Reliance MF’s Further Rs 6,000 Crore CPSE ETF Offer Has Scope For Decent Returns
Ten PSU Navratnas are being divested as a part of the disinvestment program which will expand the corpus of the CPSE ETF
Reliance MF’s CPSE ETF, launched in March 2014, plans a further fund offer which retail investors could want to invest. The second tranche offers a five percent discount to retail investors. The 10 stocks that comprise the CPSE offering have a dividend yield of around 4 per cent, which combined with the discount of 5 per cent can provide decent yields to retail investors, even if the stocks do not perform on the bourses.
The CPSE ETF seeks to garner Rs 6,000 crore in subscription, which includes an oversubscription of Rs 1,500 crore. The companies in the CPSE ETF are among the 10 Navratna PSUs and are in sectors like energy, oil, engineer and financials.
On the valuation front, the CPSE Index has a PE ratio of 11.48 as against a Nifty 50 valuation of 21.61. The P/B of the CPSE Index, which is used as a benchmark for the CPSE ETF stands at 2.01, while the dividend yield of the index stands at 4.02 percent. By contrast, the price-to-book value of the Nifty 50 index stands at 3.13, while dividend at 1.34 per cent.
Stocks in the CPSE ETF comprise of ONGC with a 25.6 percent weight, Coal India (20.6 per cent), Indian Oil Corporation (16.6 per cent ), GAIL (10.6 per cent ), Power Finance Corporation (6.01 per cent ), Rural Electrification Corporation (5.6 per cent ), Container Corporation of India (5.2 per cent ), Bharat Electronics (4.6 per cent ), Oil India (3.1 per cent ) and Engineers India (2.1 per cent ). The energy sector dominates with a weightage of 55 per cent, while metals and financial services follow with a combined weight of 16.8 per cent.
Since inception, the CPSE ETF delivered a return of 15.15 percent for original retail investors. With the retail investors receiving a loyalty bonus, however, the adjusted returns have worked out to 17.96 per cent. However, as compared to the Nifty 50 TRI which returned 12.09 percent, the outperformance is pretty decent.
The CPSE ETF has provided decent returns with a much lower volatility, thanks largely to the high 4 percent dividend yield the underlying securities have. Dividend yield stocks traditionally exhibit lower volatility as compared to the frontline stocks.
The further fund offer (FFO) is a part of the Government of India’s overall disinvestment programme, announced earlier by the DIPAM, Ministry of Financing, using the ETF route. At the launch of the CPSE ETF, Manish Singh, Joint Secretary, DIPAM, Ministry of Finance said: “Looking at the global environment, where ETFs are becoming a major player in investments, we launched the CPSE ETF back in 2014. We have restructured the offering, and its performance has been almost on par with NIFTY with a lower volatility.”
Sandeep Sikka, ED and CEO, Reliance Nippon Life Asset Management said: “When we looked back at the CPSE ETF it was a huge success where the government raised Rs 4300 crores, while Rs 1300 crores was returned back to investors. It’s been a great innovation from the government to share the wealth the people. We also cut fees from 49 basis points to 6.5 bps so additional gains can be shared with the investors.”
The FFO is open for all category of investors including anchor investors, retail investors, retirement funds, QIBs, non-institutional investors, and foreign portfolio investors, and the FFO will be open from January 17, 2017 till January 20, 2017.
The CPSE ETF is listed on NSE and BSE. ETFS are primarily mutual fund schemes that are listed on stock exchanges and because of their structure, they provide the advantage of both stocks and mutual funds. ETFs usually have a lower transaction cost since they are traded on an exchange. ETFs are also diversified in a particular theme or sector and hold different stocks, and ETFs are benchmarked against an index.
In the case of the CPSE ETF, the CPSE Index is a benchmark of the ETF. ETFs also require smaller investment amounts, and they can be bought through brokers where orders can be placed according one’s requirement to the stock exchanges through a broker.