Even as investors mull whether to invest or stay away from the sixth tranche of CPSE ETF, experts say that while the valuations are attractive, there are better opportunities in the stock market.
The sixth tranche of CPSE ETF through which the Narendra Modi-led government looks to raise up to Rs 10,000 crore opens for retail investors today. The issue is part of the Modi government’s mega disinvestment programme to raise a record Rs 1.05 lakh crore in 2019-20, or about Rs 20,000 crore more than it collected in the previous fiscal. In a bid to woo investors, an upfront discount of 3% is also being given. Even as investors mull whether to invest or stay away from the public offer, experts say that while the valuations are attractive, there are better opportunities available. The CPSE ETF tracks shares of 11 Central Public Sector Enterprises (CPSEs) — ONGC, NTPC, Coal India, IOC, Rural Electrification Corp, Power Finance Corp, Bharat Electronics, Oil India, NBCC India, NLC India and SJVN. Stock market experts points out that the fund is highly concentrated.
“The sixth tranche of CPSE ETF is highly risky as the companies are cyclical and commoditized businesses. To add to it, the exposure to oil and gas sector is huge and given the current volatility in oil prices, it would be better to stay away,” Umesh Mehta, Head of Research, SAMCO Securities told Financial Express Online, adding that retail investors must avoid investing in this ETF from a long-term perspective as these companies do not seem to be compounders.
However, there are certain benefits of investing into the issue. Ajit Mishra, VP -Research, Religare Broking noted that while the returns in the past 3 years have not been encouraging, most of the stocks are trading at attractive valuations after the recent correction. “Further, 3% discount on the ETF and tax benefits under section 80C (if held for more than 3 years) are also key positives for investing in the ETF,” he told Financial Express Online.
Jatin Khemani of Stalwart Advisors says that CPSE ETF investment could be a sensible tactical bet where one enters as a contrarian to benefit from the discount and play long-due cyclical recovery over the next 2-3 years. However, it doesn’t make sense for investors to commit capital for long-term (5-10 years) and expect any meaningful capital appreciation, he added. “With a significant correction in broader markets over the last 12-15 months, there are many high-quality and well-run businesses with longevity available at reasonable valuations where one can deploy long-term capital and make 18-20% CAGR,” Jatin Khemani, founder and CEO, Stalwart Advisors (independent equity research firm registered with SEBI) said.
According to Vijay Kuppa, Co-Founder, Orowealth there are additional concerns as the underlying shares forming the CPSE ETF are dependent on the government policies which are bound to change depending on the circumstances leading to uncertainty over the performance of the company. “Retail investors can look at other alternatives such as mutual funds wherein the risk is diversified through selection of private and public sector companies and investing as per the market conditions,” he told Financial Express Online.
All in all, the CPSE ETF will continue to underperform the markets, reckons Rajat Sharma of Sana Securities. Therefore, investors should look to buy the better of the 11 companies packed into this ETF and avoid the clearly bad ones being sold in this package. “As for 80 C deduction which this ETF now offers in its 5th avatar, again there are better investment avenues to save tax under Section 80-C,” Rajat Sharma, founder of Sana Securities told Financial Express Online.