Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Market / Stock-market-news/  ICICI Prudential AMC wins bid for SUUTI exchange-traded fund
BackBack

ICICI Prudential AMC wins bid for SUUTI exchange-traded fund

Fund house wins bid to offer a slice of the government's stake in a basket of listed companies

The basket of securities will comprise the state’s stake in the three scrips held through SUUTI—Larsen and Toubro, Axis Bank and ITC—and around seven or eight government-owned firms. Photo: MintPremium
The basket of securities will comprise the state’s stake in the three scrips held through SUUTI—Larsen and Toubro, Axis Bank and ITC—and around seven or eight government-owned firms. Photo: Mint

Mumbai: ICICI Prudential Asset Management Co. Ltd has won the bid to launch India’s second mutual fund (MF) scheme that will offer a slice of the government of India’s stake in a basket of listed companies, according to two people familiar with the matter.

This basket of securities will comprise the state’s stake in the three scrips held through the Specified Undertaking of the Unit Trust of India (SUUTI), Larsen and Toubro Ltd, Axis Bank Ltd, ITC Ltd, and around seven or eight government-owned firms. The scheme will be an exchange-traded fund (ETF) that will be listed on the stock exchange.

On Monday, the financial bids of the five short-listed fund houses were opened. As per the formula that was earlier decided by the government and the advisor to this scheme, ICICI Prudential Asset Management was the winner. “The bids were opened today and ICICI Prudential Asset Management (AMC) has won it", said one of the two people. “Yes, I am aware that the financial bids opened today and the fund house has qualified as per the terms. But the official announcement is pending", the second person added. Both asked not to be identified.

ICICI Securities, the advisor, declined to comment for this story. A financial ministry spokesperson, too, declined to comment.

“Principally, the ETF market needs to develop in India. It offers people to get allocation into equities at a much lower cost than some of the actively-managed funds. For clients who already have an exposure into some of these schemes, this (an ETF like SUUTI ETF) also offers another way to access the equity markets. It would help institutional investors as well as high net-worth individuals. Also remember an ETF’s composition doesn’t change. So you know where your money is getting invested in. If you have a positive view on such underlying scrips, then you can go ahead. But, of course, we have to wait and see the final form of this ETF", says Prateek Pant, director of products and services at RBS Private Banking.

This is the second time the government has chosen to divest its stake in listed companies through the ETF route. In March, the United Progressive Alliance (UPA) government divested its stake in 10 government-owned firms by launching the Central Public Sector Enterprises (CPSE) ETF Fund. The government collected about 4,400 crore for its stake sale of which it allotted stocks worth 3,000 crore.

The bidding process called for fund houses to submit a technical bid and a financial bid. While the technical bid evaluated a fund house’s capabilities to manage this fund, financial bids evaluated fund houses on the basis of how low a management fee its ETF would charge investors. Seven fund houses put their bids in the first round. They were SBI Funds Management Co. Ltd, ICICI Prudential AMC, Reliance Capital AMC, Birla Sun Life AMC, Kotak AMC, UTI AMC and a consortium of Sundaram AMC and Edelweiss AMC. Kotak AMC as well as the consortium lost out in this round and the remaining five qualified for the second and final round.

Not all advisors are enthused, though, by government-owned firms. “Government-run companies are not necessarily well-managed. There is a politician sitting behind it and there could be other agendas behind its running, other than business. Besides, what’s the logic of SUUTI? Just because they have stakes in some companies and they want to divest their stakes, that’s why they have made some basket of securities. We need to ask what’s an investor gaining at the end of the day. It’s undesirable to have an exposure here," says Suresh Sadagopan, a Mumbai-based financial planner.

SUUTI was formed in 2003 when the government broke the Unit Trust of India into two entities, following a crisis at the company. All MF schemes that were linked to the market were transferred to a new entity, UTI Asset Management Co. Ltd, which came under Sebi’s MF regulations.

The assured return MF schemes and US-64 were transferred to UTI-1 or SUUTI which then issued bonds to investors in lieu of their underlying units, promising to pay them after about five years. SUUTI started out with a corpus of 31,618 crore. The rise in equity markets from 2004 helped SUUTI make money on the underlying scrips it held.

At present, SUUTI has stakes in just three companies. It holds 11.27% in ITC, 8.18% in L&T and 11.66% in Axis Bank. The stake is valued at about 55,000 crore. SUUTI is divesting about a small portion of this stake through this ETF.

Remya Nair contributed to this story.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 10 Nov 2014, 11:50 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App