CPSE ETF gives 23% returns to investors in 2 months

The Central Public Sector Enterprise (CPSE) exchange-traded fund (ETF), which invests in 10 central public sector enterprises, has rewarded investors with 23% return in just two months.

The net asset value (NAV) of the ETF has jumped from Rs 19.54 since its inception on 3 April 2014 to Rs 24 on 30 May. The Nifty gained only 7%, while the BSE PSU index gave 25% return during the period. However, the PSU index also includes bank stocks which are not part of the ETF.

Launched by the United Progressive Alliance (UPA) government with an aim at divesting government stake in the Central Public Sector Enterprises (CPSE), the ETF has gained from the huge rise in stock prices ever since the National Democratic Alliance (NDA) came to power.

The ETF comprises stocks of 10 blue chip public sector companies - Bharat Electronics, Coal India, Container Corporation of India, Engineers India, GAIL (India), Indian Oil Corporation, Oil & Natural Gas Corporation, Oil India, Power Finance Corporation and Rural Electrification Corporation.

ONGC with 24%, Coal India with 19% and GAIL India with 17% weightage account for 60% of the ETF's portfolio.

ONGC has gained 15%, Coal India has gained 29%, while GAIL has remained flat since 3 April till 30 May. Among other major contributors in the ETF's performance are PFC with 48% gain, Bharat Electronics (45%), REC (34%) and IOC (30%) during the earlier mentioned period.

In medium to long-term, the ETF is likely to gain from high exposure (54%) in the oil and gas sector. The sector is likely to gain from appreciating rupee, which will bring down under-recoveries, partial diesel price deregulation started by UPA in 2013, and likely hike in gas pricing.
 
"The outlook of the oil and gas industries is positive largely because of policies initiated by the previous government last year. Diesel price deregulation and subsidy-linked to Aadhar numbers helped in lowering under-recoveries of both upstream oil and gas companies as well as oil marketers. Besides, the gas prices are likely to go up in next couple of months adding to positive sentiments," say Dhawal Joshi, research analyst, Emkay Global Financial Services.

The government had tried to attract investors by offering discounts and loyalty bonus for those investing in the ETF during the new fund offer (NFO) period. The NFO was offered to investors at a discount of 5% on market price. Besides, retail investors, who invested in the ETF during the NFO period would be given loyalty units (one unit for each 15 units held), if they remain invested for at least one year.

The ETF received bid over Rs 4,000 crore during the NFO period.

The ETF also offers tax benefit to first-time equity investors as the ETF is eligible under the Rajiv Gandhi Equity Savings Scheme (RGESS). Under RGESS, first-time investors can also claim income tax deduction up to Rs 25,000 a year. This is over and above the Rs 1 lakh limit under Section 80 C.

Retail investors can invest a minimum of Rs 5,000 and a maximum of Rs 2 lakh in the ETF.