CPSE ETF: Central Public Sector Enterprise ETF

Key Takeaways:

• The CPSE stands for Central Public Sector Enterprise.

• The CPSE ETF was launched under the guidance of the Department of Investment and Public Asset Management.

• The purpose of the CPSE ETF is to divest government holdings in PSUs in a structured manner. Moreover, it allows investors to gain exposure to government companies.

• Goldman Sachs Mutual Fund originally managed the CPSE ETF. Now, it is managed by Nippon India Mutual Fund.

What is CPSE ETF?

CPSE ETF stands for Central Public Sector Enterprises Exchange Traded Fund. It is a type of ETF that invests in the shares of selected PSU companies listed on the NSE and BSE exchanges.

This ETF tracks the Nifty CPSE index, which comprises large government companies across sectors like power, oil & gas, capital goods and construction.

The CPSE ETF was launched by the Government of India as a part of its disinvestment programme. The purpose is to reduce its stake in the public sector companies while offering investors a diversified basket.

It allows investors to participate in the growth of these companies through a single diversified investment vehicle. Unlike individual stock investing, the CPSE ETF provides exposure to multiple PSUs in one basket.

With increasing focus on disinvestment and privatisation, CPSE ETFs have gained attention among retail and institutional investors. Investors can buy the CPSE ETF from their demat account because ETFs are traded on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

How Does CPSE ETF Work?

The CPSE ETF works by pooling investors' money and investing it in a portfolio of PSU stocks. These stocks are selected based on the Nifty CPSE Index formed by the NSE.

The ETF units are listed on the Indian stock exchange, allowing investors to buy and sell them during market hours. The price of the ETF fluctuates based on the performance of its underlying PSU stocks.

Fund managers ensure that ETFs replicate the index composition, maintaining proportional exposure to each stock. Dividends received from underlying companies are distributed or reinvested, depending on the fund structure.

Top Holdings in CPSE ETF Portfolio

Here is the list of the top 10 holdings of the CPSE ETF:

Source: NSE

Overview of Holdings in the CPSE ETF

The CPSE ETF mainly consists of large and profitable PSU companies across sectors like power, oil & gas, and construction. Below is a brief overview of the top 10 holdings.

1. NTPC Limited

India’s largest power generation company with a diversified energy portfolio, focusing on thermal and renewable expansion, ensuring stable earnings and long-term growth prospects.

Check the NTPC share price.

2. Bharat Electronics Limited

A leading defence PSU manufacturing advanced electronic systems, benefiting from government defence spending and Make in India initiatives, driving consistent order inflows.

Check the BEL share price.

3. Power Grid Corporation of India

India’s central transmission utility ensures nationwide electricity distribution, known for regulated returns, stable cash flows, and strong infrastructure development capabilities.

Check the Power Grid share price.

4. ONGC Limited

India’s largest oil and gas exploration company, contributing significantly to domestic production, offering high dividends and strategic importance in energy security.

Check the ONGC share price.

5. Coal India Limited

World’s largest coal producer supplying the majority of India’s coal demand, ensuring energy availability while generating strong cash flows and attractive dividends.

Check Coal India share price.

6. Oil India Limited

A major upstream oil company engaged in exploration and production, supporting domestic energy needs with consistent output and stable dividend payouts.

Check the Oil India share price.

7. NHPC Limited

India’s premier hydropower company focused on renewable energy generation, contributing to clean energy goals with stable revenues and a long-term project pipeline.

Check NHPC share price

8. Cochin Shipyard Limited

A leading shipbuilding and repair PSU, benefiting from defence and commercial orders, supporting maritime development and strengthening India’s shipbuilding capabilities.

Check Cochin Shipyard share price.

9. NLC India Limited

A government-owned company engaged in lignite mining and power generation, focusing on renewable expansion while maintaining steady operational performance and revenues.

Check the NLC share price.

10. NBCC (India) Limited

A PSU engaged in project management, real estate, and infrastructure development, benefiting from government contracts and urban development initiatives across India.

Check the NBCC India share price.

Features of CPSE ETF

Here are the main features of the CPSE ETF which make it different from other ETFs:

• Diversified PSU exposure:

Investors gain exposure to multiple PSU companies across sectors, reducing the risk associated with investing in a single company.

• Lower expense ratio:

Compared to actively managed funds, CPSE ETFs have a lower expense ratio, making them cost-efficient for long-term investors.

• Government-backed initiative:

The ETF was launched by the government of India. It ensures credibility and alignment with national disinvestment strategies and policies.

• Dividend income potential:

PSU companies are known for high dividend payouts, making CPSE attractive for investors seeking regular income along with capital appreciation.

