AMFI Registered Mutual Fund Distributor | SEBI registered Investment Adviser
FSM LOGO

                    


titl_l_gif
Research
title_r_gif
Share | Email Print more
A promising ETF in Investor Portfolio
January 17, 2017

A quick update on CPSE ETF open for subscription from 18 January, 2017 - 20 January, 2017.


Author : Dr. Renu Pothen




A promising ETF in Investor Portfolio


Reliance Mutual Fund has painted the country with the new ad which goes like this -

Invest in 10 Maharatnas & Navratnas at 5% discount!

With this ad, the fund house does not intend in going big with any funds but the ad is for investments into an Exchange Traded Fund (ETF), a product that is slowly gaining traction among our Investors. Central Public Sector Enterprises (CPSE) ETF, which tracks the Nifty CPSE Index, is a concentrated portfolio of 10 stocks, whose main aim is to help the Government of India (GOI) in disinvesting its stake in a few CPSEs via the ETF route. There is an upfront discount of 5% on the Further Fund Offer (FFO) Reference Market Price to the stocks included in the index. The fund is open for subscription to Non-Anchor investors on Jan 18 and will close on Jan 20. To add on to it, this ETF will get the benefit of Rajiv Gandhi Equity Savings Scheme (RGESS).

Investment Strategy

The fund will invest into stocks, which are the constituents of Nifty CPSE Index, in the same proportion as the Index. The stocks included in this index must fulfil the following parameters.

  • Be a part of the list of CPSEs published by the Department of Public Enterprise.
  • Be Listed at National Stock Exchange of India Ltd (NSE)
  • Have more than 55% Government Holding under promoter category.
  • Have average Free Float market capitalization of more than INR 1000 crore for six month period ending June 2013
  • Have paid dividend of not less than 4% including bonus for the seven years immediately preceding or for atleast seven out of the eight or nine years immediately preceding are considered as eligible companies as on cut-off date i.e,June 28, 2013.

Portfolio Analysis

The portfolio comprises of 10 Maharatna and Navaratna CPSEs whose weightage in the index are given below.

NIFTY CPSE Index Constituents

Company's Name
Weights (%)
Oil & Natural Gas Corporation Ltd

24.51

Coal India Ltd.

20.68

Indian Oil Corporation Ltd

18.08

GAIL (India) Ltd.

11.25

Power Finance Corporation Ltd.

5.62

Rural Electrification Corporation Ltd.

5.25

Container Corporation of India Ltd.

5.08

Bharat Electronics Ltd.

4.36

Oil India Ltd.

3.41

Engineers India Ltd.

2.28

Source: NSE



NIFTY CPSE Index Constituents Market Cap

Source: NSE



A careful analysis of the above table and chart shows that ~ 63% of the surplus is concentrated into 3 stocks, i.e. Oil & Natural Gas Corporation, Coal India and Indian Oil Corporation. As far as the sectoral composition goes,~ 57.25% of the concentration is into energy which comprises of stocks like Oil & Natural Gas Corporation, Indian Oil Corporation, GAIL (India) and Oil India. On the other hand, metals constitute 20.68% of the total surplus.
It is interesting to note here that only 3 stocks (Oil & Natural Gas Corporation, Coal India and GAIL (India) are a part of the NIFTY 50 constituting ~ 3% of the index, while 4 of the stocks (Bharat Electronics, Indian Oil Corporation, Oil India and Power Finance Corporation) are included in NIFTY Next 50. On the other hand, Container Corporation of India is a part of NIFTY 100 while Engineers India and Rural Electrification Corporation are included in NIFTY 200 Index. Hence, we can safely assume that this is a thematic ETF which is a basket of concentrated large cap stocks from the Public Sector Undertakings (PSU) space.

Valuation Metrics



NIFTY CPSE Index Vis-a-Vis other Indices
Index P/E P/B Dividend Yield
NIFTY CPSE Index 11.44 2 4.07
NIFTY 50 Index 21.93 3.1 1.35
NIFTY Next 50 Index 25.14 3.29 1.69
NIFTY 100 Index 22.4 3.13 1.4
NIFTY 200 Index 23.28 2.97 1.36
NIFTY 500 Index 25.3 2.82 1.32

Source: NSE

Across the major parameters, we find that this index is attractive as compared with the other indices.

Performance

If an Investor had invested INR 10,000 into the CPSE ETF at the time of inception and had simultaneously invested the same amount into NIFTY 50, then as on December 30, 2016 the surplus would have been INR 13,049 and 12,228 respectively

Market Cap

Our Take
We believe that the sectors included in the index are the major building blocks which decide the growth momentum of the Indian economy. The Government at the centre, for whom one of the key agenda is to enhance the efficiency of the PSUs and make it more globally competitive, gives us the confidence in the future potential of this investment. We also believe that the Prime Minister who is known to have turned around PSUs in Gujarat will surely try to work his magic when it comes to this segment at a pan India level, although the pace of progress will be slow. The other big positive point for investing into this ETF is the attractive valuations vis-a-vis the other major indices. However, Investors need to note that as the Government is the major stake holder in all the companies included in this index, it is going to be subject to policy changes, which will inturn create volatility in the portfolio. The uncertainties on the commodity prices front will also adversely impact this ETF. Hence, considering the pros and cons of this ETF, we would recommend this product only to those aggressive investors who are already invested into sector funds and has a time horizon of 5 years.

Note: All the data points included in this note are as on December 30, 2016


Disclaimer: iFAST and/or its content and research team's licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website.



Comments (0) | Comment on this Article
 (Click on Comments/Comment on this Article to show or hide comments/post a comment)
USEFUL LINKS
Recommended Funds
Recommended Portfolios
Chart Centre
Risk Profiler