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 8.2x vis-à-vis 22.6x of NIFTY 50 index as on February 28, 2019. Further, dividend yield of NIFTY CPSE index was 5.52% and that of NIFTY 50 index was 1.25% as on February 28, 2019. The total expense ratio stands at 0.0095% for the FFO 4.

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

Oil & Natural Gas Corporation Ltd. has the maximum weightage (~20%) in the NIFTY CPSE Index, followed by NTPC Ltd 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 7.53% CAGR return since inception (March 28, 2014) till March 07, 2019. Over the past three months, it generated absolute positive return of 12.83% against the Nifty 50 positive returns of 3.66% and hence outperformed by 9.17%.

Exhibit 1: Returns

Particulars


3 Years

Since Inception * (28th Mar 14)

CPSE ETF

9.73

7.53

Nifty 50 TRI

15.43

12.09

Average Large Cap Category

12.59

12.40
 Source: NSE & Reliance Securities Research

Note: *Returns as on March 07, 2019 ; Data as of 28th Feb, 2019 ; Less than 1 year Absolute returns, Greater than or Equal to 1 year Compound Annualized returns; 

Index Composition as on 28th Feb, 2019

Company Name

Sector

Weightage (%)

Oil & Natural Gas Corporation Ltd.

Oil

20.43

NTPC Ltd

Power

19.54

Coal India Ltd

Minerals/Mining

19.09

Indian Oil Corporation Ltd.

Petroleum Products

18.64

Rural Electrification Corporation Ltd

Finance

6.72

Power Finance Corporation Ltd

Finance

6.13

Bharat Electronics Ltd

Industrial Capital Goods

4.06

Oil India Ltd

Oil

2.84

NBCC (India) Ltd

Construction

1.46

NLC India Ltd

Power

0.63

SJVN Ltd

Power

0.47
 Source: AMFI, NSE Indices Ltd.