CPSE ETF follow-on offer: Should you invest?

Sarbajeet K SenMoneycontrolThe government will be aiming to raise Rs 6,000 crore from the follow-on CPSE ETF fund offer which will open for subscription on January 17.If you had missed the chance to invest in the initial fund offer of CPSE ETF three years ago, or are considering increasing your holding, would it be advisable to put your money in the forthcoming offer?Leading financial advisors feel retail investors with a slightly higher risk-appetite can consider investing in the offer as the track record of the ETF has been good and it holds promise of good returns in future.“As the portfolio consists of 10 big PSU companies and valuations are pretty comfortable, it is advisable for retail investors who have a flair for equity in their portfolio. However, it has a concentrated portfolio of only 10 stocks, and hence it is advisable for risk-taking investors,” says S Sridharan, Business Head – Financial Planning, Wealth Ladder Investment Advisers, told Moneycontrol.The IPO of CPSE ETF hit the market on March 2014, with retail investors receiving a discount of 5 percent. The fund has also issued a bonus of 15:1 for investors who stayed invested for more than a year. “The CAGR return on this including the bonus and the discount as of today works out to be 18.1 percent which is attractive compared to Nifty 50 which has delivered a CAGR of 8.5 percent during the same period,” Sridharan said.He pointed out that the ETF’s present valuations are in an attractive zone, with the composite portfolio P/E at 17.49. “The valuation along with the discount and bonus declared on this ETF makes it attractive. The flipside is that the overall portfolio was doing well during the last few years due to lower oil prices and fewer government reformations implemented. We may not be able to predict the performance in the upcoming years,” Sridharan said.

Arvind A Rao, Founder, Arvind Rao and Associates, also advises investing in the offer. “The ETF can be a good addition especially for investors looking to invest in public sector stocks. The ETF provides a convenient option for the same and now with an existing track record available, which is quite optimistic, the case for investment in it looks better,” he said.He pointed out that the ETF tracks PSE stocks in the energy, oil marketing, infrastructure and financial sectors. “These sectors look promising and hence investors can look forward to a good performance by the ETF, too,” Rao said.The Rs 6,000 crore CPSE ETF follow-on offer, which includes a greenshoe option of Rs 1500 crore, will close on January 20.