CPSE ETF FPO Opens This Week: Should You Invest?

In a circular, the BSE announced that the subscription to the CPSE ETF will begin on Wednesday i.e. November 28 and will last till November 30. And here's we will tell you how good will be the investment call in the government oriented fund backed to meet its divestment target.

Through the instrument, government will divest its stake in some of the CPSEs via ETFs and the investors can subscribe it via Internet-based book building system (iBBS) platform. Through the follow-on public offer government wishes to mop up Rs. 8000 crore with a green-shoe option to retain either Rs 4,000 crore or Rs 6,000 crore.

Herein the fund invest primarily in Nifty CPSE Index stocks, which include 11 PSUs basis the established track record, market cap, dividend record as well as sector representation giving same weightage and in the same proportion as in the index.

The stocks that make up the CPSE ETF 4th tranches NTPC (19.59%), Coal India (19.17%), Indian Oil Corporation (18.98%), Oil & Natural Gas Corporation (18.92%) and Rural Electrification Corporation (6.19%). While some of the existent companies have been removed from the index such GAIL, EIL and CONCORP due to their holdings going below the 55% mark.

Should you invest?

While until now the instrument has yielded lower returns on an annualized basis in comparison to the index itself. Nonetheless, the case holds good for investment now, due to valuations which are perhaps attractive now. And while one group holds, the view that the investment option holds good as a long term investment bet, nonetheless the other claims it to be not a product to be considered as good for long term. In fact, its constituents primarily include energy stocks and despite including nearly all of the large companies. The fund till date has performed like a small cap fund.

So, before making an investment call do note all the essentials plus you cannot ignore that the PE ratio of Nifty CPSE is only 9.5, a hefty 63% discount in comparison to (PE) ratio Nifty, on the basis of FY18 earnings, is 25.4.

Goodreturns.in