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ETFs: Are there any opportunities in India?

Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Fundamental
Forum Discription: Discuss the operations and finances of any of your companies.Make the other participants aware on the investment opportunities available in a stock on PE free cash flow etc
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=667
Printed Date: 04/May/2025 at 11:37pm


Topic: ETFs: Are there any opportunities in India?
Posted By: kulman
Subject: ETFs: Are there any opportunities in India?
Date Posted: 26/Dec/2006 at 12:05pm
While reading investment related books & articles, we often come across advise from some Gurus from Western world about how small investors can make money by buying Exchange Traded Funds (ETFs).
 
As per http://www.nse-india.com/content/products/prod_etfs.htm - NSE's website , ETFs are just what their name implies: baskets of securities that are traded, like individual stocks, on an exchange. Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day like any stock.
It also http://www.nse-india.com/content/products/prod_etfs7.htm - lists ETFs Launched on NSE:

  http://www.nse-india.com/content/products/prod_sunder.htm - S&P CNX Nifty UTI Notional Depository Reciepts Scheme (SUNDER)

  http://www.nse-india.com/content/products/prod_liquidbees.htm - Liquid Benchmark Exchange Traded Scheme (Liquid BeES)

  http://www.nse-india.com/content/products/prod_jrniftybees.htm - Junior Nifty BeES

  http://www.nse-india.com/content/products/prod_niftybees.htm - Nifty BeES

  http://www.nse-india.com/content/products/prod_bankbees.htm - Bank BeES

 
Does any member have any experience, either good or bad? As such please post your views about ETFs.
 
I've noticed that these are quite illiquid. But could be made use by us as these are un-leveraged way of buying proxy for indices.
 
 


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Life can only be understood backwards—but it must be lived forwards


Replies:
Posted By: BubbleVision
Date Posted: 26/Dec/2006 at 12:54pm
Kulman - i for one have traded ETF's before, and i still do it. I have traded Bank BeES and Junior Nifty BeES. The experiences are generally good as they can give diversification to an individual when one does not want to trade any particular midcap stock. However their illiquidity is their only bad thing. There is a high impact cost.
 
I think that NSE should remove all the stocks from the futures segement and ADD all the index futures (FMCG Index, CAP GOODS Index ETC) to its F&O list, they can really give everyone an equal change to construct the portfolio exactly the way they want. Additionally, Indexes are far less volative than individual stocks.


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You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer!

Posted By: BubbleVision
Date Posted: 26/Dec/2006 at 12:58pm
One more thing should be worthwile looking in an ETF.... the underlying size of the ETF. We recently saw the Asset under management of BANK ETF to grow 6 fold in 6 Months due to a rally in Bank stocks.

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You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer!

Posted By: basant
Date Posted: 26/Dec/2006 at 1:02pm
Bubblevision Bank ETF has grown because since FII's are not allowed to invest into SBI and other PSU banks due to the overall ceiling they are buying these ETF's.

