Initial CPSE ETF Investors Stay 'Loyal'

Despite 50% gains, bulk of investors have remained put

Despite a hefty gain of 50 per cent in less than three months for the initial investors in the disinvestment exchange traded fund (ETF), bulk of them continue to stay invested and are refusing to cash out.

According to people in the know, over 20,000 of the initial 38,000 applicants in the new fund offer (NFO) of the so-called CPSE ETF continue to hold on to their units, which were alloted during the investment product was launched in March.

A unit of CPSE ETF, which was alloted at Rs 17.45 in the NFO, now trades at Rs 26.11, a gain of almost Rs 9, or 50 per cent.

Experts said that the revival in market sentiment, specially towards the state-owned stocks, 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 had raised Rs 3,000 crore at one go by divesting small stakes in ten public sector undertakings (PSUs).

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

The centre will be giving one extra unit for every 15 units held by the initial retail investors of the CPSE ETF, who hold on to the units for a period of one year from the date of allotment. Over and above the appreciation and dividends, the loyalty bonus component translates into almost 7 per cent extra gains for investors.

"The loyalty bonus is a significant factor for the fund. It will come at the appreciated price. It will top up the overall gains," said Dhirendra Kumar, CEO, Value Research.

Experts said that the revival in the sentiment towards PSU stocks saw a lot of investors taking exposure to these companies through the ETF route instead of individual stock picking.

The components of the CPSE ETF comprise of blue chip and high dividend paying PSU stocks such as ONGC, Gail and Coal India. Interestingly, all of its ten components have gained between 23 per cent and 97 per cent since March 21, the last day of the NFO.

"CPSE ETF has spelled huge bonanza for investors. Series of things have gone in its favour. Firstly, it was comprised of high-quality PSU stocks. The pricing was done at a lowest rate. With the change in government, the outlook for these stocks underwent a drastic change," said Kumar.

Market experts CPSE ETF has demonstrated that features such as loyalty bonus, which provide incentive to investors staying invested, could help in pushing the long term investment culture.

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

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