CPSE ETF – Further Fund Offer 5 (FFO 5) - Sales Note

Fund Positioning & Philosophy

 CPSE ETF was launched in order to facilitate GOI’s (Government of India) initiative to dis-invest some of its stake in
selected CPSEs through the innovative ETF route.
 The ETF is based on Nifty CPSE index. The Nifty CPSE Index includes 10 listed Central Public Sector Enterprises -

• Having more than 51.50% government holding (stake via Govt. of India or
President of India) under promoter category.
• Having average free float market capitalization of more than Rs.1,000 crore
for six month period ending August 2018.
• Companies which are IRDA dividend norms compliant shall be considered
eligible to be included in the index; i.e. equity shares of any listed
company on which not less than 10% dividends have been paid for at
least 2 consecutive years immediately preceding.

CPSE ETF: Background

NFO:
• CPSE ETF New Fund Offer (NFO) was first launched in
March 2014.
• NFO received overwhelming response; NFO collection
was Rs.4,363 crs, out of which Rs.1,363 crs was refund
to investors due to the issue size limit of Rs.3,000 crs.
• Participation across various categories of investors -
37,322 investors invested in CPSE ETF, out of which
~98.4% were Retail Individual Investors.
• Units of CPSE ETF were listed on 04th April 2014 on
NSE & BSE.
FFO:
• CPSE ETF Further Fund Offer (FFO) was launched in
January 2017.
• FFO received overwhelming response; FFO collection
was Rs.13,705 crs, out of which Rs.7,705 crs was
refund to investors due to the issue size limit of
Rs.6,000 crs.
• Participation across various categories of investors -
2,70,770 folios.
• Units of CPSE ETF were listed on 31st January 2017 on
NSE & BSE.
FFO 2:
• CPSE ETF Further Fund Offer (FFO 2) was launched in
March 2017.
• FFO 2 received overwhelming response; FFO 2
collection was Rs.10,083 crs, out of which Rs.7,583 crs
was refund to investors due to the issue size limit of
Rs.2,500 crs.
• Participation across various categories of investors -
1,66,460 folios.
• Units of CPSE ETF were listed on 28th March 2017 on
NSE & BSE.
FFO 3:
• CPSE ETF Further Fund Offer (FFO 3) was launched in
November 2018.
• FFO 3 received overwhelming response with
participation across various categories of investors;
FFO 3 collection was Rs.31,203 crs., out of which
Rs.14,203 crs. was refunded to investors due to limited
issue size of Rs.17,000 crs.
• Participation across various categories of investors -
1,89,619 folios.
• Units of CPSE ETF were listed on 10th December 2018
on NSE & BSE.
FFO 4:
• CPSE ETF Further Fund Offer (FFO 4) was launched in
March 2019.
• FFO 4 received overwhelming response with
participation across various categories of investors;
FFO 4 collection was Rs.30,464 crs., out of which
Rs.20,464 crs. was refunded to investors due to
limited issue size of Rs.10,000 crs.
• Participation across various categories of investors -
2,12,145 folios.
• Units of CPSE ETF were listed on 01st April 2019 on NSE
& BSE.

For Internal Circulation Only

 CPSE ETF – Further Fund Offer 5 (FFO 5) - Sales Note

Recent Development: Proposal to launch the FFO 5

 Another tranche in the form of FFO structure – similar to earlier FFO structure.
 FFO 5 to open and close for Anchor Investors on July 18, 2019 and for Non Anchor Investors on July 19, 2019.
 Tentative Issue size between Rs.8,000 crs to Rs.12,000 crs (Base size of Rs.8,000 Crs plus Additional size to be
decided by GOI).
 3% Upfront discount to all categories of Investors for the shares purchased from GOI. No discount will be offered
on purchase of index constituents from open market.
 Special category for Retirement Funds for preferential allocation to Retirement Funds along with Retail Investors.
 Proposed Categorywise Allocation (Same as FFO 4):
• 30% to Anchor Investors and balance 70% to Retail Individual Investors and
QIB (Retirement Funds) (Includes Anchor Investor undersubscribed portion).
• Residual portion (if any) from Retail Individual Investors and QIB (Retirement
Funds) to be allocated to QIB (Other than Retirement Funds) /NIIs.

Investment Rationale
• Play on India growth story through investment in the large CPSE stocks at attractive valuations.
• Portfolio diversification through investment in blue-chip Maharatna, Navaratna & Miniratna CPSE stocks majority
of which are which are sector leaders / near monopolies.
• FFO 5 price advantage – Upfront discount to all categories of investors.
• Attractive Valuation and Dividend Yields: Superior P/E ratio and dividend yields compared to broader market
index.
• Relatively lower correlation ranging from 0.57 to 0.68 vis-à-vis Nifty 50 index (over 1 Year
& 5 Years period ending 28th June 2019), helping portfolio diversification.
• Flexibility of trading on real time basis.
• Significantly lower expense ratio i.e. 0.0095%.
• Investors will be able to diversify exposure across a number of Public Sector companies
through a single instrument.

