CPSE ETF Further Fund Offer 2 (FFO 2)

Transcription

1 CPSE ETF FFO 2 March 10, 2017 CPSE ETF Further Fund Offer 2 (FFO 2) Issue Details Issue opening date March 15, 2017 Issue closing date March 17, 2017 Benchmark Index CPSE Index Pricing 1/100 th of CPSE Index Fund manager Payal Kaipunjal Listing Units offered under FFO 2 scheme will be listed on or before 07 th April 2017 on both exchanges Investment amount Retail ,00,000 (and in multiples of 1/- thereafter upto 2,00,000) Non Institutional Investor /QIB Issue Size Discount Offered by GOI Minimum: 2,00,001 (and in multiples of 1/- thereafter) 2,500 Crores Discount of 3.50 % on the FFO2 Reference Market Price of the underlying shares of Nifty Retail individual investors along with retirement funds will get the preferential allotment in this issue. At least 70% of the maximum amount to be raised plus any under subscription in anchor investor portion will be available for subscription for these investors. Quality PSU basket The Government of India is coming up with a Further Fund Offer 2 or FFO2 of CPSE Exchange Traded Fund (ETF). CPSE ETF provides investors an opportunity to invest in large cap government PSUs with strong fundamentals which are market leaders in their area of operations. These companies, which have high dividend yield, are available at attractive valuation and have high intrinsic value. The favourable policy outlook amid a reform oriented government augurs well for these companies. CPSE ETF has outperformed Nifty 50 since its inception. The Government is offering discount of 3.5% on FFO reference market price of the underlying shares of Nifty CPSE Index. The discount will be applicable to all categories of investors. FFO Reference Market Price is the price determined based on the average of full day volume weighted average price (VWAP) on the NSE during the Non Anchor Investor FFO Period (i.e., 15 th to 17 th March, 2017) for each of the index constituents of the Nifty CPSE Index Structure The CPSE ETF is an open ended exchange scheme listed on exchanges in the form of an exchange traded fund (ETF) tracking the CPSE index. The scheme is in compliance with the provisions of the Rajiv Gandhi Equity Savings Scheme, The scheme will invest in securities, which are constituents of the CPSE Index in the same proportion as in the index. The Nifty CPSE Index is constructed to facilitate the Government of India s (GOI) initiative to disinvest some of its stake in select central public sector enterprises (CPSEs) through the ETF route. The index consists of 10 bluechip Maharatna and Navratna companies, which are sector leaders. Exhibit 1: CPSE Index Composition of Maharatnas & Navratnas W eightage (%) I ndustry Ratna Status Oil and Natural Gas Corporation Oil Maharatna Coal India Mineral/Mining Maharatna Indian Oil Corporation Petroleum Products Maharatna GAIL (India) Gas Maharatna Product Label This product is suitable for investors who are seeking* Long-term capital appreciation Investment in Securities covered by the Nifty CPSE Index *Investors should consult their financial advisors if in doubt about whether the product is suitable for them. Power Finance Corporation 5.78 Finance Navratna Rural Electrification Corporation of India 5.54 Finance Navratna Co ntainer Co rp oratio n of In dia 4.99 Tran spo rtation Navratna Bharat Electronics 4.11 Industrial Capital Goods Navratna Oil India 2.94 Oil Navratna Engineers India 1.99 Cons truction Project Navratna Source: AMC website, ICICIdirect.com Research * as on February 28, 2017 ICICI Securities Ltd Retail Research

2 Highlights Outperformance since NFO: The CPSE ETF has delivered an absolute return of 42% since its launch on April 4, 2014 against Nifty 50 which delivered a return of 33% during the same period. CPSE Index Returns Exhibit 2: CPSE ETF outperforms Nifty 50 Scheme 6M 9M 12M Since Inception* CPSE ETF NIFTY Source: ACE MF Data as on 9th March, 2017; Returns above one year are CAGR; *Inception date: April 4, Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Rebased Index CPSE Index NIFTY 50 Source: ACE MF Index rebased to 100 since April 4, 2014 Attractive valuations: Most of the PSU stocks in the CPSE basket are trading at an attractive valuation as compared to broader headline benchmark indices. Nifty CPSE Index has a PE ratio of as against Nifty 50 PE ratio of Similarly Price to book ratio of CPSE Index is at 2.17 as compared to 3.37 for Nifty 50. We highlight that government s policy reforms to increase GDP growth with big ticket infrastructure spending coupled with a change in the overall economic environment may see these companies outperform, going forward. High dividend yield index: All the companies in the CPSE Index are consistently high dividend paying companies. One of the criteria for the selection of the companies in the index at the time NFO was a consistent dividend paying track record. The current weighted average dividend yield of the CPSE index is around 3.74%, which is significantly higher than Nifty 50 s dividend yield of 1.25%. Exhibit 3: Nifty CPSE Index: Lower PE multiple, higher dividend yield Index Name P/E Ratio P/B Ratio Dividend Yield Nifty CPSE Index Nifty 50 Index Nifty Next 50 Index Nifty 100 Index Nifty 500 Index Source: AMC, ICICIdirect.com Research Page 2

