Refined OFS and ETF models needed

Last Updated: Sat, Sep 29, 2012 04:30 hrs

The Kelkar panel on fiscal consolidation has suggested a predominantly secondary market-based approach to meet the disinvestment target of Rs 30,000-crore in the remaining period of the financial year.

The committee, headed by former finance secretary Vijay Kelkar, has sought the introduction of a refined offer for sale (OFS) route and exchange traded fund (ETF) model through the creation of an asset management company (AMC).

OFS has been available to the government since February 2012 with the ONGC stake sale.

The Kelkar pointed out that the existing OFS model has a one-day window, which may not be suited for big ticket stake sales. Concentrating huge volume sales on a single day may have the risk of being affected by sudden fluctuation in prices. The panel has pitched for an extended new OFS method — Call Option Model.

Under this option, the government may offer for sale, simultaneously, multiple securities over a period of time until the divestment targets are achieved. The committee has also recommended the ETF route for disinvestment on which the government has already started working by initiating the process for roping in advisors. The ETF route will encourage the retail investors to participate and would allow government to sell all the stocks it holds, instead of a select few.

Creation of an ETF comprising of all the 50 listed securities of central public sector enterprises (CPSE) held by the government will offer several advantages to the retail investors such as low cost access to the market and passive investment.

“GOI, through an AMC can create an ETF based on the basket of securities held by them. Instead of using all the securities to create a basket, the government may like to consider the option of creating a basket with securities having a good financial track record,” the panel suggested.

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