CPSE ETF FFO 5 – Issue Date, Price, Size, Allocation Status and Listing


Scheme Details

CPSE ETF invests in Nifty CPSE Index. 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 and is managed by Reliance Nippon Life Asset Management Limited.
It is the 5th Further Fund Offer (FFO) (6th tranche of issuance) by the AMC as per the disinvestment timelines of the GOI. The first NFO was launched in 2014 and five further funds offer were launched since then managing a total of ₹38,500cr.

CPSE ETF Background:
The Nifty CPSE Index is constructed in order to facilitate the Government of India’s (GOI) initiative to disinvest some of its stake in selected Central Public Sector Enterprises (CPSEs) through the ETF route. The index consists of 11 CPSEs with base date of 01- Jan- 2009. Government of India (GOI) used innovative route to divest its holding in CPSEs via ETF.

CPSE ETF Portfolio

Salient Features of the CPSE ETF :

  • The portfolio of CPSE ETF is diversified across 11 bluechip Maharatna, Navaratna & Miniratna Central Public Sector Enterprise (CPSE) stocks majority of which are sector leaders / near monopolies
  • FFO 5 is issued at a discount for all categories of investors*
  • Reasonable valuations with index PE of 8.74x as compared to Nifty PE at 28.33x. The price to book of CPSE index is at 1.51x vs 3.62x for Nifty Index. (as on 15-July-19)
  • The index has an attractive dividend yield at 5.13% as compared to 1.29% for Nifty
  • Other benefits such as real time trading, low expense ratio, etc. are the benefits of ETF

*Discount is on the FFO 5 Reference Market Price. FFO 5 Reference Market Price is determined based on the average of full day volume weighted average price on the NSE during the Non Anchor Investor FFO 5 Period (inclusive of Non Anchor Investor FFO 5 Period open as well as close date) for each of the index constituents of the Nifty CPSE Index. Post closure of the FFO 5, 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 5, no discount will be offered on such purchase index constituent from open market.

Performance of ETF

Investment View:

A discount of 3% offered by the Government of India on the FFO reference market price of the underlying CPSE index shares provides an opportunity of making immediate gains for the investors.
Key variables that make the issue attractive for the investors

1) as mentioned above, 3% discount to the prevailing ETF price.
2) High dividend yield of the index constituents.
3) Attractive valuations as P/E of the index is at 8.74x.

Depressed valuations of the CPSE index companies at present and discount offered by GOI provides a good opportunity for investors to invest in the issue. Investors with high risk appetite may consider investing in the ETF. Investors must also take in to account the sector concentration risk, regulatory risk as the companies the ETF invests in are government owned and market related risk before making an investment decision.


This document is prepared by the Research Division of IndiaNivesh Securities Ltd (The Company) on the publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been taken based upon this information. IndiaNivesh Securities Ltd does not warranty either expressly of impliedly, the accuracy, completeness or reliability of any information provided herein. Neither IndiaNivesh Securities Ltd nor any of its employees / Directors / authorized representatives shall be liable for any direct, indirect, special consequential, punitive or exemplary damages including lost profits arising in any way from the information contained in this material, and hereby disclaims any liability with regard to the same. This report is disseminated for the information of authorized recipients only and is not to be relied upon or taken is substitution for the exercise of due diligence and judgment by any recipient. This report does not provide individually tailored investment advice; investor should seek independent financial advice with respect to the merits and risks involved in any of the matters concerning investment in the Schemes / products mentioned in the report. “MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS READ ALL SCHEME RELATED DOCUMENTS CAREFULLY BEFORE INVESTING. PAST PERFORMANCE MAY OR MAY NOT BE SUSTAINED IN FUTURE.” Returns are for Growth Option. Calculations of return assume that all payouts during the period have been reinvested in the Scheme at the then prevailing NAV. Return of less than one year are absolute returns and returns of one year and more are compounded annualized returns.

Source of Index and other content: Product Presentation & www.nseindia.com

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Share Market Today - 12th July 2019

