In this article, we will be discussing the Nifty CPSE Index, what is it, and how it works. Should You Invest? Get all your answers about this Index in the article, so, let’s get started.
Nifty CPSE Index:
- The Nifty CPSE Index is constructed to facilitate the Government of India’s initiative to dis-invest some of its stake in Central Public Sector Enterprises (CPSE).
- The government opted for the ETF route for disinvestment.
- The ETF shall track the performance of the Nifty CPSE index.
- The index comprises of select 10 CPSEs
- Index values are calculated on a real-time basis
- Index rebalancing is done quarterly – Mar, Jun, Sep, and Dec
- Out of the CPSEs shortlisted for forming part of the index, CPSEs which got listed at NSE after 01-Jan-2004 are included in the index on the 1st trading day of the next quarter of their listing.
- Weights of constituents are capped at 25% on each rebalancing.
A company is included in the index if
Daily Index Value Calculation:
- Primary Eligibility - It is included in the list of CPSEs published by the Department of Public Enterprise
- Primary Eligibility - It is listed at the National Stock Exchange of India Ltd. (NSE)
- Government Holding - The company has more than 51% government holding (stake via Govt. of India or President of India) under the promoter category.
- Free Float Market Cap - The company has an average free-float market capitalization of more than Rs.1000 Cr. for six month period
- Dividend Norms - It is IRDA dividend norms compliant
Capping & Rebalancing:i) Capping:
- The index is calculated on free-float market capitalization methodology
- Weights of index constituents shall be re-aligned (i.e. capped at 20%) quarterly and made effective from the last trading day of March, June, September, and December
- Additionally, at the time of quarterly rebalancing/change in index constituents, the weights of the constituents shall be re-aligned.
- The index values are calculated on a real-time basis
- The total return values of the index are also computed on a daily end-of-day basis
- The index values shall be calculated on each day when a capital market segment of the National Stock Exchange is open for trading in equity shares.
The weights of constituents of the Nifty CPSE index are capped at 20% as explained hereunder:
- The capping factor of stocks is realigned upon the replacement of scrips in the index and quarterly, which will come into effect from the last trading day of March, June, September, and December
- In the event of weight realignment, the capping factor will be calculated for all constituents whose uncapped weight is greater than 20%. In between aforementioned periods, the weight of constituents can go above 20% depending on the price movement
- The index will undergo a review (exclusion or replacement) in case of corporate actions such as a merger, de-merger, etc
- Revision in the index (change in eligibility criteria, inclusions, exclusions, capping, etc.) shall be carried out upon formal request received from the CPSE ETF issuer AMC as appointed by the Ministry of Disinvestment.
- The Top-3 stocks account for an allocation of 59.7% with the highest allocation to Power Grid Corporation of India at 20.5% allocation which is then followed by NTPC and ONGC.
- The company has the highest allocation towards the Power Sector withholding of around 45.3%.
- Trailing returns have remained lower than the benchmark index- Nifty 50 in all the years except for the last 1 year.
- The company has outperformed the category index- S&P BSE PSU in all time frames.
Calendar year returns are above calendar returns of Nifty 50 for 3 out of 8 times. The fund yielded negative returns 3 times in the last 8 years.
- In terms of Rolling Return too, the index has mostly outperformed against Nifty 50.
How to invest in this index?
- The standard deviation of this index is around 27% whereas the standard deviation of the Nifty 500 is around 22%.
- The beta of this index is below 1.
- The index has also generated Alpha quite very well. PE is slightly above the PE of S&P BSE PSU.
What should investors do?
- There are the following options available to invest in this index:
Overall, this Index Fund/ETF has performed very well compared Nifty 50 index. It is Index/ETF focused on PSU stocks and hence investors who want to give some allocation towards PSU Stocks in their investment basket can evaluate this index. Investors with a moderate to conservative risk appetite can keep this index on their radar, one can choose it according to their risk-taking appetite and return expectation. Do follow due diligence before making any investment decisions.