Is India’s plan for its own ETF lunacy or genius?
India is launching an ETF that will invest in state-run businesses. The move comes as part of the government’s efforts to raise cash and close the country’s fiscal gap.
The ETF is well-timed: Investor interest in India is piqued. After all, in 2012, the EGShares India Consumer ETF (NYSEArca: INCO) rose nearly 52 percent to close out the year as one of the top-performing ETFs for 2012.
Details on the Indian government’s planned ETF are still emerging: We know the portfolio is likely to hold 15 to 20 profit-making companies, according to a senior finance ministry official quoted by the Wall Street Journal.
But it’s not yet clear which companies/sectors would be included and whether the government would be relinquishing majority-shareholder status.
As a point of reference, let’s use the MSCI India Investable Markets Index as a proxy to see a breakdown of the investable Indian market below:
The Indian government owns a broad portfolio of companies whose operations range from health care to mining.
What is clear, according to the official quoted in the Journal, is that the fund will purchase its shares directly from the government.
The plan is borne from a need for the Indian government to close its fiscal gap, and a large part of closing that budget is selling stakes in state-run businesses.
The problem has been drumming up sufficient investor interest: According to the Journal, the Indian government has raised less than $1.3 billion of the $5.5 billion total it hopes to raise.
Why an ETF?