What is EPF?
- 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.
Source: Business Line
