CPSE ETF Further Fund offer 4 or the 5th tranche plans to raise at least Rs 3,500 crore. CPSE Exchange traded fund has concentrated portfolio spread across a number of PSUS in Oil, Energy, financials, infrastructure & engineering. Reliance Nippon Life AMC is the manager to this 5th  tranche of the CPSE ETF. All Investors are being offered a 4% discount on the “reference market price” of the underlying ETF shares.

ETF, or exchange-traded fund, is a marketable security that tracks a basket of assets such as stocks. In contrast to mutual funds, it is listed on the stock exchange and 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 4% upfront discount had been offered to lure investors to invest in this fund at that point of time.  This was  followed by three CPSE ETF Further Fund offers (FFO) in Jan 2017 and March 2017 and Nov 2018 respectively.  These FFO gave discount of 5%,3.5% and 4.5% to retail investors respectively.  
So far, the government has raised a total of Rs 28,500 crore from rounds through CPSE ETF,  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.

Updates

CPSE ETF. Market reports suggest price of 25.484, allotment of 7848 units on 2 Lac application. Many sold off today and booked 6% abs returns.

How to apply

Apply Physical form or through your brokerage or online at Reliance Nippon life MF Link

Key points & Updates:

  • Grey Market Kostak on Rs. 2 Lac application is Rs. 3200 as on 19-03-19
  • in CPSE ETF FFO 4 (Further Fund offer), investors are being offered a 4% discount on the “reference market price” of the underlying ETF shares.
  • The reference market price is the average of the full day volume weighted average price of the constituents of the Nifty CPSEIndex on the NSE over 20 and 22 March
  • Open for subscription to anchor investors on 19th March, 2019.
  • Open for retail and other investors  from 20 Mar -22 Mar 2019
  • Managed by Reliance Nippon Life Asset Management
  • 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.
CPSE ETF comparison
CPSE ETF FFO 4: Holding

The CPSE ETF tracks shares of 11 Central Public Sector Enterprises (CPSEs) which are ONGC, NTPC, Coal India, IOC, Rural Electrication Corp, Power Finance Corp, Bharat Electronics, Oil India, NBCC India, NLC India and SJVN. The Holding of CPSE ETF as on 28 Feb, 2019 is depicted.

CPSE ETF Portfolio

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. The sector wise allocation is depicted below:

CPSE ETF FFO 4:Anchor Investors

CPSE Exchange Traded Fund received bids worth Rs 6,072 crore
against the anchor base issue size of Rs 1,050 crore from as many as 16 anchor investors, with the portion getting subscribed 5.78 times , sources said. against the anchor base issue size of Rs 1,050 crore. The list of anchor investors include BNP Paribas Arbitrage, Citi Group Global Markets Mauritius Pvt Ltd, Credit Suisse Singapore Ltd, Edelweiss Alpha Fund, ICICI Prudential Balanced Advantage Fund, Merrill Lynch Markets Singapore Pte Ltd, and Morgan Stanley (France) S.A., among others.

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. 3200-3500 in the grey market on  Rs. 2 Lac Retail application (18-03-19)
  • The Government had offered a 4% discount to all categories of investors in CPSE ETF  FFO 4.
  • At Feb 2019 end, the dividend yield of the CPSE index was 5.52% compared to 1.25% for the Nifty 50. The PE ratio stood at 8.43 compared to 26.32 for Nifty.
  • 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 terms of run up to election results remain and last few sessions have seen good jump in PSU front line stocks. In the medium to long run 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 4 may be suitable for a moderate returns only for arbitrage investors considering upfront discount of 4% and comes with an element of risk as market has recovered considerably in recent times.
  • Till now CPSE ETF & Bharat 22 ETF have always proved lucky to investors not only due to discount but other accompanying positive developments at that point of time. Let us see if this record is maintained this time too.