what is CPSE etf and How is it a good investment Opportunity

CPSE ETF full form is Central Public Sector Enterprises (CPSE) and they are government owned and operated companies. CPSE ETF functions as regular exchange traded funds and consists of a basket of major government-owned companies which replicates and tracks the Nifty CPSE Index. Investors buy units of CPSE ETF similar to equities and their investment is spread across CPSE in the basket in accordance with their weightage in the Nifty CPSE index. 

CPSE ETFs gives investors exposure to diverse public sector companies across top sectors in Indian stock market by investing in a single fund. The underlying companies in this ETF are Maharatna companies or well-established PSUs known for their stable returns. Apart from the lower risk profile and government-backing of the companies under CPSE ETF, it is also a good diversification alternative for investors. 

 

 

Purpose of CPSE ETFs 

The aim behind CPSE ETF by the government was to inject 1 lakh crore in their treasure by way of disinvestment. CPSE ETF is an exchange Traded Funds (ETF) which means that it will be traded on the stock exchanges just like equities. In a nutshell, CPSE ETF as a financial instrument serves two major purposes:  

1) Firstly, it presents an opportunity for investors to invest in government companies which are perceived as safer and less volatile as compared to equities.  

2) Secondly, it helps the government to disinvest and promotes retail participation in public companies.   

 

 

Top 10 Companies of CPSE ETF with Maximum Holding 

Here we have complied the list of top 10 major PSUs under CPSE ETF in terms of market capitalization: 

 

S:No	Company	Sector	% Holdings
1	Power Grid Corporation of India Limited	Power Transmission	19.32
2	National Thermal Power Corporation Limited	Power Generation	19.24
3	Bharat Electronics Limited	Aerospace & Defence	16.73
4	Oil and Natural Gas Corporation Limited	Oil Exploration and Production	16.28
5	Coal India Limited	Coal	14.35
6	NHPC Limited	Power Generation	4.07
7	Oil India Limited	Oil Exploration and Production	3.66
8	Cochin Shipyard Limited	Ship Building & Allied Services	2.07
9	NBCC (India) Limited	Civil Construction	1.65
10	NLC (India) Limited	Power Generation	1.16

 

 

Things to consider before and after buying CPSE ETF 

Having a Demat and a trading account is a prerequisite for investing in CPSE ETFs. Once you have them in place, next you can buy units of CPSE units from the stock exchanges at market price like you buy stocks of a company.  

However, before adding these ETFs to your portfolio you need to figure out the basis of your selection. Before purchasing an CPSE ETF, you should analyze factors like its past performance, underlying companies and your investment strategy.  

Once all these factors are considered you can then go on to purchase the units of the ETF through a trading platform. Once the units are purchased, it is also important to keep monitoring its performance on a regular basis and take the decision of buying additional units or selling the existing ones on the basis of its performance. 

 

 

History and growth of CPSE ETF in India 

The first CPSE ETF was first brought in by the government of India in 2014 to gain from its disinvestment strategy. It was then known as the "CPSE ETF 2014" and the main motive of the government behind this strategy was to profit from their existing holding in PSUs by disinvesting their stake. The launch was carried out by the Department of Investment and Public Asset Management (DIPAM) known as the Department of Disinvestment at that time. 

This initiative of the government proved to be a success as the investors looked quite interested in investing in the top PSUs of the country through this scheme. After the success of the maiden ETF, the government launched more such ETFs in the subsequent years known as CPSE ETF 2017 and CPSE ETF 2019 that had different set of public companies.  

As these ETFs were well-received by the investors, the government came up with more variants of ETFs such as Bharat 22 ETF that had a mix of CPSEs, public bank and specific government holding thus gaining more value from their disinvestment. 

 

 

Factors to consider while investing in CPSE ETFs 

These are various factors at play that affect the performance of the companies under the ETF which plays a bearing on the CPSE ETF. There are the factors which you should know and consider before investing in CPSE ETF: 

 

1). Market phases 

The stock market is like the atmosphere and the companies in it are like human beings. If the condition of the atmosphere deteriorates it hampers the health of the humans living in it. Similarly, there are bearish and bullish phases in the stock market which affect the performance of stock accordingly. If there is a bearish phase going on and the market is up it could affect the CPSE ETF positively and vice versa. 

 

2). Sector Impact 

The performance of the sector having the maximum bearing in the CPSE ETF portfolio can majorly impact on your returns. During an upwards market a particular sector such as the oil and gas sector could show decent results which could lead to better performance of the CPSE ETF portfolio. 

 

3). Government role 

Government policies and regulation play an important role in the movement of stock prices, especially of PSUs. If the government policies and reforms are in favor of the companies under CPSE ETF it could lead to its upward movement. On the other hand, if government decisions are against the companies, it could affect the performance of the CPSE ETF negatively. 

 

4). Economic factors 

Various economic factors such as changes in interest rates and levels of inflation impact market movement and the stock prices of the companies in the stock market. This further affects the performance of the CPSE ETF as the companies under it may be affected whether positively or negatively. 

 

5). Global scenario 

Global happenings and world events could also shake up the stock market of many countries at once. The recent tariff wars between the western powers and China are one such example. Geopolitical events around the world affect investor sentiment and market behavior which could subsequently impact the performance of CPSE ETFs. 

 

 

Wrapping Up 

CPSE ETFs give you great exposure to fundamentally strong government backed PSUs. These are very good diversification alternatives for investors for long-term owing to their low expense ratios and high liquidity.  

Also, as the government continues to disinvest in these companies and retail participation increases these PSUs under CPSE ETFs will discover their real potential which will eventually benefit the investors. The key to benefit from CPSE ETFs is to have a long-term perspective and stay invested.