Should you invest in CPSE ETF FFO?
The fourth tranche of the third further fund offer (FFO) of Central Public Sector Enterprise – exchange-traded fund (CPSE-ETF) opened for the subscription for anchor investors on Tuesday, November 27. It will open for retail investors tomorrow and will close on November 30. Retail investors need to apply for a minimum Rs. 5,000 and then multiple of Re 1.
All investors would get 4.5 per cent upfront discount on the issue price. Earlier CPSE ETF of March 2017 had 3.5 per cent discount. NAV would be announced before the issue opens. The issuer that is Government of India, plans to raise Rs. 8,000 crore through this issue.
CPSE ETF is constructed to facilitate the Government of India’s initiative to disinvest its stake in selected CPSEs. All the earlier CPSE ETF issues had 10 stocks, however, the recent one has 11 stocks. There have been some deletion and addition to the previous constituents of the CPSE ETFs.
Should you invest?
The offering looks attractive on various valuation matrices such as price to earnings, price to book value or dividend yield.
| Valuation and Dividend Yield – Compared to Other Broader Indices |
| Index Name | P/E Ratio | P/B Ratio | Dividend Yield (%) |
| Nifty CPSE | 9.37 | 1.42 | 5.25 |
| Nifty 50 | 25 | 3.29 | 1.27 |
| Nifty Next 50 | 38.23 | 3.77 | 1.04 |
| Nifty 100 | 26.2 | 3.35 | 1.24 |
| Nifty 500 | 28.88 | 3.1 | 1.19 |
Despite such an attractive valuation, we do not find compelling reasons to invest in this ETF. The past performance of the CPSE ETF has been consistently lagging the broader indices. Since its inception (March 28, 2014) till the end of October 2018, Nifty CPSE TRI has given a return 8.17 per cent annually compared to 11.47 per cent given by Nifty 50 TRI (total return index).
Looking at the historical performance of the ETF, we advise you not to go for it, even if it is available at a discount and shows an attractive valuation. The better option would be to invest in a large-cap oriented mutual fund.