Bookmark and Share

Can Indian Government ETF CPSE Revive the Dead Equity ETF Market in India

0 Comment

The world’s biggest equity market in USA continues to see massive flow of money out of traditional mutual funds into ETFs as their simplicity, low costs and ease of use has made them the favorite equity investment vehicle for investors. However in India, equity ETFS have yet to catch on despite a number of products being introduced by the players. There are a number of reasons why equity ETFS in India have not caught on. These are:

a) Indian equity market is not mature enough and most of the equity products are sold by distributors to mostly uninformed retail investors

b) There is not enough financial education amongst investors in India

c) Asset Management Companies in India have not really promoted ETFs as equity mutual funds give them better returns.

The only ETFs in India which have succeeded are the gold fund etfs which have seen massive inflows from investors. Almost every major fund house has launched a gold ETF (which again makes no sense).

Government of India plans to divest stakes in state owned companies through an ETF

The ETF market in India may see a revival due to an unexpected source – Government of India. The reason is that the government plans to divest stakes in PSUs through an ETF which is going to be launched this year. The government has failed miserably in its divestment target as not a single IPO or FPO has materialized due to indifferent market conditions. This has forced the government to adopt a new tactic by launching a CPSE – ETF which will be formed of shares in companies which it aims to divest.

Review of Indian ETFs

India’s large AMCs like Reliance, Kotak, Prudential, HSBC, HDFC etc have been laggards in the ETF segment. While most of the fund houses have started ETFs based on Gold and Stock Indices, they remain quite unpopular till now. It is not a big surprise considering their relatively high expenses, lack of differentiation and non-passive nature. The whole purpose of an ETF is defeated if its expense structure is too high or its passive nature of investing is violated. ETFs in India is certain to grow in the future due to its excellent value proposition compared to other financial instruments like Mutual Funds. The current state of the ETF sector reveals it to be severely under penetrated lacking both in depth and variety. Benchmark is the only AMC be focusing on this sector. There is an excellent opportunity for a new player to make a mark in this sector considering its huge growth potential.


With an aim to kick off disinvestment in a big way, the Finance Ministry has initiated the process of setting up a Central Pubic Sector Enterprises Exchange Traded Fund (CPSE-ETF). This fund will help the investor to reduce investment risk.

 The usual mode of taking a partial disinvestment offering of a CPSE to the market include initial or further public offering, offer for sale through stock exchange or an institutional placement programme. The proposed CPSE-ETF will serve as an additional mechanism for the Government to monetise its shareholdings in those CPSEs that will eventually form part of the ETF basket. The Government aims to mobilise Rs 30,000 crore through disinvestment this fiscal. It has already approved disinvestment in six companies — Rashtriya Ispat Nigam Ltd (RINL), SAIL, Oil India, MMTC, Nalco and Hindustan Copper. Disinvestment in RINL will be done through IPO while in the remaining five, offer for sale through stock exchanges or auction method will be used.

Related Links:



Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to

No Responses so far | Have Your Say!