CPSE ETF FFO to open for retail investors on March 15; should you invest?

NEW DELHI: Investors, who are wish to play on low PE public sector enterprises, listen!

Managed by Reliance Mutual Fund, the government is all geared to offer the next tranche of CPSE Exchange Traded Fund starting March 14. The issue would fetch about Rs 2,500 crore to the government’s kitty.

For anchor investors, the issue opened on Tuesday, and will close on the same day.

The further fund offer (FFO) will open for retail and other non anchor subscription on March 15, Wednesday, and conclude on March 17. There is an upfront discount of 3.5 per cent to all category of investors.

According to ICICIdirect.com, most of the PSU stocks in the CPSE basket are trading at attractive valuations, when compared with the broader headline benchmark indices.

“The government’s policy reforms are set to increase GDP growth with big ticket infrastructure spending. Coupled with a change in the overall economic environment, we may see these companies outperform, going forward,” the broking firm said.

The Nifty CPSE Index has a price-earnings ratio (PE) ratio of 11.72, compared with 23.13 of that of Nifty50. In price to book terms, CPSE Index’s P/BV at 2.17 stands lower than Nifty 50’s 3.37.

The CPSE ETF has delivered an absolute return of 42 per cent since its launch on April 4, 2014. Nifty 50 delivered a return of 33 per cent during the same period.

CPSE ETF, which functions like a mutual fund scheme, comprises of scrips of 10 PSUs - ONGC, Coal India, IOC, GAIL (India), Oil India, PFC, Bharat Electronics, REC, Engineers India and Container Corporation of India.

The fresh fund-raising will help the government inch towards its Rs 56,500-crore disinvestment target for the ongoing financial year.

All companies in the CPSE index have more than 55 per cent government holding (stake via government of India or President of India) under the promoter category.

The government had launched the CPSE ETF in March 2014 under which retail investors could invest a minimum of Rs 5,000 to buy units.

Motilal Oswal in a research report said, "One can play on India growth story through investment in the large CPSE stocks at attractive valuations and the instrument can also help in portfolio diversification through investment in blue-chip Maharatna and Navaratna CPSE stocks which are sector leaders.”