Lacklustre returns may stump govt's PSU ETF plans

Written by Devangi Gandhi | Mumbai | Updated: Jan 15 2014, 09:45am hrs
The government is looking to raise around R3,000 crore this year through an Exchange Traded Fund (ETF) comprising 11 Public Sector Undertakings (PSUs) stocks, but investors may not bite, reports Devangi Gandhi in Mumbai. To begin with, the market-cap weighted index of these stocks has underperformed the 50-share Nifty in the last three years. Although the PSU ETF index, put together by FE, traced Nifty returns fairly closely for two years since mid-2011, it lagged thereafter, because stocks such as Coal India, ONGC, IOCL and Power Grid, which account for nearly 79% of the index, lost anywhere between 10% and 30% in value during that period. The indexs performance is inferior not only in terms of capital appreciation but also in terms of total returns, which consider reinvestment of gross dividends. While six of the 11 index stocks have maintained an average dividend payout ratio of more than 30% in the last five financial years, the total return of the index has fallen behind that of the Nifty by a big margin. Total returns of an HCL Tech, TCS, Infosys, Sun Pharma and HUL in the last one to three years have made them better bets for investors. However, the PSU ETF index turns out to be a better play on PSUs

than the 60-stock BSE PSU index.