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Nifty CPSE index tanks 9% in 1 month. Is it still a good investment?

Nifty CPSE index tanks 9% in 1 month. Is it still a good investment?

Nifty CPSE index tanks 9% in 1 month. Is it still a good investment?
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By Pranati Deva  Jul 24, 2019 11:55:00 AM IST (Published)

The CPSE-ETF, which is an open-ended investment scheme, was launched as a route for divestment of part of the government’s stake in certain CPSEs. The ETF route was an innovation against the conventional method of sale of shares to investors like either IPO or Offer for Sale (OFS).

The fifth tranche of Central Public Sector Enterprises exchange-traded funds (CPSE ETFs) opened for subscription last week and was subscribed 5 times. The government planned to raise Rs 10,000 crore from this tranche.

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CPSE ETF includes 11 companies - ONGC, NTPC, Coal India, IOC, Rural Electrification Corp, Power Finance Corp, Bharat Electronics, Oil India, NBCC India, NLC India, and SJVN.
The budget proposed to include CPSE ETFs in the equity-linked savings scheme (ELSS) category under the Section 80C tax deduction basket, making it an attractive investment tool.
However, the Nifty CPSE index has been under pressure in the last 1 month, down over 9 percent as compared to a 4 percent fall in Nifty50 index.
Analysts expect the weakness in these frontline PSU names to end soon. Edelweiss Securities has recommended going long on a select list of stocks from the CPSE Index. These include NTPC, Coal India, ONGC and IOC.
"We recommend initiating equal-weighted longs in NTPC, Coal India, ONGC and IOC for 6 percent gains and stop loss of 3 percent at the basket level," the brokerage said in a report.
These four stocks constitute 80 percent of the index. In the last 1 month, Coal India declined 15 percent, ONGC fell 12 percent, IOC lost 3.3 percent, while NTPc slipped 3 percent.
"The PSU stocks selected in the CPSE ETF have lower P/E ratio and high dividend yields and are available at attractive valuations. The high dividend (compared to Nifty stocks) could enable outperformance," HDFC Securities said in a report.
Since the formation of the CPSE ETF, ONGC, Oil India, Coal India, NLC India, and PFC has declined in the range of 17-46 percent, while IOC, Bharat Electronics, NBCC, SJVN, and NTPC has gained in the range of 5-77 percent.
The CPSE-ETF, which is an open-ended investment scheme, was launched as a route for divestment of part of the government’s stake in certain CPSEs. The ETF route was an innovation against the conventional method of sale of shares to investors like either IPO or Offer for Sale (OFS).
CPSE ETF New Fund Offer (NFO) was launched in March 2014 and the government has so far sold stake in 10 companies in four tranches, raising Rs 38,500 crore - Rs 3,000 crore in March 2014 (NFO), Rs 6,000 crore in January 2017 (first tranche), Rs 2,500 crore in March 2017 (second tranche), Rs 17,000 crore in November 2018 (third tranche) and Rs 10,000 crore in March 2019 (fourth tranche).
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