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6th tranche of CPSE ETF opens today for retail investors; should you apply?

Retail investors can look to invest for the short term in the sixth tranche of Central Public Sector Enterprises (CPSE) Exchange Traded Fund (ETF) that opened for subscription today given its attractive valuations, say experts.

The government plans to raise up to Rs 10,000 crore from this tranche of the CPSE ETF, which tracks shares of 11 Central Public Sector Enterprises (CPSEs) -- ONGC, NTPC, Coal India, IOC, Rural Electrification Corp, Power Finance Corp, Bharat Electronics, Oil India, NBCC India, NLC India and SJVN.

The CPSE ETF is an open-ended index exchange traded scheme with no lock-in period. Central Public Sector Enterprises (“CPSE”) ETF, which replicates the Nifty CPSE Index, is a concentrated portfolio of PSU stocks, whose objective is to help the government in disinvesting its stake in a few CPSEs via the ETF route. 

On Thursday, the anchor investor portion got subscribed eight times. As per reports, anchor investors placed bids for units worth Rs 20,000 crore against Rs 2,400 crore on offer. READ MORE

 
Over the past three years, 10 out of 11 these PSU stocks have underperformed the market. For instance, NBCC (India) have slipped around 37 per cent while Coal India has shed 31 per cent. NLC India, Bharat Electronics and Oil India have lost 12-17 per cent during the period. On the other hand, REC have jumped nearly 50 per cent during the period as against a 36 per cent rise in the benchmark Nifty50 index. Other stocks that have given positive returns include Indian Oil Corporation (IOC), Power Finance Corporation (PFC) -- up 36 per cent and 20 per cent, respectively. 

Given the stock performance of these PSU stocks, does it make sense to invest?

Analysts say investors can look to put in money for the short-term given the valuation comfort.

"One should definitely subsCribe to it as the valuations are attractive. The broader market is misleading as only 15 stocks have participated in the upmove seen in the frontline indices witnessed thus far in the calendar year 2019, and so, the valuation of stocks outside these 15 stocks is appealing. Besides, a strong response from institutional investors gives comfort and confidence that one should apply," says G Chokkalingam, Founder & MD of Equinomics Research & Advisory. 

CPSE ETF New Fund Offer (NFO) was launched in March 2014 and the government has so far sold stake in the 10 companies in the basket in four tranches thereby raising Rs 38,500 crore -- Rs 3,000 crore from the first tranche in March 2014, Rs 6,000 crore in January 2017, Rs 2,500 crore from the third in March 2017, Rs 17,000 crore in November 2018 and Rs 10,000 crore in March 2019, according to a note by HDFC Securities. 

"Retail investors may get in but I don't think it should be a long-term bet. They can invest now and exit within three - six months. Valuation is attractive and once they see  some valuation upswing they can move out. Unfortunately, PSU stocks, over the last four - five years have lost significant value," advises Sudip Bandyopadhyay, group chairman at Inditrade Group of Companies. 

For the on-going offer, the minimum application for investors who want to invest directly with the mutual funds stand at 1 lakh units. Investors who want to invest directly on the exchange, minimum application limit is one unit and in multiples thereof. FFO 5 units will be listed on NSE and BSE on or before August 02 2019, reports suggest.

Here's a look at the stock performance of the 11 PSUs in the last 3 years -

     
Company/Index Name Closing price as on July 18, 2019 Closing price as on July 18, 2016 % Change
REC Ltd. 147.60 98.75 49.47
NIFTY 50 11596.90 8528.55 35.98
Indian Oil Corporation Ltd. 147.60 123.39 19.62
Power Finance Corporation Ltd. 121.00 103.15 17.30
NTPC Ltd. 127.05 130.17 -2.39
Oil & Natural Gas Corporation Ltd. 143.40 147.33 -2.67
SJVN Ltd. 25.40 28.50 -10.88
Oil India Ltd. 163.25 184.88 -11.70
Bharat Electronics Ltd. 96.55 112.87 -14.46
NLC India Ltd. 61.25 73.45 -16.61
Coal India Ltd. 220.30 318.95 -30.93
NBCC (India) Ltd. 52.10 82.17 -36.59

Source: ACE Equity