 "Should you exit CPSE ETF now?")
It has been a year since the launch of Central Public Sector Enterprises (CPSE) exchange traded fund (ETF), an open-ended ETF comprising 10 public sector undertaking (PSU) stocks. The new fund offering (NFO) was between March 18 and March 21, 2014 and the units were listed on April 4.
Retail investors were promised one bonus unit for every 15 held if they stayed invested for a year from the date of allotment. The government had offered a five per cent upfront discount to all retail investors at the time of the NFO and the units were allotted at Rs 17.45 apiece. Investors who are still invested have made gains of 38 per cent in the ETF compared to gains of 28 per cent for the Nifty. Add to that, gains of 6.66 per cent from the addition of bonus units and investors would be sitting on gains of 44 per cent now.
Investors also need to remember that if they exit now, they will not have to pay any tax as long-term capital gains on equity investment of a year is nil. Also, the bonus was only for one year. Apart from the gains, experts believe investors should look at the prospects of the basket or theme.
Is it a good time to book profits and exit this basket? “Considering that the gains have been substantially higher than the benchmark indices, investors can book profits, especially because the upside on regulatory issues for oil & gas companies is limited,” says Arun Kejriwal, founder, Kris Research. Positives such as deregulation of diesel prices has already been priced in. The CPSE ETF is considerably overweight on oil & gas companies, with firms such as Oil & Natural Gas Corporation (ONGC), GAIL and Coal India having a combined weight of 60 per cent.
Not everyone is convinced as they feel energy is not the best sector to be in right now. “It's a cyclical and not a secular growth business. Unless you have a clear view on where the oil, gas or coal prices are headed and how the subsidies will pan out, it is difficult to take a call on the sector on a long-term basis,” said Anand Tandon, an investment analyst.
Tandon has a point. The BSE Oil & Gas and BSE PSU indices are down seven per cent and eight per cent, respectively, in the year to date. Also, over a three-year period, both these indices have significantly underperformed the Sensex, with returns of 13.7 per cent and 3.8 per cent, compared with Sensex's gains of 60.7 per cent.
“Why would retail investors want to punt on the energy market through a passive route? It is better for them to put this money in an index ETF or in a diversified equity fund, which can outperform the CPSE basket over the long-term,” added Tandon.
The argument for holding it comes from Hemant Rustagi, CEO, WiseInvest Advisors, who feels with the government expected to deliver on reforms and the economy likely to improve in the coming months, one can continue to hold on. In any case, this will remain a small part of an investor's portfolio.
The CPSE index consists of Coal India, GAIL (India), ONGC, Indian Oil, Bharat Electronics, Oil India, Power Finance Corporation, Rural Electrification Corporation (REC), Container Corporation of India, and Engineers India. ONGC has the highest weight of 26.7 per cent in the ETF, followed by GAIL (18.4 per cent), Coal India (17.7 per cent) and REC (7.1 per cent).
Retail investors were promised one bonus unit for every 15 held if they stayed invested for a year from the date of allotment. The government had offered a five per cent upfront discount to all retail investors at the time of the NFO and the units were allotted at Rs 17.45 apiece. Investors who are still invested have made gains of 38 per cent in the ETF compared to gains of 28 per cent for the Nifty. Add to that, gains of 6.66 per cent from the addition of bonus units and investors would be sitting on gains of 44 per cent now.
Investors also need to remember that if they exit now, they will not have to pay any tax as long-term capital gains on equity investment of a year is nil. Also, the bonus was only for one year. Apart from the gains, experts believe investors should look at the prospects of the basket or theme.
Is it a good time to book profits and exit this basket? “Considering that the gains have been substantially higher than the benchmark indices, investors can book profits, especially because the upside on regulatory issues for oil & gas companies is limited,” says Arun Kejriwal, founder, Kris Research. Positives such as deregulation of diesel prices has already been priced in. The CPSE ETF is considerably overweight on oil & gas companies, with firms such as Oil & Natural Gas Corporation (ONGC), GAIL and Coal India having a combined weight of 60 per cent.
Not everyone is convinced as they feel energy is not the best sector to be in right now. “It's a cyclical and not a secular growth business. Unless you have a clear view on where the oil, gas or coal prices are headed and how the subsidies will pan out, it is difficult to take a call on the sector on a long-term basis,” said Anand Tandon, an investment analyst.
Tandon has a point. The BSE Oil & Gas and BSE PSU indices are down seven per cent and eight per cent, respectively, in the year to date. Also, over a three-year period, both these indices have significantly underperformed the Sensex, with returns of 13.7 per cent and 3.8 per cent, compared with Sensex's gains of 60.7 per cent.
“Why would retail investors want to punt on the energy market through a passive route? It is better for them to put this money in an index ETF or in a diversified equity fund, which can outperform the CPSE basket over the long-term,” added Tandon.
The argument for holding it comes from Hemant Rustagi, CEO, WiseInvest Advisors, who feels with the government expected to deliver on reforms and the economy likely to improve in the coming months, one can continue to hold on. In any case, this will remain a small part of an investor's portfolio.
The CPSE index consists of Coal India, GAIL (India), ONGC, Indian Oil, Bharat Electronics, Oil India, Power Finance Corporation, Rural Electrification Corporation (REC), Container Corporation of India, and Engineers India. ONGC has the highest weight of 26.7 per cent in the ETF, followed by GAIL (18.4 per cent), Coal India (17.7 per cent) and REC (7.1 per cent).