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: kulman
Date Posted: 23/Sep/2007 at 8:47pm
A smart Alec once commented that if something moves in the market, there is an index for it. Well, what about indices which also move? http://www.business-standard.com/common/storypage.php?autono=298932&leftnm=0&subLeft=0&chkFlg= - For those there are index funds and exchange traded funds (ETFs). While the former have been adequately written about, their performance (or lack of it) continues to shock investors. ETFs are the new cousins on the scene. It might have taken a while for them to arrive on the Indian shores but they are certainly getting noticed.
.
 India is far behind with its first offering in December 2001 - Nifty Benchmark ETS - which got listed in January 2002. Currently, we have nine ETFs. The latest additions to this family are the gold ETFs. Gold Benchmark, UTI Gold ETF and Kotak Gold ETF were launched in February, March and July respectively. They have done more to drum in the concept of ETFs than any of the other earlier offerings.
 ETFs are offered by asset management companies (AMCs), built like mutual funds but trade like stocks. Unlike regular mutual funds whose value is determined at the end of each day based on closing prices of the underlying stocks, ETFs can be bought and sold throughout the trading day. And while investors directly buy units from the fund house and sell it back to them, the same equation does not hold true for ETFs. They are listed on a stock exchange, the units are bought and sold via a broker and held in a dematerialised form.
 The creation of an ETF officially begins with an Authorised Participant (AP). The APs assemble the appropriate basket of stocks and send it to the ETF sponsor for safekeeping. In return for this, the ETF issues the APs a specified number of shares. These are called the creation units. These shares can be bought and sold to the public through a stock exchange. The AP is the market maker and has the responsibility of ensuring liquidity in the stock market. This will be done by offering compatible buy and sell quotes.
 If the AP's net delivery obligation is more than the stock of ETF available with it, the AP may place a purchase request with the fund house. If the AP has a net buy position (need to settle in cash), the AP may redeem units with the fund house for generating cash. But all these transactions between the AP and the fund will be restricted to the creation unit size only.
 Which brings us to pricing, another feature that distinguishes ETFs from index funds. In an index fund, the price per unit is based on the fund's net asset value (NAV). But an ETF is not always bought and sold at prices equal to NAV. In an ETF, the share price is influenced by market forces of demand and supply.
 So an ETF share may trade above or below the underlying value of the securities in the fund. For instance, ICICI Prudential SPIcE is an ETF that tracks the BSE Sensex. The price of one SPIcE unit will be equal to 1/100th of the Sensex value. So if current Sensex is at 13000, the price of one SPIcE unit will be Rs 130. An ETF is said to trade at a premium to NAV if its market price is greater than its NAV, and it's said to trade at a discount to NAV if the opposite is true.
 However, ETFs are structured so that large differences between their share price and the value of the underlying basket of securities do not exist for long period of time. The APs counteract the impact of supply and demand for the ETF shares by buying and selling them in the market, and, if necessary, by creating or redeeming creation units with the fund. In doing so, the APs help keep the market price of an ETF's share close to the underlying value of its securities.
 An ETF immediately gives you the diversification of a mutual fund and the liquidity of a stock. When you pick an ETF, you are focussing on a group of stocks and attempting to mimic their performance. So you don't have to scour the market for just a few stocks, where the entry cost may be prohibitive.
 And since the ETF is listed, you can trade whenever you like at the current price. And, you can even employ various techniques to profit from market ups and downs such as buying on margin and selling short.
 
A  look at some of the expense ratios of ETFs reveals low costs: Nifty Benchmark ETS (0.33%), Banking BeES (0.45%), UTI Sunder (0.50%), ICICI Prudential SPIcE (0.80%).
 
So an ETF does eventually boils down to a liquid, cost-effective exposure to a segment of stocks.
 
 
 
 
 
 


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Life can only be understood backwards—but it must be lived forwards

Posted By: kulman
Date Posted: 08/Oct/2007 at 2:22pm
" http://www.dnaindia.com/report.asp?newsid=1126123&pageid=2 - Investing in it does have a cost, however: One must give up the fantasy of a perspicacious gunslinger/investor outwitting the market.” —John Allen Paulos on index funds in ‘A Mathematician Plays the Stock Market’

Why do you invest in an equity mutual fund? The main reason obviously is that you have neither the time nor the expertise to invest in the stock market directly. Hence you feel, investing in a mutual fund, which has experts to manage money, is the way to go. Fair enough.

Is this the correct way to approach investment? Investing in a mutual fund would make sense if it generates returns, which are greater than the broad market.

This is one way of measuring the performance of the fund manager who runs that fund. The target for the fund manager is to try to beat the returns generated by the benchmark index.

Hence, investing and staying put in a mutual fund makes sense if it keeps beating its benchmark and the market rate of return, year on year. That is easier said than done.

In the last two decades, more than 85% of the fund managers in the US have underperformed the S&P 500, one of the most broad-based indexes in the US.

India being an emerging market, the situation is not that bad. In the last 12 months around half of the equity mutual funds failed to beat their benchmarks.

This has been the case largely in the years previous to that as well. Having said that how does an investor figure out in advance that a particular scheme will perform better than the market in the years to come.

So, what is the way out?

The way out is to invest in index funds. This ensures that instead of trying to figure out which the best performing mutual fund scheme will be in a particular year, you at least get the market rate of return.

Index fund is a mutual fund that collects money from investors and invests in stocks that make up a stock market index in the same proportion as their proportion in the index.

In India, index funds as a concept haven’t really picked up. But investing in the stock market through index funds remains one of the safest ways of investing. There are more than one reasons for the same.

First and foremost, it ensures that the investor at least gets the market rate of return. Further the investor is not dependant on the performance of the fund manager.

These days when so many new mutual funds are being launched, fund managers, like other professionals can change jobs at the drop of the hat. In such cases, the performance of the schemes they leave behind suffers. At the time of investing, they don’t need to go through a list of 200-odd equity funds to figure out which fund to invest in.



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Life can only be understood backwards—but it must be lived forwards

Posted By: kulman
Date Posted: 09/May/2008 at 8:42am

http://www.dnaindia.com/report.asp?newsid=1163360&pageid=2 - Kotak Mutual Fund has just launched the Kotak Sensex ETF , which will allow investors to indirectly earn returns earned on the Sensex.

