L&T, ITC, HZL