CPSE ETF tops equity MF charts, but experts advise caution after the rally

Mumbai: An Exchange Traded Fund (ETF) comprising select top public sector companies has emerged as the best performing equity fund in the past year. The Central Public Sector Enterprises (CPSE) ETF has returned 61.75% during the period as against the 20% gains in the Nifty as the global rally in commodity prices and renewed investor interest in energy companies helped partly reverse years of underperformance.

Analysts, however, advise against fresh lump sum investments in the ETF after the recent run-up in stock prices

The ETF, run by Nippon Life India Asset Management, has 12 PSU stocks, with six - Power Grid, NTPC, Coal India, ONGC, Bharat Electronics and NMDC - together making up 91% of the portfolio. Almost 45% of the portfolio is in power companies, while about 44% is in companies in the commodities space - mainly oil.

"CPSE ETF is more of a defensive play which needs some allocation especially in the current times, when the global and domestic macroeconomic factors are challenging," said Deepak Jasani, head of retail research, HDFC Securities. Jasani said the leadership positions of the underlying stocks in their respective sectors make a case for investment but investors could wait for better levels or stagger their investments.

Prices of commodities shot up following the war between Russia and Ukraine, resulting in lower supplies. Brent Crude touched a 14-year high of $138 a barrel on March 7 though prices have eased below $100 of late. Some analysts advise investors to cut their holdings in the ETF after the recent run-up

"PSU stocks have run up sharply over the last one year. Existing investors can book some profits as returns may be volatile going forward," said Suvajit Ray, head (products), IIFL Securities.