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CPSE ETF: A Perspective on the Further Fund Offer (FFO)

Updated: March 20, 2019 10:41:45 PM

The Central Public Sector Enterprises (CPSE) ETF is the vehicle for divestment of a part of Government’s stake in certain CPSEs.

CPSE ETF: A Perspective on the Further Fund Offer (FFO)

Concept of CPSE ETF

The conventional method of divesting stake in Public Sector Enterprises is either sale of shares to investors i.e. Initial Public Offer (IPO) or the Offer for Sale (OFS) route. One of the other mode is floating an Exchange Traded Fund (ETF). The Central Public Sector Enterprises (CPSE) ETF is the vehicle for divestment of a part of Government’s stake in certain CPSEs. The ETF route was an innovation against the conventional methods.

CPSE ETF Background

CPSE ETF is an open ended index scheme listed on the Exchange in the form of an Exchange Traded Fund (ETF), which tracks the Nifty CPSE Index.

CPSE ETF New Fund Offer (NFO) was launched on March 2014. It was oversubscribed 1.45 times & the New Fund Offer (NFO) collection was Rs.4,363 crs., out of which Rs.1,363 crs. was refunded to investors due to limited issue size of Rs.3,000 crs.

FFO was launched in January 2017 and was oversubscribed 2.28 times. FFO received overwhelming response with participation across various categories of investors; FFO collection was Rs.13,705 crs., out of which Rs.7,705 crs. was refunded to investors due to limited issue size of Rs.6,000 crs.

FFO 2 was launched in March 2017 and was oversubscribed 4.03 times. FFO 2 received overwhelming response with participation across various categories of investors; FFO 2 collection was Rs.10,083 crs., out of which Rs.7,583 crs. was refunded to investors due to limited issue size of Rs.2,500 crs.

FFO 3 was launched in November 2018 and was oversubscribed 3.90 times. FFO 3 received overwhelming response with participation across various categories of investors; FFO 3 collection was Rs.31,203 crs., out of which Rs.14,203 crs. was refunded to investors due to limited issue size of Rs.17,000 crs.

Portfolio Composition

In terms of weightages, the top four companies of the Schemeare Oil & Natural Gas Corporation Ltd., NTPC Ltd., Coal India Ltd. & Indian Oil Corporation Ltd. The same accounts over 76% of CPSE ETF portfolio (as on February 28, 2019). The following are the constituents & their weightages:

CPSE ETF: A Perspective on the Further Fund Offer (FFO)

Scheme Performance

CPSE ETF: A Perspective on the Further Fund Offer (FFO)

Inception Date: Mar 28, 2014
Fund Manager: Vishal Jain (Since Nov 2018)
As the Scheme has completed more than 3 years but less than 5 years, the performance details of Since Inception, 1 year and 3 years are provided herein.

Performance as on February 28, 2019

B: Benchmark, AB: Additional Benchmark, TRI: Total Return Index

TRI – Total Returns Index reflects the returns on the index arising from (a) constituent stock price movements and (b) dividend receipts from constituent index stocks, thereby showing a true picture of returns.

For Exchange Traded Funds of Reliance Mutual Fund, performance is provided at Scheme level using Dividend Reinvestment NAV’s, since there are no separate plan/option under such Schemes.

Period for which scheme’s performance has been provided is computed basis last day of the month-end preceding the date of advertisement.

Past performance may or may not be sustained in future and the same may not necessarily provide the basis for comparison with other investment. Performance of the schemes (wherever provided) are calculated basis CAGR for the past 1 year, 3 years, 5 years and Since Inception. Dividends (if any) are assumed to be reinvested at the prevailing NAV. Performance of the scheme would be Net of Dividend distribution tax, if any. Face value of scheme is Rs.10/- per unit. In case, the start/end date of the concerned period is non-business day (NBD), the NAV of the previous date is considered for computation of returns.

CPSE ETF: A Perspective on the Further Fund Offer (FFO)

Vishal Jain has been managing Reliance ETF Bank BeES since Nov 2018

Note:
a. Vishal Jain manages 4 open-ended schemes of Reliance Mutual Fund
b. In case the number of schemes managed by a fund manager is more than six, in the performance data of other schemes, the top 3 and bottom 3 schemes managed by fund manager has been provided herein are on the basis of 1 Year CAGR returns
c. Period for which scheme’s performance has been provided is computed basis last day of the month-end preceding the date of advertisement
d. Different schemes shall have a different expense structure
The above schemes do not offer any Plans/Options. The performance details are provided at Scheme level using Dividend Reinvestment NAV’s.

Past performance may or may not be sustained in future and the same may not necessarily provide the basis for comparison with other Investment. Dividends (if any) are assumed to be reinvested at the prevailing NAV. Performance of dividend option would be Net of Dividend distribution tax, if any. Face value of Reliance ETF Junior BeES is Rs.1.25/- per unit. Face value of other schemes is Rs.10/- per unit. In case, the start/end date of the concerned period is non-business day (NBD), the NAV of the previous date is considered for computation of returns.

Valuations

At current valuations, Nifty CPSE Index makes a case for investment with an aim for long term horizon. As on 28th February 2019, the price-earning (PE) ratio for Nifty 50 Index is 26.32 whereas for Nifty CPSE Index is 8.43. This indicates a PE discount of ~68% for Nifty CPSE Index against Nifty 50 Index. Similarly, the price to book value (PB) ratio for Nifty CPSE Index of 1.37 times is at a 60% discount to Nifty 50 Index PB ratio of 3.41 times. As on 28th February, 2019; dividend yield of Nifty CPSE Index is 5.52% against Nifty 50 Index of 1.25%. (Source: NSE)

Forthcoming FFO

After the success of earlier FFOs i.e. FFO, FFO 2 & FFO 3, the forthcoming FFO 4 opens & closes on 19th March for Anchor Investors; whereas for Non-Anchor Investors, offer opens on 20th March and closes on 22nd March.
Offer of Units of Rs. 10/- each (i.e. face value) for cash (on allotment, the value of each Unit would be approximately 1/100th of the value of Nifty CPSE Index) to be issued at a premium, if any, approximately equal to the difference between face value and FFO 4 Allotment Price during the Further Fund Offer 4 (“FFO 4”) and at NAV based prices thereafter.

