Should you invest in PSU ETFs?- Business News
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Should you invest in PSU ETFs?

The Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF) includes Oil & Natural Gas Corp, Coal India, GAIL India, Oil India, Indian Oil, Bharat Electronics, Power Finance Corp, Rural Electrification Corp, Container Corporation of India and Engineers India.

 Mahesh Nayak   
  • March 19, 2014  
  • |  
  • UPDATED   10:58 IST
PSU ETF: Does it make sense to invest?

Goldman Sachs Asset Management on Tuesday started selling India's first mutual fund scheme that comprises stocks of 10 prominent state-run companies in which the government will divest stakes to raise up to Rs 3,000 crore.

The Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF) includes Oil & Natural Gas Corp, Coal India, GAIL India, Oil India, Indian Oil, Bharat Electronics, Power Finance Corp, Rural Electrification Corp, Container Corporation of India and Engineers India.

The ETF opened for subscription on Tuesday and closes on March 21. It will be listed on the National Stock Exchange. Investors will get a five per cent discount at the time of the new fund offering (NFO). Retail investors, which invest up to Rs 2,00,000, will get one free unit for every 15 held if they hold on to the units for a year, provided the units are bought in the NFO stage.

While the government is selling its jewels, does it make sense to invest in the CPSE ETF?

Shares of most state-run companies have underperformed in recent months. The Bombay Stock Exchange's PSU index has risen only 0.6 per cent between January 2012 and March 2013. In comparison, the benchmark BSE Sensex has gained 12 per cent and the broader BSE 500 index five per cent. During the same period, the 10 stocks in the CPSE ETF index have underperformed even the BSE PSU index.

Taking one share of each of the 10 stocks, the overall bouquet lost more than 11 per cent. Three of the 10 stocks-ONGC, Oil India and GAIL-gained while seven stocks lost during the period. ONGC was the biggest gainer, climbing nearly 21 per cent. Coal India was the biggest loser, down 26 per cent.

Even if we rate these 10 stocks according to their individual weightage in the index, these 10 stocks on an average lost four per cent in the last 15 months, underperforming the BSE Sensex and the BSE 500. The loss was contained due to the 26.72 per cent weightage of ONGC, 18.48 per cent weightage of GAIL and 7.04 per cent weightage of Oil India in the index. The three together account for more than 52 per cent in the index. Second, the energy sector accounts for nearly 60 per cent of the total weightage of the CPSE ETF.

If the CPSE ETF is fully subscribed then it would be the biggest equity ETF in India as the combined assets under management (AUM) of 24 equity ETFs is not even Rs 1,400 crore. This is not even one per cent of the total industry AUM of Rs 9,16,393 crore.

Through the CPSE ETF, the government is trying to make ETFs popular and is also giving tax incentives to first-time investors. But, PSU stocks are not doing well. Also, investors are not receiving direct dividends from PSUs since they are not shareholders of these companies, and so will not miss much even if they stay away from the index.