The CPSE ETF has emerged as one of India’s most influential PSU-focused investment vehicles—offering access to government-owned enterprises across energy, power, defence, and core industrial sectors. With a massive AUM base, ultra-low cost, and a unique high-performing PSU rerating cycle, CPSE ETF continues to attract both retail and institutional investors.

This report integrates fresh Morningstar data (Dec 2025) to deliver the most accurate, research-quality analysis available.

1. Fund Overview & Investment Objective

The Nippon India CPSE ETF aims to replicate the Nifty CPSE Total Return Index, investing in its constituents in identical weights.
Morningstar states clearly:

“The objective is to provide returns that correspond to the Nifty CPSE Index… However, performance may differ due to tracking error.”

Category: India Other Sector

Benchmark: Nifty CPSE TRI

Structure: Sectoral / Thematic ETF

NAV (8 Dec 2025): ₹89.13

Expense Ratio: 0.07% (Ultra-Low)

This makes CPSE ETF one of the cheapest ETFs in India, ideal for long-term cost-efficient exposure.

2. Assets, Scale & Liquidity

Total AUM: ₹307,253.41 million (₹30,725 crore) as of 31 Oct 2025

The enormous asset size ensures excellent liquidity on exchanges and extremely tight bid–ask spreads.

3. Portfolio Composition — Highly Concentrated Powerhouse

The portfolio is among the most concentrated ETFs in India, with:

• Top 10 holdings = 99.06% of the entire fund

• Total equity holdings = only 11 stocks

Top Holdings (as of 31 Oct 2025)

Interpretation

This is effectively a 5-stock ETF, with BEL, NTPC, Power Grid, ONGC, and Coal India forming 86.5% of the portfolio.

4. Sector Allocation — Strong Utilities + Energy Combination

Sector Mix (Morningstar Classification):

• Utilities: 44.52%

• Energy: 30.75%

• Industrials: 24.73%

The fund is 0% exposure to financials, IT, consumer stocks, or global equities.

This makes CPSE ETF:

• Defensive in earnings

• Sensitive to policy

• Highly dividend-yielding

• Low in secular growth sectors

5. Market Cap Exposure — Pure Large-Cap PSU Dominance

The ETF is extremely large-cap dominant—ideal for investors looking for size, stability, and state-backed balance sheets.

6. Performance Analysis (Morningstar Data Integrated)

Calendar-Year Returns:

This shows the strong PSU rerating cycle from 2021–2024.

6.1 Annualised Rolling Returns

Despite the recent 1Y decline (valuation cooling), CPSE ETF still delivered exceptional long-term returns driven by PSU revival.

6.2 Quarterly Volatility Insight

The quarterly numbers highlight the ETF’s cyclical nature:

• Q1 2025: +2.09%

• Q2 2025: +8.22%

• Q3 2025: -2.00%

Large negative quarters (like -15.85% in Q4 2024) show how policy shocks or corrections can hit PSUs hard.

7. Risk Measures

3-Year Risk Metrics:

• Sharpe Ratio: 1.17

• Standard Deviation: 21.11%

This Sharpe ratio is exceptionally strong, showing excellent risk-adjusted returns during the PSU upcycle.

Important Note

Morningstar reports no alpha, beta or tracking error due to insufficient long-term data in the specific category.

8. Strengths & Weaknesses

Strengths

1. Ultra-low expense ratio (0.07%)

2. Backed by large, profitable CPSEs

3. Excellent 3Y and 5Y CAGR

4. High dividend yield

5. Huge AUM → high liquidity

6. Large-cap stability

Weaknesses

1. Extremely concentrated (top 5 = 86%)

2. Overexposure to utilities + energy

3. Negative 1-year return due to valuation correction

4. Policy-dependent earnings

5. No diversification across sectors

6. Underperforms during private-sector led bull markets

9. Who Should Invest in 2025?

Ideal For:

• Investors wanting PSU exposure with low cost

• Those seeking high dividend yield

• Tactical investors betting on government capex

• Medium-term investors (3–5 years) comfortable with volatility

Not Ideal For:

• Investors wanting diversified exposure

• Those seeking high secular growth (IT, banks, consumption)

• Short-term traders (PSUs can be slow-moving at times)

10. Forward-Looking Outlook (2025–2027)

Based on portfolio composition + Morningstar’s return pattern:

Bull Case

• Continued disinvestment

• Defence, energy & utilities capex

• Power demand grows 7–8%

• ONGC/Coal India stable commodity pricing
  Outcome: Upper double-digit CAGR (15–20%+)

Base Case

• Earnings stabilize

• Dividends remain high

• PSU valuations cool but remain above pre-2020 averages
  Outcome: 10–13% CAGR

Bear Case

• Valuation derating after 3-year rally

• Coal/oil price drop

• Policy delays
  Outcome: Flat or low single-digit returns

Conclusion: Is CPSE ETF Worth Buying in 2025?

With extraordinary 5-year performance (34.95% CAGR), a massive AUM base, and industry-defining PSU exposure, CPSE ETF remains one of India’s most potent thematic vehicles.

But investors must understand:

• It is not diversified.

• It is extremely concentrated and policy-sensitive.

• Short-term returns can be negative (as seen with -3.64% 1-year return).

For investors who believe in India’s power, energy, defence, and PSU capex cycle, this ETF offers a low-cost, high-quality, large-cap PSU basket with significant long-term potential.