While investors can purchase the ETF anytime, there is a discount available during this FFO 4 period for all the investor categories. Discount of 4% is on the “FFO 4 Reference Market Price”*. Post closure of the FFO 4, the Scheme will purchase the underlying Index constituents from GOI. Discount will be on shares to be offered by the GOI. In the event an index constituent is purchased fully or partially from open market to meet the Maximum Amount to be Raised during FFO 4, no discount will be offered on such purchase index constituent from open market.

* The price is determined based on the average of full day volume weighted average price on the NSE during the Non Anchor Investor FFO 4 Period (inclusive of Non Anchor Investor FFO 4 Period open as well as close date) for each of the index constituents of the Nifty CPSE Index.

Conclusion

For investors looking at the value proposition of CPSEs over the long term through passive management along with the low expense ratio, there is a case to look at CPSE FFO 4.

CPSE ETF: A Perspective on the Further Fund Offer (FFO)

Disclaimers

Scheme Risk Factors: Risk relating to CPSE Securities – Since the CPSE companies are substantially owned by the GOI, the GOI may take actions with respect to the CPSE sector that may not be in the best interests of Unit holders. There can be no assurance that such incidents would not result in a fall in price of the underlying securities constituting the Nifty CPSE Index and correspondingly the NAV of the Scheme. Further trading volumes and settlement periods may restrict liquidity in equity and debt investments. Investment in Debt is subject to price, credit, and interest rate risk. The NAV of the Scheme may be affected, inter alia, by changes in the market conditions, interest rates, trading volumes, settlement periods and transfer procedures. The NAV may also be subjected to risk associated with tracking error, investment in derivatives or script lending as may be permissible by the Scheme Information Document (SID). Past performance may or may not be sustained in future. For further details please refer SID.

BSE Disclaimer: It is to be distinctly understood that the permission given by BSE Ltd. should not in any ways be deemed or construed that the SID has been cleared or approved by BSE Ltd. nor does it certify the correctness or completeness of any of the contents of the SID. The investors are advised to refer to the SID for the full text of the Disclaimer clause of the BSE Ltd.

NSE Disclaimer: It is to be distinctly understood that the permission given by NSE should not in any way be deemed or construed that the Scheme Information Document has been cleared or approved by NSE nor does it certify the correctness or completeness of any of the contents of the Draft Scheme Information Document. The investors are advised to refer to the Scheme Information Document for the full text of the Disclaimer Clause of NSE.

Disclaimer by Index Provider

Performance of the Nifty CPSE Index will have a direct bearing on the performance of the Scheme. In the event that Nifty CPSE Index is dissolved or is withdrawn by the index provider NSE Indices Limited (formerly known as India Index Services & Products Limited (“IISL”)) or in case the License Agreement executed with index provider for licensing of Nifty CPSE Index is terminated, subject to necessary approvals, including prior written approval from the Department of Investment and Public Asset Management(DIPAM), the Trustee reserves a right to modify the Scheme so as to track a different and suitable index and the procedure stipulated in the SEBI Regulations shall be complied with.

a. The product i.e. the Scheme is not sponsored, endorsed, sold or promoted by NSE Indices Limited. NSE Indices Limited does not make any representation or warranty, express or implied to the owners of the product or any member of the public regarding the advisability of investing in Securities generally or in the product particularly or the ability of Nifty CPSE Index to track general stock market performance in India. The relationship of NSE Indices Limited to Reliance Nippon Life Asset Management Limited (RNAM) is only in respect of the licensing of certain trademarks and trade-names of their index, which is determined, composed and calculated by NSE Indices Limited without regard to RNAM or any product. NSE Indices Limited does not have any obligation to take the needs of RNAM or the Unit holders of the product into consideration in determining, composing or calculating Nifty CPSE Index. NSE Indices Limited is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the product to be issued or in the determination or calculation of the equation by which the product are to be converted into cash. NSE Indices Limited has no obligation or liability in connection with the administration or marketing or trading of the product.

b. NSE Indices Limited does not guarantee the accuracy and/or the completeness of the Nifty CPSE Index or any data included therein and they shall have no liability for any errors, omissions, or interruptions therein. NSE Indices Limited makes no warranty, express or implied, as to the results to be obtained by the RNAM, Unit holders of the product or any other persons or entity from the use of the Nifty CPSE Index or any data included therein. NSE Indices Limited makes no express or implied warranties and expressly disclaim all warranties of merchantability or fitness for a particular purpose or use with respect to the index or any data included therein. Without limiting any of the foregoing, NSE Indices Limited expressly disclaims any and all liability for any damages or losses arising out of or related to the product, including any and all direct, special, punitive, indirect or consequential damages (including lost profits), even if notified of the possibility of such damages.

Disclaimers

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers.. Some of the statements & assertions contained in these materials may reflect RNAM’s views or opinions, which in turn may have been formed on the basis of such data or information.

Before making any investments, the readers are advised to seek independent professional advice, verify the contents in order to arrive at an informed investment decision. None of the Sponsor, the Investment Manager, the Trustee, their respective directors, employees, affiliates or representatives shall be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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(This article is sponsored by Reliance Nippon Life Asset Management Ltd.)

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