NIFTY Daily ChartOnce again the benchmark indices remained stuck in a range during yesterday’s session but the only difference was this time we witnessed buying interest in individual stocks. The index Nifty spot, started the session with an upside gap and remained strong to ultimately close with a gain of 80 odd points. Meanwhile, the Nifty Bank surged around 200 points on closing basis.The market breadth remained positive right from the beginning. On the sectoral front, none of the group indices closed in red which indicates broad based buying. Among the pack of gainers, the NIFTY MEDIA (3.87%) and NIFTY AUTO (+1.86%) counters remained under limelight. From the F&O space, DISHTV (+17.14%), RELINFRA (+9.31%) and ZEEL (+7.42%) outperformed others.Since last three sessions, the index is stuck in a broad range of 11450 – 11600. Thus, we reiterate our view that 11520 – 11420 zone could be a demand zone for the markets. ONLY a move below the same might change the optimistic scenario and we might enter ‘Sell on Rise’ mode. Thus the coming sessions could be highly decisive for the domestic markets. On the upside, a move above 11600 would trigger fresh short covering which can pull the index towards 11650 – 11700 levels. But the larger upside trend would now resume only above 11800 which is way far from here on. Since the outperforming stocks too have started correcting it’s not advisable for any aggressive bets at this point in time. NIFTY PHARMA : BULLISH The weekly chart of NIFTY PHARMA index depicts a WOLFE wave pattern which indicates a possible reversal in its constituents.Currently the index is at 8100 and the pattern has a target of 9800.View to be negated below 7700.Stocks like, SUNPHARMA, AUROPHARMA, CADILA, GLENMARK and WOCKPHARMA could be accumulated on dips.Disclaimer)

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Equity Boom in 2019 – Is It Nearing Completion?

