CPSE ETF…Worth Investing?

Background

The Government of India(GoI) has been using the ETF route to attract investors and achieve its disinvestment target in order to keep the fiscal deficit under control. Set up in 2014, the CPSE(Central Public Sector Enterprise) ETF consists of Maharatnas, Navratnas, and Miniratnas with no lock-in period and active trading in the secondary market(stock exchange)[1][2].

CPSE ETF.jpg

Fig 1. CPSE ETF[3]

As ETF’s are passively managed, they have a lower expense ratio as compared to a Mutual Fund.

Current Listing

There have been 4 tranches of CPSE which have been listed on the bourses allowing the government to achieve its intended goal.

FFO4

Fig 2. CPSE ETF FFO 4[6]

The 5th tranche is currently underway from March 19-22,2019 with an intent to raise Rs. 3500 crores[3][4].

Now the question arises, is it worth investing??

Despite some opinions of optimism, the overall view is a BIG NO

Why so???

The top stocks in this tranche are as follows:

  • ONGC
  • IOCL
  • Coal India
  • NTPC

 

These stocks make around ~77% of the overall portfolio and they are susceptible to high volatility owing to their dependency on crude oil and coal[4][5].

CPSE Composition

Fig 3. The composition of CPSE ETF FFO 4 [6]

 

Also, the past performance of the previous CPSE ETF has been below the Sensex performance.

 

CPSE Performance

Fig 4. The composition of CPSE ETF FFO 4 [3][4][5]

 

Owing to this, despite the

  • High Dividends
  • Attractive P/E valuation
  • Discount of 4-5%
  • Bonus units for a holding period of 1 year

Investors can be better off without subscribing to the CPSE ETF FFO 4. The only motivation can probably be the listing gain considering the past response!!!

 

If you want to share your opinion kindly do so in the comments section or email me at u2d2tech@gmail.com.

Reference:

  1. https://www.financialexpress.com/economy/what-is-a-cpse-etf-heres-a-beginners-guide/621856/
  2. https://www.chittorgarh.com/article/cpse_etf_nfo_opens_on_18th_march_2014/61/
  3. https://economictimes.indiatimes.com/mf/mf-news/ntpc-three-other-psus-included-in-cpse-etf/articleshow/66585571.cms
  4. https://www.livemint.com/mutual-fund/mf-news/cpse-etf-further-fund-offer-may-give-short-term-gains-but-should-you-invest-1553011256610.html
  5. https://economictimes.indiatimes.com/markets/stocks/news/cpse-etf-fifth-tranche-subscription-to-open-on-march-19-government-eyes-rs-3500-crore/articleshow/68449254.cms
  6. https://www.reliancemutual.com/FundsAndPerformance/NFODocuments/CPSE-ETF-FFO-4-Presentation.pdf
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