• Transparency in holdings:

The portfolio stocks are publicly available, allowing investors to track holdings, sector allocation and performance easily.

Role of Government in CPSE ETF

Here are a few points which discusses the role of government in CPSE ETF:

• Disinvestment strategy tool:

The government uses the CPSE ETF as a mechanism to divest its stake in PSUs while maintaining market stability and attracting retail participation.

• Promoting retail participation:

With the CPSE ETF, the government encourages retail investors to participate in PSU growth through a diversified and accessible investment option.

• Ensuring liquidity support:

A government-backed ETF often receives institutional support in improving liquidity and ensuring smooth functioning in the share market.

• Policy-driven growth:

PSU companies benefit from the favourable policies, infrastructure spending and strategic importance, influencing ETF performance positively over time.

Advantages of Investing in the CPSE ETF

Here are some major advantages of investing in the CPSE ETF:

• Diversification benefits:

Investing in a CPSE ETF spreads risk across multiple PSU companies, reducing dependence on the performance of a single stock in the share market.

• Attractive dividend yields:

PSU companies typically offer high dividends, providing consistent income to investors along with potential capital appreciation opportunities.

• Low-cost investment:

The ETF structure ensures lower expense ratios compared to mutual funds, enhancing net returns for long-term investors significantly.

• Ease of investment:

CPSE ETF can be bought and sold through a Demat account, making it convenient and accessible for all types of investors.

• Exposure to strategic sectors:

Investors gain access to key sectors like energy, power, and infrastructure that are crucial for India’s economic growth.

• Government support:

PSUs often benefit from government backing, reducing default risk and providing stability compared to many private sector companies.

Risk Involved in CPSE ETF

Here are some of the risks involved in the CPSE ETF, which an investor must consider before investing.

Sector concentration risk:

CPSE ETF is heavily concentrated in the energy and oil sectors, making it vulnerable to sector-specific downturns and price volatility.

Policy dependency risk:

PSU companies are influenced by government policies, which may prioritise public welfare over profitability, affecting investor returns.

Market volatility risk:

Like any equity investment, the CPSE ETF is subject to share market fluctuations, leading to short-term price volatility and uncertainty.

Limited growth potential:

Compared to private companies, some PSUs may have slower growth due to bureaucratic processes and operational inefficiencies.

Dividend uncertainty risk:

Although PSUs are known for dividends, payout levels may vary based on earnings, government decisions, and capital expenditure requirements.

Factors Affecting the Performance of CPSE ETF

Here are factors which directly or indirectly affect the performance of the CPSE ETF.

Government policies and reforms:

Changes in disinvestment policies, subsidies, and regulations significantly impact PSU performance and consequently affect CPSE ETF returns.

Commodity price movements:

Many PSU companies operate in the oil, gas, and coal sectors, making the ETF sensitive to global commodity price fluctuations.

Interest rates and inflation:

Macroeconomic factors like interest rates and inflation influence the profitability of PSU companies and investor sentiment in the share market.

Corporate earnings performance:

The financial performance of underlying PSU companies directly affects ETF value, including revenue growth, margins, and dividend payouts.

Market sentiment towards PSUs:

Investor perception and sentiment towards public sector companies play a crucial role in determining ETF demand and valuation.

Global economic conditions:

Global demand, geopolitical tensions, and economic cycles impact sectors like energy and infrastructure, affecting CPSE ETF performance.

How to invest in CPSE ETF?

In order to invest in the CPSE ETF, you must have a demat account. After opening the demat account with a SEBI-registered broker, add funds to your account and follow the steps below:

• Search for the CPSE ETF in your demat search bar.
• Choose the NSE or BSE exchange.
• Tap on add to the watchlist for monitoring performance.
• After analysing the market sentiment, place a buy order.
• Enter quantity, price.
• Choose order type: delivery or intraday.
• Tap on Buy to confirm and place the order.
• ETF units will be stored in your demat account, and you can view them in holdings after T+1 settlement.

Who Should Invest in CPSE ETF?

CPSE ETF is suitable for various types of investors:

• Long-term investors:

Investors with a long-term horizon can benefit from stable returns, dividend income, and the growth potential of PSU companies.

• Income-focused investors:

Those seeking regular dividend income may find the CPSE ETF attractive due to consistent payouts from the underlying PSU stocks.

• Conservative investors:

Investors preferring relatively stable and government-backed companies may consider the CPSE ETF for lower perceived risk exposure.

• Beginners in the share market:

New investors can use the CPSE ETF as a simple way to gain diversified exposure without analysing individual PSU stocks.

• Portfolio diversifiers:

Investors looking to diversify their portfolio across sectors can include the CPSE ETF to gain exposure to the energy and infrastructure segments.