Is Equity Boom Nearing Completion ….!!Thesis: Flattening of yield curves is usually a lead indicator of things not working well. Historical weight of evidence reflects; whenever this has happened it was succeeded by economic downturn and meaningful correction in equities. Let’s examine this periodically: In the context of flattening/inversion of US Bonds yield curves and subsequent correctionsFlattening/ then inversion of US bond yield curves started in March 1997 and got completed by October 1998. S&P 500 peaked in July 1998. It corrected around 28.50%. Time frame of this correction was. There was a time lag of around 15 months when equities gave in and it lasted for a mere 2 ½ months. Correction in broader market started 3 months earlier. Russell 2000 started correcting in April 1998 and over by 1st week of October 1998. It corrected around 37%. Economic trouble was flagged by South East Asian currency crisis and got concluded by LTCM crisis. S&P 500 EPS was on a downward growth trajectory which turned negative in Q4CY1998 before returning to black from Q1CY1999. To, conclude flattening of yield curves followed by inversion, then broader equity market giving in & eventually large caps while earnings growth trajectory was on deceleration mode. Refer, Exhibit 1 & 2.Around late September 1999 narrowing and flattening of bond yields resurfaced, eventually turning into inversion by March 2000. S&P 500 topped out in 1st week of March 2000. It corrected around 49% before bottoming out in October 2002, broader market counterpart Russell 2000 corrected around 46% in the said period. US equity market correction came in after a lag of 5 months this time around. Deceleration in earnings growth happened from Q1CY2000 and it turned upwards in Q1CY2002. What is evident from the charts is bond yields bottomed out by June 2003. This was an era of DOT COM Bubble bust. Please, refer Exhibit 3 & 4.Bond yield started narrowing around October/November 2005, where short term yields rose much faster than long term counterparts. In 2006, yield curve was inverted. Fed Fund target rate stalled at 5.25 from June 2006 to June 2007, thereafter it rate cut cycle commenced before halting at low of 0.25 in December 2008. In period from April 2004 to June 2006 S&P 500 rallied around 14.72% and from there till top in October 2007 it advanced up 24%, summing up the entire move S&P 500 notched up 42.36% from April 2004 to market top in October 2007. US subprime crisis was now a household topic. Again a time lag of 2 years is being observed in equity correction and flattening of bond yields. Remarkably S&P 500 EPS growth started decelerating post Q1CY2004 while in absolute terms it d-grew from Q3CY2007 eventually bottoming out in Q3CY2009. Whilst; US equities bottomed out in 1st week of March 2009 earnings turnaround happened two quarters later. Next few years was marked by liquidity pumping by Central Banks across the globe. US Federal Reserve kept its fund target rate of 0.25 till September 2015. Please, refer Exhibit 5 & 6.An Era of infused liquidity & stabilising economies. Is it ‘LIQUIDITY BOOM’!! Post bottoming out in March 2009 S&P 500 and has been notching higher highs. US equities along with Indian equities are in 10 years of continued Bull Run. Broader market representative Russell 2000 has been underperforming since September 2018. Russell 2000 is down around (-10%) in the said period while S&P 500 has gained around 3% and bond yield curve is inverted. Let’s examine earnings and valuation multiples a bit closely. Most significant being corporate tax rate cut effective January 2018. It was brought down to 21% from 35%. A back of the envelope calculation shows S&P 500 EPS grew by mere 1.8% in 2018 over 2017, if we adjust the tax rates based on 2017 ( On reported basis it stands at 23.80%). Effectively the boost in earnings of 2018 was primarily on account of tax cuts. Whilst, S&P 500 is up around 12% since December 2017 and Russell 2000 is up around 17.09%. Please refer Exhibit 7, 8, 9 & 10. Taking a closure look at this PE table, S&P 500 traded at a PER of 22.31 at 31st December 2017 which is close to +2 std deviation from mean of 17.85x. Now if we adjust the earnings of 2018 as per earlier tax structure, then it is trading at a PER of 23.90x on ttm basis. From 2012 onwards (last 7 years) for S&P 500 revenue grew at a Cagr of 3.71%, Ebidta 4.79%, earnings 7.41% (if adjusted for tax rate in 2018 earnings cagr would be 3.95%), cash and cash equivalent at 5.73% , other assets at 3.84% while the index has delivered around 10% cagr respectively. Clearly, companies in US are finding it difficult to redeploy cash generation through businesses in business, in fact balance sheet statistics suggests cash is either used treasury operation or given back to investors through dividend and other corporate actions. Please, refer Exhibit 11. What’s Brewing Flattening/inversion of bond yield curve, on back drop of faltering economy. There is always a time lag in commencement of equity correction. Probability of Federal Reserve cutting benchmark lending rates. Broader market has been underperforming significantly. Historical weights of evidence suggest, narrow bull market has never thrived. Nifty 50 has been trading at higher end of valuation multiple. Last occasion when Nifty traded at such lofty valuations was in 2007, just before the great financial meltdown Low earnings growth. Narrowness of the market a cause of worry. Midcap and small cap significantly underperforming large caps. The Difference: While market was peaking in 2007/2008 it was rallying on high earnings growth (from 2003/04 to 2007/08 Nifty 50 earnings reported Cagr of 26.50%) with expectation that it will continue in foreseeable future. This time around it has been low earnings growth (Earnings Cagr of Nifty 50 from 2012 onwards has been around 3.88%) Expectation being earnings turnaround is round the corner. Nifty 50 Index has grown at a CAGR of around 10.50% from 2012 to 2019. Refer, Exhibit 14, 15, 16 & 17. The Comparison: In the Bull Run of 2003 to 2007 earnings Cagr of equities was higher than their respective indices. Refer Exhibit 18. Whilst, in the Bull Run from 2012 till now the earnings Cagr of equities is far lower than their respective index Cagr. Refer Exhibit 19. World has been consistently revising Global GDP growth downwards, from earlier estimated expectation of 3.7% made in Jan’18 for CY19 has been revised downward to 3.3% as reported in their April update. Gold has rallied over 20% in past 9 months, bonds are rallying. It is a scenario where all asset class is firing be it Equity, Bonds or Gold. Refer Exhibit 20. All-time low of 10 Yr US bond yields is around 1.37, which is still quite a distance (around 30%) from current level of around 2.04. In November 2018 US10Yr Bond Yield made a high of 3.23% from where it corrected to lows of 1.95%, it is now trading at 2.04. In the corresponding period S&P 500 has gained around 6.50% while Gold went up by 17.54%. Fasten Seats Belts: Turbulence may be round the corner All asset class performing be it Gold, Bonds or Equities. Dismal earnings growth across global be it US, Europe, China or India. Equities breadth getting narrower. Be it US equities or back home, mid/small cap stocks have been marked underperformer. In US S&P 500 is treading at all-time highs; while their broader market counterpart Russell 2000 is down 10.60% from its all-time high (August 2018), since then it has been an underperformer vis-à-vis S&P 500 ( during the same period S&P 500 gained 3.20%). Bench mark interest rates across the globe at record low levels. Despite prolonged low interest rate regime in significant economies of the world demand driven economic pickup is absent. In the event of correction and subsequent reversion to mean PER S&P 500’s may fall 10%. For Nifty 50 the correction may be even deeper. Seems like global Equity Rally from 2012 onwards is ‘Liquidity Propelled rather than Earnings driven’. INSL, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. This information is subject to change, as per applicable law, without any prior notice. INSL reserves the right to make modifications and alternations to this statement, as may be required, from time to time. Research Analyst has not served as an officer, director or employee of Subject Company One year Price history of the daily closing price of the securities covered in this note is available at www.nseindia.com and www.economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose name of company in the list browse companies and select 1 year in icon YTD in the price chart)   IndiaNivesh Securities LimitedResearch Analyst SEBI Registration No. INH000000511Corporate Office: Lodha Supremus, 17th Floor, Senapati Bapat Marg, Lower Parel (West), Mumbai - 400 013. Registered Office: 601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai - 400 007.Tel (Board): 022 6240 6240 | Fax: 022 6240 6241e-mail: research@indianivesh.in | Website: www.indianivesh.in )

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