CPSE ETF 5th tranche opens on Tuesday, should you subscribe?
After successfully raising Rs. 3,500 crore through BHARAT 22 ETF recently, the government is trying to raise another Rs. 3,500 crore through a further fund offer (FFO) in the Central Public Sector Enterprises (CPSE) ETF this week. The ETF is being managed by Reliance Nippon AMC and investors are offered 4 per cent discount to the ‘reference market price’ of the ETFs constituents.
The ‘reference market price’ is calculated based on an average of volume-weighted price of the constituents of the Nifty CPSE Index on the NSE over 20 and 22 March.
The offer will open and close for anchor investors on 19 March 2019. It will open for non-anchor investors (including retail investors) on 20 March 2019 and close on 22 March 2019.
The current constituent of CPSE ETF is not the same as it was launched earlier in the year 2014. Currently, it has 11 public sector companies; however, the portfolio of the ETF seems to be quite concentrated as top four companies including Oil & Natural Gas Corp. of India (ONGC), NTPC, Coal India and Indian Oil forms around 77 per cent of the ETF.
Should you subscribe?
The CPSE ETF in the last two year has yielded a negative return of -5.1 per cent while in the last one year it has given a negative return of -7.82 per cent. The frontline equity indices Nifty50 in the same period has yielded a return of 25.8 and 10.3 per cent, respectively. Nonetheless, year till date (YTD), we have seen CPSE ETF beating the Nifty 50. Since the start of the year, CPSE ETF has given a return of 8.9 per cent compared to 5.3 per cent by Nifty 50. Add to that, at the end of February 2019, the dividend yield of the index was as high as 5.52 per cent compared to 1.25 per cent for the Nifty 50, which makes the issue attractive for risk aversive investors.
Nonetheless, we believe that you can apply for ETF with a short-term horizon due to the current discount that you will get and momentum seems to be intact for these companies now, which can give you better returns in the short-term.