This is the second Sensex-based ETF, the first being the ICICI Prudential ETF, which has very little money invested in it and has average assets under management of Rs 87.76 lakh during April.

Two Nifty-based ETFs are also in vogue the Nifty Benchmark Exchange Traded Scheme (Nifty BeES), which had an average AUM of around Rs 509 crore and the UTI Sunder, which had an average AUM of Rs 14.32 crore.

Understandably, investing in broad index-based ETFs hasn’t really caught up in the country till now. One reason is their low AUMs, due to which they sometimes have a liquidity problem — when someone is trying to buy, there are not enough sellers and vice versa.

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Life can only be understood backwards—but it must be lived forwards

Posted By: puneetgoel
Date Posted: 02/Jun/2008 at 10:35am
Dear Equity Desk Members,

I was observing the PE, PB and Div Yield for the CNX PSU Bank Index for May & June 2008 on the NSE website. The values came out like this:

Date               PE    PB     Div.
23-May-2008 3.86 0.77 3.79
26-May-2008 3.77 0.70 4.01
27-May-2008 9.02 1.66 1.68
28-May-2008 9.22 1.70 1.64
29-May-2008 8.99 1.65 1.69
30-May-2008 8.89 1.63 1.71
02-Jun-2008 8.63 1.59 1.76

What has changed between 26 & 27th of May that the ratios differ by such a wide margin?

I tried to find out if there were any changes to the Index consituents but found no such news.
Also didn't hear news of any PSU Bank declaring extremely bad results.

I would be great if any of the forum member could enlighten me on this issue, that why does the PE for CNX PSU Bank on 27.05.2008 is almost 3 times than what was on 26.05.2008


Regards,
Puneet

Posted By: johnnybravo
Date Posted: 02/Jun/2008 at 11:50am
software error Ouch

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Saab Moh Maya hai!

Posted By: puneetgoel
Date Posted: 15/Jun/2008 at 3:06pm
They have revised the statistics now.
If you see the statistics on the NSE website now, they are as follows:

26-May-2008 9.36 1.72 1.62
27-May-2008 9.02 1.66 1.68
28-May-2008 9.22 1.70 1.64
29-May-2008 8.99 1.65 1.69
30-May-2008 8.89 1.63 1.71
02-Jun-2008 8.63 1.59 1.76
03-Jun-2008 8.56 1.58 1.77
04-Jun-2008 8.24 1.52 1.84
05-Jun-2008 8.23 1.51 1.84
06-Jun-2008 8.14 1.50 1.86
09-Jun-2008 7.91 1.46 1.92
10-Jun-2008 7.80 1.21 2.37
11-Jun-2008 7.99 1.24 2.31
12-Jun-2008 8.13 1.26 2.27
13-Jun-2008 8.08 1.25 2.29

This is a very very bad news for me, as I had purchased the PSU Bank ETF based on the older values of ratios and now they have revised it upwards!!!!
 

Posted By: kristan2000
Date Posted: 30/Dec/2009 at 8:39am

As its name implies, the fund has 50 holdings. INDY has a 0.89% expense ratio. The five largest holdings are Reliance Industries Ltd. 12.7%, Infosys Technologies Ltd. ( http://seekingalpha.com/symbol/infy - INFY ) 7.9%, ICICI Bank Ltd. ( http://seekingalpha.com/symbol/ibn - IBN ) 6.9%, Larsen & Toubro Ltd. 6.7%, and Housing Development Finance 4.9%.

Cuurent top sector and industry weightings include banks 17.1%, refineries 13.2%, computer-software 12.1%, engineering 6.7%, and steel & steel products 5.0%. Additional information can be found in the http://us.ishares.com/product_info/fund/overview/INDY.htm - Overview and the http://us.ishares.com/content/stream.jsp?url=/content/repository/material/fact_sheet/indy.pdf&mimeType=application/pdf - Fact Sheet (pdf).

