CPSE ETF Further Fund offer 3 or the fourth tranche has a base issue size of Rs 8,000 crore and this time a green shoe option has been kept which may be between Rs 4,000 crore and Rs 6,000 crore.  Nippon Life AMC is the manager to this 4th  tranche of the CPSE ETF. An ETF, or exchange-traded fund, is a marketable security that tracks a basket of assets such as stocks. In contrast to mutual funds, it trades like a stock. CPSE ETF which stands for Central Public Sector Enterprises-Exchange Traded Fund is a type of mutual fund scheme and has been used by the government to divest its stake in CPSEs with good success rate. CPSE ETF started as a basket of 10 public sector undertakings where the government had sold shares in small quantities way back in May, 2014. A 5% upfront discount had been offered to lure investors to invest in this fund at that point of time.  This was  followed by two CPSE ETF Further Fund offers (FFO) in Jan 2017 and March 2017 respectively.  These FFO gave discount of 5% and 3.5% to retail investors.  The fund invests in the Nifty CPSE Index stocks which at present include eleven PSUs companies in the same proportion and weight age as of the index.

Latest Grey Market Kostak rate (29-11-18):   3000-3500 on Rs. 2 Lac application 

Present CPSE ETF FFO 3 (Further Fund offer)
  • Open for subscription to anchor investors on 27th November, 2018.
  • Open for retail and other investors  from 28th Nov -30th Nov, 2018
  • Issue Size: Rs 8000 crore with a green shoe option of Rs. 4000/6000 crore.
  • Minimum subscription is Rs 5,000 and then multiple of Re 1.
  • 30% to Anchor Investors and balance 70% to Retail Individual
  • NAV to be declared before issue opens
  • Managed by Reliance Nippon Life Asset Management
  • An upfront discount of 4.5% is  being offered to all category of investors.on the “ CPSE ETF FFO Reference Market Price”.
  • Investment in CPSE ETF scheme qualifies for deduction under Rajiv Gandhi Equity Saving Scheme (RGESS) and thus of 50% of the investment  amount can be deducted from the taxable income under the Section 80 CCG of the Income Tax Act.
  • The Fund is being managed by Reliance Nippon Life Asset Management Limited (RNLAM) which had been managing the fund by virtue of their taking over Goldman Sachs who were initially manages to the fund when it was launched way back in 2014.
  • The Scheme invests at the minimum  95% of its total assets in Nifty CPSE Index stocks and can at the maximum invest 5% in Money Market Instruments like include T-Bills, CP (commercial paper) etc.
  • Lead Manager: ICICI Securities

CPSE ETF FFO 3: Holding

The Holding as on 31st Oct 2018 is depicted.

CPSE ETF FFO 3 Top Holding
The portfolio of this ETF fund has gone a change whereby  GAIL, Container Corporation of India and Engineers India have been  replaced with NTPC, NLC, NBCC and SJVN in place of 10 stocks, CPSE ETF now has a portfolio of  11 stocks.
CPSE ETF FFO 3:Anchor Investors

The CPSE ETF Anchor book received subscription of Rs 13,300 crore against the anchor book of Rs 2,400 crore resulting in 5.57x over subscription.  FIIs accounted for 65% of the overall subscription figure.  The Anchor investors included Societe Generale, Bank of America Merrill Lynch, Morgan Stanley, Nomura, ICICI Prudential Mutual Fund, LIC and SBI Mutual Fund etc.

Assessment
  • The CPSE ETF presents an opportunity to investors to take exposure to some of the PSU companies across different sectors with relatively less stock specific risk as the risk gets diversified among the basket of stocks from different sectors.
  • CPSE ETF is commanding a Kostak premium of Rs. 3400 in the grey market on  Rs. 2 Lac Retail application
  • The Government had offered a 3.50% discount to all categories of investors in CPSE ETF  FFO 2. In CPSE ETF FFO 3 this discount has been kept at 4.5% making it a bit attractive. 
  • The CPSE ETF charges very low  annual fee of the order of 0.065 % of total assets. This is significantly lower than many other funds with PSU exposures.
  • Despite the arbitrage lure, the price risk associated with market volatility esp in term of state election results remain. 
  • It is unlikely that CPSE ETFs will outperform Broad Indices,  because of the nature of public sector organisations and their approach to the business. 
  • CPSE ETF FFO 3 may be suitable for a moderate returns only for arbitrage investors considering upfront discount of 4.5% and despite attractive dividend yield of  around 5%, PE around  9, may not be suitable for medium to long term investors.