CPSE ETF

 

Invest in Maharatnas & Navratnas

As part of the disinvestment strategy, the Cabinet Committee on Economic Affairs (CCEA) approved the setting up of a Central Public Sector Enterprise Exchange Traded fund (ETF) 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 10 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.

Returns & Dividend Yield

Since inception of CPSE ETF, NIFTY CPSE TRI Index gave absolute returns of 58% (till Jan 10, 2018). The PE ratio of NIFTY CPSE index stands at 13.3x vis-à-vis 26.9x of NIFTY 50 index. The dividend yield of NIFTY CPSE index was 4.1% and that of NIFTY 50 index was 1.1% as on December 29, 2017.

Market Leaders

PSE stocks have been market leaders and consistent performers in terms of revenues and profits and had been providing good dividends.

Risk

Higher Exposure to Limited Stocks

The NIFTY CPSE Index has higher exposure to only limited (ten) 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

ONGC has the maximum weightage (23%) in the NIFTY CPSE Index, followed by Indian Oil Corporation. Thus ~70% 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 16.7% CAGR return since inception (March 28, 2014) till January 10, 2018. Over the past six months, it generated absolute return of 16.6% against the Nifty 50 returns of 9.4%. The fund has outperformed significantly compared to other investment avenues i.e. MCX Gold Spot and FD.

Exhibit 1: Returns

Particulars


6 Months

2 years

Since Inception (28th Mar 14)

Nifty 50 TRI

9.4

19.7

14.4

S&P BSE Sensex TRI

9.1

19.1

13.7

MCX Gold Spot

6.2

6.5

1.0

SBI FD Rate

6.8

6.3

8.8

CPSE ETF

16.6

21.9

16.7

 Source: Reliance Securities Research

Index Composition as on December 29, 2017

Company Name

Sector

Weightage (%)

Oil & Natural Gas Corporation

Energy

24

Indian Oil Corporation

Other Oil PSUs

17

Coal India

Energy

15

Gail (India)

Other Oil PSUs

14

Container Corporation of India

Infra. & Engineering

7

Bharat Electronics

Infra. & Engineering

6

Rural Electrification Corporation

PSU Financials

6

Power Finance Corporation

PSU Financials

5

Engineers India

Infra. & Engineering

3

Oil India

Energy

3

 Source: Bloomberg, IISL