Modi-Backed ETF Hooks Investors

  • Fund prospects boosted by commodity revival, energy focus
  • New tranche to see strong retail participation: Outlook Asia

For investors, India’s Prime Minister Narendra Modi is emerging as the best manager of companies.

His government’s exchange traded fund of the top 10 state-owned firms has returned 31 percent in the past year, more than double the gains in the benchmark stock index, data compiled by Bloomberg show. Investors who missed buying the fund three years ago will get an opportunity on Wednesday as Modi seeks to raise 45 billion rupees ($660 million) selling new units.

The fund’s tilt toward energy shares has helped it deliver market-beating returns as an agreement by OPEC last year to cut output sparked the biggest oil rally since 2009. The performance may sustain as better-than-expected demand in China helps support a revival in commodity prices. An index of Indian oil stocks is up 3.5 percent since Jan. 1 after rising 27 percent last year, and metalmakers are having their best start to a year since 2012.

“The fund’s outlook looks strong on hopes of a continuing upsurge in commodity prices and Modi’s pro-growth policies to boost the public sector profitability,” said Manoj Nagpal, chief executive officer at Mumbai-based investor advisory firm Outlook Asia Capital Pvt. “The fund’s performance is expected to attract a lot of investors for the new tranche.”

The Central Public Sector Enterprises ETF is part of the government’s asset-sale plan aimed at narrowing Asia’s widest fiscal deficit without reducing public spending that’s sustaining one of the world’s fastest growth rates. The administration, which would earlier focus only on selling stakes in companies, is considering options including dividend payouts and capital restructuring to raise revenue.

The government has garnered 235 billion rupees ($3.5 billion) via minority and strategic stake sales in the fiscal year ending March 31, against a target of 565 billion rupees. Only five times since 1998 has the nation met or beaten its disinvestment target, data show. The fundraising through the CPSE ETF would be the biggest this financial year if the fund raises as much as 60 billion rupees, including an over-allotment option of 15 billion, according to Sundeep Sikka, chief executive officer at Reliance Nippon Life Asset Management Co.

Summary

  • CPSE ETF was launched in March 2014 by Goldman Sachs Asset Management India. The fund garnered 43 billion rupees versus a 30-billion rupee target. Reliance Mutual Fund operates the fund after it bought Goldman’s local ETF business in 2015.
  • Oil & Natural Gas Corp., the nation’s largest explorer, had the highest weighting of 24 percent as of Dec. 31, followed by Coal India Ltd., the world’s largest miner of the fuel, at 20.5 percent: Bloomberg data.
  • Indian Oil Corp. is the fund’s third-biggest holding. The stock has more than doubled in the past two years along with its state-run peers after fuel subsidies were scrapped.
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