‘ETFs in debt have a huge potential for investments’
₹6 trillion. Data from DSP Mutual Fund shows the six-month average volume of a large liquid stock like Reliance Industries Ltd (RIL) is ₹1,948 crore vs ₹78 crore volume of Nippon India ETF Nifty 50 BeEs, one of the most liquid equity ETFs in India (4% of RIL). The six-month average volume of Apple is nearly 26.15% of the SPDR S&P500 ETF. What are your suggestions to tackle the liquidity problem in ETFs? On the NYSE, 5 out of the top 10 traded securities are ETFs.
My belief is that the same will happen in Indian markets. As of today, Nifty 50 BeEs, Nifty Next 50 Junior BeEs and Nifty Bank BeEs have high liquidity and one can do decent size of trading. But yes, liquidity is an important factor and needs to be addressed.
The concept of market makers like in futures and options (F&Os) would help. And once large institutional players come in as investors, the liquidity issue will be automatically addressed. Initially there was a lot of resistance to a new concept.
Our markets were not confident or mature enough to take in a completely new idea or product. Maybe there was also under-confidence in our own capabilities among all stakeholders. Yes, Gold ETFs did dominate the ETF space because there was an obvious need for a product where Indians could buy gold as an investment asset in a hassle free manner.
The cost of investing in gold was more than 5% and selling also attracted that much or more. Gold BeES brought this down to less than a per cent. With liquidity available on the NSE.
It made it very popular. Now we have many more avenues to invest like the gold bonds. CPSE ETF was conceived to include the Specified Undertaking of the Unit Trust of India (SUUTI) stocks and would have been an alternative to an all market index.
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