Trust the government to come up with alphabet soup mouthfuls. The newly minted CPSE ETF is the latest kid on the block.
What is it?
It’s an ETF (exchange traded fund) made up of CPSE (central public sector enterprises) stocks. An ETF is a fund that pools money from many investors, channels it into a basket of stocks and then sits back and goes along with the ride.
Unlike your ordinary mutual fund, where the fund manager searches heaven and earth for shares to trounce benchmark indices such as the Sensex, ETFs simply mirror the indices.
But like mutual funds, ETFs too have to disclose their daily net asset value — this shows how the basket of stocks is faring. As an investor, you get units of the ETF that represent a slice of the fund. ETF units are listed on stock exchanges — so anyone can buy or sell them at their quoted price.
The CPSE ETF will own a basket of public sector shares acquired from the government. To begin with, the fund will pick stocks of 11 big-daddy public sector companies.
Oil explorer ONGC will make up a fourth of this ETF, while Coal India, GAIL and Power Grid will be the other big positions. Chipping in with 1-6 per cent will be REC, Oil India, Container Corporation of India, Power Finance Corporation, Indian Oil Corporation, McNally Bharat Engineering Company and Engineers India.
Why is it important?
Most people are now agreed that it is not the government’s business to be in business. Ergo, the State should ‘divest’ or shed stakes in companies it owns.
Also, the government, like most of us, always needs money. And this year, it needs it badly and quickly — (March’s coming). In the good old days, the government would simply sell off 10-15 per cent of the family silver — sarkar-owned Maharatnas, Navratnas and all those other little ratnas.
But this year, with the economy being what it is, investors aren’t biting. They would rather buy tech stocks or soap makers than out-of-favour companies operating coal mines and steel mills. Employee unions aren’t happy either with the government selling off chunks to corporate types who drive a hard bargain.
So, the smart cookies at the Finance Ministry came up with this out-of-the-box idea — Central Public Sector Enterprises Exchange Traded Fund aka CPSE ETF.
The CPSE-ETF lets the government pare smaller 2-3 per cent stakes in a big basket of companies. Everyone’s happy — the state gets its money, institutions get a piece of solid public sector companies, and worker unions are happy that they don’t run the risk of working for private promoters.
Why should I care?
The government will soon be going to town, marketing the CPSE ETF. You will have to decide whether you want to buy it.
If you’d like to help the exchequer in its hour of need, go ahead, buy it. And with PSU stocks now not being the flavour of the season, they are available cheap. Cycles do turn. But if you’re a whiz at dabbling directly in stocks, you may not like to bet on all the PSU firms that the government parks in the ETF. You would rather mix and match just one or two with other blue-chip stocks.
The bottomline
CPSE ETF is a good idea for the government looking to raise a bit of cash, but not necessarily for the aam investor.