CPSE ETF

 

About CPSE ETF

Nifty CPSE Index was set up to facilitate the GoI’s initiative to disinvest stake in select Central Public Sector Enterprises (CPSEs) through ETF route following the approval of the Cabinet Committee on Economic Affairs (CCEA) on May 2, 2013. The fund will invest into stocks, which are the constituents of Nifty CPSE Index, in the same proportion as the Index. The stocks are selected based on certain criteria and consists of India's 11 largest Public sector companies.  


  

Benefits of CPSE ETF


Opportunity to Invest in PSEs via ETF Route

The CPSE ETF provides the opportunity to invest in Maharatna and Navratna PSEs through ETF route. While it is a good investment as the PSEs are financially healthy and efficient, the Government’s focus to enhance their efficiency is expected to boost returns on investment.

Attractive Valuations & Strong Dividend Yield:

The Price Earnings ratio of NIFTY CPSE index stands at 9.4x vis-à-vis 25.0x of NIFTY 50 index as on October 31, 2018. Further, dividend yield of NIFTY CPSE index was 5.3% and that of NIFTY 50 index was 1.4% as on October 31, 2018. Notably, a significant reduction in expense ratio at 0.0095% effective from FFO 3 bodes well..

Market Leaders

PSE stocks have been market leaders and consistent performers in terms of revenues and profits and had been providing good dividends. Further, PSEs have been showing decent corporate governance over the years..

Risk

Higher Exposure to Limited Stocks

The NIFTY CPSE Index has higher exposure to only limited (Eleven) stocks and few sectors that is, oil & gas and energy find representation in the index. This makes the NIFTY CPSE index a concentrated index. Again, the stocks of PSU companies may seem to be attractive in current valuations, but policy dependency and cyclicality may lead to volatility.

 Inequitable Distribution

NTPC has the maximum weightage (~20%) in the NIFTY CPSE Index, followed by Coal India. Notably, over 80% of the index comprises of energy companies and oil PSUs, which make the index a risky bet for certain category of investors based on their risk profile.

Sectoral Complexities

As the common investors would find it difficult to understand the very sectoral dynamics, there exists a likelihood of realizing the underlying advantages and imminent disadvantages associated with their investment


Performance of the Fund

CPSE ETF fund yielded 8.2% CAGR return since inception (March 28, 2014) till October 31, 2018. Over the past three months, it generated absolute negative return of ~7.6% against the Nifty 50 negative returns of ~8.3% and hence outperformed by ~0.7%.

Exhibit 1: Returns

Particulars


3 Years

Since Inception * (28th Mar 14)

CPSE ETF

6.98

8.30

Nifty 50 TRI

12.48

12.03
 Source: NSE & Reliance Securities Research

Note: *Returns as on October 31, 2018 ; Data as of 16th November, 2018 ; Less than 1 year Absolute returns, Greater than or Equal to 1 year Compound Annualized returns; 

Index Composition as on October 31, 2018

Company Name

Sector

Weightage (%)

NTPC Ltd

Power

19.59

Coal India Ltd

Minerals/Mining

19.17

Indian Oil Corporation Ltd

Petroleum Products

18.98

Oil & Natural Gas Corporation Ltd

Oil

18.92

Rural Electrification Corporation Ltd

Finance

6.19

Power Finance Corporation Ltd

Finance

5.50

Bharat Electronics Ltd

Industrial Capital Goods

4.95

Oil India Ltd

Oil

3.45

NBCC (India) Ltd

Construction

1.66

NLC India Ltd

Power

0.95

SJVN Ltd

Power

0.64
 Source: AMFI, NSE Indices Ltd.