Govt ETF advances 10% on debut but investors stay put

Unit holders in no rush to book profits; loyalty bonus offers incentive to remain invested for a year

The Central Public Sector Enterprises exchange-traded fund (CPSE ETF) advanced about  10 per cent on listing on Friday even as investors chose to stick with their investments rather than book profits.

Units of the Goldman Sachs CPSE ETF debuted at Rs 19.43 apiece, up 11.2 per cent compared to the allotment price of Rs 17.45.

The gains in the 10-share index were on the back of the recent surge in the stock market, especially in state-owned stocks, and the five per cent discount offered by the government to all the investors.

Unlike an initial public offering (IPO), where investors typically exit their investments if they see listing gains, very few investors were seen parting with their units.

BLOCKBUSTER OPENING

• ETF units’ value ended more than 10% higher on debut
• Units closed at Rs 19.4 each; issue price was Rs 17.45
• CPSE ETF had mopped up Rs 3,000 crore from its NFO
• Issue saw more than 38,000 applications
• ETF saw turnover of Rs 16 crore on day one, suggesting very few exits

 

 

Less than five per cent of the units allotted in the new fund offer (NFO) changed hands on the first trading day. According to stock exchange data, Rs 158 crore worth of trading of 83.5 million units in all was witnessed, as against the issue size of Rs 3,000 crore.

Experts attribute this to the ‘loyalty bonus’ feature in the ETF that provides an incentive to investors holding the units for a year.

Also, institutional investors who have invested in the offer are mostly insurance companies there for the long haul, they say.

Six insurance companies had invested in the CPSE ETF as anchor investors. Retail investors who hold the units for a period of one year from the date of allotment are entitled to one free unit for every 15 units. At the current rate, this translates into gains of over six per cent.

“Investors who have come in during the NFO must stay invested in the fund as the benefits of staying invested outweigh the gains to be made on exiting now,” said Dhirendra Kumar, chief executive officer, Value Research, a mutual fund tracking firm.

Analysts said the high dividend paying track record of the underlying stocks is another incentive for investors to stay put. The 10 stocks that form the CPSE Index have a seven-year dividend paying record and the previous year’s dividend yield works out to about four per cent.

“The fund can do well as the underlying CPSE stocks can gain with a new government at the Centre and an improving economy. The   fund is a good product for those already invested,” said Dipen Shah, senior vice-president – research, Kotak Securities.

The ETF, managed by Goldman Sachs Asset Management, had received   38,000 applications in the NFO, most of which came from retail investors.

Market experts say trading activity in the index can remain muted , as investors in the country are used to taking bets on individual companies rather than an index. Goldman, however, has appointed market makers to ensure liquidity in the counter.