3 Portfolio diversification: CPSE ETF is a concentrated basket of sectors like oil & gas and metals & mining, which have very less weightage in Nifty 50. The CPSE stocks constitute just around 3.7% of Nifty 50 indicating the CPSE ETF offers good diversification against large cap mutual funds as Nifty 50 is a benchmark for most large cap funds. Exhibit 4: Sectoral allocation of CPSE ETF Exhibit 5: Top 10 sectors of Nifty Oil & Gas Minerals/Mining Petroleum Products Finance Transportation Industrial Capital Goods Construction Project Banks IT Automobiles Consumer Goods Petroleum products Pharma Oil & Gas Construction Cement Metals Source: AMC. weightages as on February 2017 Source: NSE. Weightages as February 2017 Strong fundamentals: Government owned companies are fundamentally strong with many of these being market leaders or the only players in their sectors. These companies are cash surplus, have strong business fundamentals, offer high return on capital with high dividend payout ratios. These PSUs enjoy near constant demand for their products and services and the income stream is more or less unaffected by the current economic turmoil caused by demonetisation. Favourable policy outlook: The reform oriented government at the Centre augurs well for a majority of government owned companies. The NDA government has initiated a series of policy reforms like deregulation of oil prices, disinvestment, focus on targeted subsidies and high spending on infrastructure projects. These reforms will lead to higher GDP growth and will benefit PSU companies. Credit worthiness: All companies in the CPSE index have more than 55% government holding (stake via Government of India or President of India) under the promoter category. The same effectively leads to almost risk free investment from the credit risk perspective. Core sectors: The companies that are part of this ETF operate in core sectors, which are of strategic importance to the development of the Indian economy. PSUs are strong pillars of the growth for the economy. We believe that with GDP growth likely to improve going forward, it may aid the performance of the core sectors of the Indian economy. Page 3

4 High entry barriers The companies in this ETF are capital intensive in nature and require large volumes of financial resources for starting up. Hence, the number of new entrants in this industry is relatively less compared to any other sector. Barriers to entry benefit existing firms already operating in the sector by protecting its revenues and profits from the new entrant, which helps in maintaining its dominance in the sector. Advantage of investing in ETF The biggest advantage of investing in ETF is increased trading facility. It has best of both mutual fund and stock. The price can be seen on the exchange throughout market hours. ETF also benefits from lower expense ratios due to lower portfolio management, trading and operational expenses Like a stock Trading flexibility intraday on the exchange Real time price Put limit orders Minimum trading lot is just 1 unit Delivery into your demat account Like a fund Constructed to track an index Open ended mutual fund Lower expense ratio generally as compared to an active equity fund Lower turnover More transparent Exhibit 6: Comparison of ETFs vs. open-ended funds vs. close ended funds Open Ended Fund Close ended Fund Exchange Traded Fund Fund size Flexible Fixed Flexible NAV Daily Daily Real time (indicative net NAV) Liquidity Provider Mutual Fund itself Stock Market/Mutual Fund Stock Market/Mutual Fund itself Sale Price At net asset value plus load, if any Significant premium / discount to net asset value on exchange. On applicable net asset value through Mutual fund very close to actual net asset value of scheme Availability mutual fund itself through exchange where listed through exchange where listed/ mutual fund itself Portfolio Disclosure disclosed monthly disclosed monthly daily Intra Day Trading not possible expensive possible at low cost Source: AMC, ICICIdirect.com Research Page 4

5 Annexure Exhibit 7: Performance of other funds managed by fund manager 30-Dec-13 To 30-Dec-14 Dec-14 To 30-Dec-15 0-Dec-15 To 30-Dec-16 Since Inception Allotment Date Absolute Returns (%) Absolute Returns (%) Absolute Returns (%) CAGR (%) PTP Returns R*Shares Nifty BeES (NIFTYBEES) Dec-01 Nifty 50 Index (Benchmark) ,182 Nifty 50 Total Returns Index Nifty 50 Index(additional benchmark) ,182 R*Shares Junior BeES (JUNIORBEES) Feb-03 Nifty Next 50 Index (Benchmark) ,817 Nifty Next 50 Total Returns Index Nifty 50 Index(additional benchmark) ,779 R*Shares Bank BeES (BANKBEES) May-04 Nifty Bank Index (Benchmark) ,859 Nifty Bank Total Returns Index Nifty 50 Index(additional benchmark) ,600 R*Shares PSU Bank BeES (PSUBNKBEES) Oct-07 Nifty PSU Bank Index (Benchmark) ,343 Nifty PSU Bank Total Returns Index Nifty 50 Index(additional benchmark) ,699 R*Shares Infra BeES (INFRABEES) Sep-10 Nifty Infrastructure Index (Benchmark) ,294 Nifty Infrastructure Total Returns Index Nifty 50 Index(additional benchmark) ,663 R*Shares Shariah BeES (SHARIABEES) Mar-09 Nifty 50 Shariah Index (Benchmark) ,443 Nifty 50 Shariah Total Returns Index Nifty 50 Index(additional benchmark) ,291 R*Shares Hang Seng BeES (HNGSNGBEES) Mar-10 Hang Seng Index (Benchmark) ,374 Hang Seng Total Returns Index Nifty 50 Index(additional benchmark) ,046 R*Shares Gold BeES (GOLDBEES) Mar-07 Domestic price of Gold (Benchmark) ,575 Additional benchmark NA NA NA NA NA Source: AMC, ICICIdirect.com Research Page 5

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