Attractive Valuation
Nifty CPSE Index on an aggregate is being offered at a “34% -to- 46% discount to Nifty 50 Valuations”
•Est. FY21 PB(x): Nifty 50 2.4x vs CPSE 1.3x, ~46% lower
•Est. FY21 PE(x): Nifty 50 15.8x vs CPSE 8.5x, ~46% lower
•Est. FY21 EV/Ebitda (x): Nifty 50 9.3x vs CPSE 6.2x, ~34% lower
•Dividend Yield %: Nifty 50 1.24% vs CPSE 4.89%, 3.9x times
•RoE %: Nifty 50 12% - 15% vs CPSE 13% - 14%
(RoE % of CPSE Basket almost same as Nifty 50, even though valuations at a steep-discount)
Market Cap Est. FY21 Est. FY21 Est. FY21 Est. FY20 FY18 Net
Sector Weight
( In Crs. ) PB(x) PE(x) EV / Ebitda (x) RoE % Debt / Equity
Energy 64% 545,474 1.2 8.7 5.5 14% 36%
Other Oil PSUs 20% 146,767 1.0 8.3 5.8 13% 54%
Infra. & Engineering 8% 38,140 1.5 14.1 8.2 11% Net Cash
PSU Financials 8% 35,430 0.8 5.0 NA 15% NA

CPSE 1.3 8.5 6.2 14% 34%

Nifty 50 2.4 15.8 9.3 15% 51%
Valuation Discount % -46% -46% -34%
Source : RMF Research, Broker Estimates, NSE Indices Limited
Data as on 28th June, 2019

For Internal Circulation Only

 CPSE ETF – Further Fund Offer 5 (FFO 5) - Sales Note

Attractive Valuation and Superior Dividend Yield – Compared to Other Broader Indices
Index Name P/E Ratio P/B Ratio Dividend Yield (%)
Nifty CPSE Index 9.37 1.58 4.89
Nifty 50 Index 28.98 3.71 1.24
Nifty Next 50 Index 46.00 4.07 0.91
Nifty 100 Index 30.43 3.75 1.20
Nifty 500 Index 30.96 3.41 1.17
Source: NSE. Data as of 28th June, 2019

Proposed Nifty CPSE Index Constituents & Industry

Allocation (%)
Company Name Weightage (%)
Oil & Natural Gas Corporation Ltd. 20.00 Industry Allocation (%)
NTPC Ltd. 20.00 Oil 23.01
Coal India Ltd. 20.00 Power 21.31
Indian Oil Corporation Ltd. 20.00
Minerals/Mining 20.00
Power Finance Corporation Ltd. 7.80
Petroleum Products 20.00
Bharat Electronics Ltd. 6.04
Finance 7.80
Oil India Ltd. 3.01
Industrial Capital Goods 6.04
NBCC (India) Ltd. 1.84
NLC India Ltd. 0.73 Construction 1.84

SJVN Ltd. 0.58 0 5 10 15 20

Total 100.00
Data as of 28th June, 2019 | Source: NSE Indices Ltd.

CPSE ETF Performance Snapshot

• Since FFO 3 & 4 Allotment

Performance - Since FFO 3 & FFO 4 Allotment Date

30% 27.85%

25%
Absolute Returns (%)

20%

15% 11.97%
11.00% 11.11%
10%

5% 1.78% 2.27%
0%
FFO 3 FFO 4

CPSE ETF Nifty 50 TRI S&P BSE Sensex TRI

Data as of 30th June, 2019

CPSE ETF FFO 3 Allotment Date – 7th December, 2018
CPSE ETF FFO 4 Alotment Date – 29th March, 2019
Source: MFI Explorer

For Internal Circulation Only

 CPSE ETF – Further Fund Offer 5 (FFO 5) - Sales Note

• P2P Performance

Performance of CPSE ETF as of 30th June, 2019

Absolute Return % CAGR %
Scheme Since
1 month 3 months 6 months 1 year 3 years
Inception*
CPSE ETF 0.88 4.20 16.57 10.67 10.80 9.81
Nifty 50 TRI -0.90 1.78 9.20 11.42 13.93 12.80
Average Large Cap Category# -0.55 2.32 7.95 8.20 11.29 13.28
Less than 1 year Absolute returns, Greater than or Equal to 1 year Compound Annualized returns
*Since Inception Date of CPSE ETF - 28th March, 2014
#Large Cap Schemes with Regular Plan option
Source: MFI Explorer

Additional Value for Different Categories of Investors

 FPI & Retail Investors: Attractive upfront Discount of 3% on underlying shares purchased
from GOI. No discount will be offered on purchase of index constituents from open
market.
 Retirement Fund – Approved as per Ministry of Labour notifications
 Insurance Companies – (a) Index complies with latest IRDA dividend guidelines (b) FMC
fees can be charged by Insurance Cos (Only fund to get this exemption in the Indian MF
industry)

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

For Internal Circulation Only