Business Today

CPSE Exchange Traded Fund: All you need to know about the fourth tranche to be launched next week

The issue will open early next week and investors would get 3.5-4 per cent discount over the issue price. The government is aiming to mop up Rs 8,000 crore, with a green-shoe option to retain either Rs 4,000 crore or Rs 6,000 crore from the fourth tranche of CPSE ETF.

twitter-logo BusinessToday.In        Last Updated: November 20, 2018  | 18:34 IST
CPSE Exchange Traded Fund: All you need to know about the fourth tranche to be launched next week

The government plans to raise up to Rs 14,000 crore through the launch of fourth tranche of CPSE Exchange Traded Fund next week. The CPSE ETF is part of the Modi government's divestment programme via which it has already raised Rs 11,500 crore in the earlier three tranches of the ETF.

Here's a look at all you need to know about the CPSE ETF's next week issue.

  • The issue will open early next week and investors would get 3.5-4 per cent discount over the issue price. The government is aiming to mop up Rs 8,000 crore, with a green-shoe option to retain either Rs 4,000 crore or Rs 6,000 crore from the fourth tranche of CPSE ETF.
  • The number of scrips in the CPSE ETF has been increased to 11 state-owned companies, compared to 10 earlier, with the entry of four new firms namely NTPC, SJVN, NLC and NBCC. Three existing companies, GAIL, Engineers India Ltd (EIL) and Container Corporation of India, have been removed from the index as the government holding in these companies has fallen below 55 per cent. Since the weightage and scrip value of these three companies were higher, four new CPSEs had to be included in the ETF to replace them to keep the CPSE ETF index value at the same level.
  • Going ahead, the companies will be removed from the index if the government holding in these companies falls to 53% from the earlier 55%. Henceforth the capping of individual stocks in the CPSE basket also has been reduced to 20% from the earlier 25%. The index has been well diversified with the dominance of oil sector been delinked.
  • The other seven bluechip PSUs in the CPSE ETF are ONGC, Coal India, IOC, Oil India, PFC, REC and Bharat Electronics.
  • Nifty CPSE index is trading at a 55-60% discount to the Nifty 50 Index valuation. This is attractive and cheap in terms of valuation as previously the Nifty CPSE index used to trade at a discount of 40-50%.
  • The CPSE ETF is also attractive as the dividend yield of the CPSE ETF index is over 5% on the dividend given in FY2017-18. So far this year, the government has not announced any dividend. Even if the government announced the same dividend, investors would stand to earn over 8% returns (3.5% from the discount and 5% from the dividend). The CPSE ETF has become a well-diversified basket with the first time inclusion of power sector stocks in the basket.
  • CPSE ETF was formed in 2014 and the government has so far sold stake in the 10 companies in the basket in three tranches, thereby raising Rs 11,500 crore-Rs 3,000 crore from the first tranche in March 2014, Rs 6,000 crore in January 2017 and Rs 2,500 crore from the third in March 2017.
  • In June 2018, the government garnered about Rs 8,400 crore through follow-on offer of another ETF-Bharat 22 ETF, which comprises shares of 22 companies, including banks. The government has mopped up over Rs 15,000 crore so far this fiscal through PSU disinvestment, which includes about Rs 5,300 crore from Coal India share sale, Rs 1,700 crore from IPOs of four PSUs-RITES, IRCON, MIDHANI and Garden Reach Shipbuilders. The budgeted target from PSU disinvestment in current fiscal is Rs 80,000 crore.

Youtube
  • Print

  • COMMENT
BT-Story-Page-B.gif
A    A   A
close