The three existing competitive products are:

  • PowerShares India Portfolio ( http://seekingalpha.com/symbol/pin - PIN ) ( http://www.invescopowershares.com/products/overview.aspx?ticker=PIN - PIN overview ) is based on the Indus India Index, has 50 holdings, and has an expense ratio of 0.78%.
  • WisdomTree India Earnings ( http://seekingalpha.com/symbol/epi - EPI ) ( http://www.wisdomtree.com/etfs/fund-details.asp?etfid=51 - EPI details ) is based on an earnings-weighted index with 125 holdings and has expenses capped at 0.88% through March 2010.
  • iPath MSCI India Index ETN ( http://seekingalpha.com/symbol/inp - INP ) ( http://www.ipathetn.com/INP-overview.jsp - INP overview ) is based on the MSCI India Total Return Index (which has 59 constituents) and has an expense ratio of approximately 0.89%.
  • ===========
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    http://www.forumlinkbuilding.com/view/link_building_services - link building service



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Chandru

Posted By: sjerry4u
Date Posted: 19/May/2010 at 9:53pm


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-Jerry-

Posted By: sjerry4u
Date Posted: 19/May/2010 at 10:38pm
I am planning to put my money in ETFs regularly.
nifty PE varied between 11 to 28 for period 1999-2010 (values taken from nse website) with avg PE of 18.
at what PE should i start investing ?

 



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-Jerry-

Posted By: sjerry4u
Date Posted: 21/May/2010 at 11:30pm
Basantji,
how accurate  the PE values of nse indices would be, provided by nse website


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-Jerry-

Posted By: basant
Date Posted: 21/May/2010 at 9:42am
I had but they should be accurate. However they could be based on trailing earnings.
 

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: bihisello
Date Posted: 21/May/2010 at 9:58am
Originally posted by sjerry4u

I am planning to put my money in ETFs regularly.
nifty PE varied between 11 to 28 for period 1999-2010 (values taken from nse website) with avg PE of 18.
at what PE should i start investing ?


What you mean by "regularly"? If you mean every week, month, qtr, year, then why you ask "at what PE should i start investing?"

That means you want to try and time the entry just one time or always? Then what happens to regularly? My feeling is to just start now otherwise one may have experience in which many learned peoples waited for Sensex 6000 recently.

Posted By: sjerry4u
Date Posted: 22/May/2010 at 7:27pm
@bihisello
havent decided duration but it will be less than a month and with a if condition that nifty PE should be less than average.
like simple algo
devide min. to max. PE in fixed intervals and assign fixed amount to it like
 PE      amount
10-12  10000rs
12-14  8000rs
14-16  6000rs
16-18  4000rs
and so on.
also investment missed in months when PE>PEavg should also be utilised when PE<PEavg.
what do u say???


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-Jerry-

Posted By: bihisello
Date Posted: 22/May/2010 at 7:51pm
Have you found Nifty average? What is it?

Maybe you would like to see Nifty mode than average. May be more useful.
=======================

Jeryy, if you haven't seen this, please read it may give you idea?

http://money.outlookindia.com/article.aspx?262244

It is about Value Investment Plans.

Posted By: sjerry4u
Date Posted: 22/May/2010 at 1:53am
http://spreadsheets.google.com/pub?key=tZ7Z5UykZoh727I7twWGO9A&single=true&gid=0&output=html

here is how PE varied from 1999-2010. i have taken data from nse website.
http://www.nseindia.com/content/indices/ind_pepbyield.htm

I had calculated mean/mode of PEs of nifty 50 index between 1999 to 2010
avg=18
mode=15





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-Jerry-

Posted By: sjerry4u
Date Posted: 22/May/2010 at 2:09am
I read article, sounds interesting!!



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-Jerry-

Posted By: sjerry4u
Date Posted: 22/May/2010 at 3:17am
but still in VIPs case also
how i should decide at what level should i start. At preset nifty PE is 20, is it  overvalued, fairly valued or undervalued??
I want to have some metric(like PE) so that my emotions dont drive me...


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-Jerry-

Posted By: bihisello
Date Posted: 22/May/2010 at 7:52am
Originally posted by sjerry4u

but still in VIPs case also
how i should decide at what level should i start. At preset nifty PE is 20, is it  overvalued, fairly valued or undervalued??
I want to have some metric(like PE) so that my emotions dont drive me...


If one is risk-averse/loss-averse, fixed deposit is better.

Posted By: basant
Date Posted: 22/May/2010 at 10:57am
The funny thing about the market Pe is that even the market participants do not know the mind of the market even though collectively they constitute the market. No wonder estimating Pe is an educated guess work rather then an offshoot of an inflexible mathematical formula.

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: bihisello
Date Posted: 23/May/2010 at 12:57pm
Originally posted by sjerry4u

but still in VIPs case also
how i should decide at what level should i start. At preset nifty PE is 20, is it  overvalued, fairly valued or undervalued??
I want to have some metric(like PE) so that my emotions dont drive me...


One more thing is sooner you start and longer you stay invested this question (in above bold letter) will become irrelevant.


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