Initial CPSE ETF investors stay put

Experts say a revival in the market sentiment coupled with the loyalty bonus component is luring investors

Despite initial investors in the disinvestment exchange-traded fund (ETF) recording gains of 50 per cent in less than three months, most of them are staying invested. People in the know say about 20,000 of the initial 38,000 applicants in the new fund offer (NFO) of the so-called CPSE (central public sector enterprise) ETF continue to hold on to the units allotted when the investment product was launched in March.

A unit of CPSE ETF, allotted at Rs 17.45 in the NFO, is now being traded at Rs 26.11, a gain of about Rs 9, or 50 per cent.

Experts say a revival in the market sentiment, especially towards stocks of state-owned companies, coupled with the loyalty bonus component offered by the government, is luring investors to remain invested in the CPSE ETF, a first-of-its-kind investment product through which the government has raised Rs 3,000 crore at a go by divesting small stakes in 10 public sector undertakings.

“Most initial investors continue to remain invested. Now, the investor base could easily have expanded to 50,000, as a lot of new investors have purchased CPSE ETF units from the secondary market,” said a person involved with the fund.

For CPSE ETF’s initial retail investors who hold on to the units for a year from the date of allotment, the Centre will give an extra unit for every 15 units held. Over and above the appreciation and dividends, the loyalty bonus component means gains of about seven per cent extra for investors. “The loyalty bonus is a significant factor for the fund. It will come at the appreciated price. It will top the overall gains,” said Dhirendra Kumar, chief executive, Value Research.

Experts said the revival in the sentiment towards the stocks of public sector companies led to a lot of investors being exposed to these companies through the ETF route, instead of individual stock-picking. The components of the CPSE ETF comprise blue-chip and high dividend-paying public sector stocks, such as those of ONGC, GAIL and Coal India. Since March 21 (the last day of the NFO), all the 10 components of the CPSE ETF have gained between 23 per cent and 97 per cent.

“CPSE ETF has spelled a huge bonanza for investors. A series of things has gone in its favour. First, it comprised high-quality public sector stocks. The pricing was done at the lowest rate. With the change in government, the outlook for these stocks underwent a drastic change,” Kumar said.

Experts say CPSE ETF has demonstrated features such as loyalty bonus, which provide incentives to loyal investors, could help push a culture of long-term investment.

“Typically, initial public offering investors book profits if they see good listing gains. In case of CPSE ETF, we have seen the loyalty bonus component has worked. In the future, it could be used to cultivate a long-term investing habit. Alternatively, the upfront discount the government offers should also come with a lock-in,” said Arun Kejriwal, director of KRIS, an investment advisory firm.