Revving Up: Nifty Auto Index Soars to New Heights with Strong Performance and Promising Future Outlook

The Nifty Auto Index is specifically crafted to accurately mirror the dynamics and achievements of the automotive sector within the financial market. The Nifty Auto Index comprises 15 tradable, exchange-listed companies. The index represents auto-related sectors like automobiles (4-wheelers), automobiles (2 and 3-wheelers), auto accessories, and tyres. The Nifty Auto Index is computed using the free float market capitalization method, wherein the level of the index reflects the total free float market value of all the stocks in the index relative to a particular base market capitalization value. The Nifty Auto Index can be used for a variety of purposes, such as benchmarking fund portfolios and launching index funds, ETFs, and structured products.

Selection Criteria of Nifty Auto Index

i. The company should be part of the Nifty 500 index at the time of review. If there are fewer than ten eligible stocks from the automobile sector within the Nifty 500, additional stocks will be selected from the top 800 based on their trading frequency, daily turnover, and market capitalisation over the previous six months.

ii. The company should be part of the automobile sector.

iii. The company should have had a high level of trading activity over the last 6 months.

iv. The company should have been listed on the stock exchange for at least six months. If a company has recently had its initial public offering (IPO), it can still be included in the index if it meets the eligibility criteria for 3 months.

v. The final selection of 15 companies for the index will be based on their free-float market capitalization.

vi. The weightage of each stock in the index is determined based on its free-float market capitalization, ensuring that no single stock has a weightage of more than 33% and that the cumulative weightage of the top 3 stocks does not exceed 62% at the time of rebalancing.

Composition of the index

Industry at a Glance

The past few years have been a mixed bag for the automobile sector. The sector has faced several challenges, such as the COVID-19 pandemic, supply chain disruptions, semiconductor shortages, and rising input costs, which have impacted the production and sales of automobiles.

However, the sector has also witnessed some positive developments, such as a gradual recovery in demand, a shift towards electric vehicles, and the government's focus on promoting domestic manufacturing and reducing import dependency.

When focusing on the return or the industry's performance, the industry has successfully delivered 20% to its investors, which is roughly 5.5% higher than the benchmark index.

Fundamentals

• Price to earnings ratio (P/E ratio) for the sector stood at 33.25, which is moderately expensive.
• Price to book value is a comparison between a company's current market price and its book value. An industry P/B ratio of 5.1 means that the current market price per share of the industry is five times higher than its average book value per share. A high  P/B ratio indicates that investors have high expectations for the company's future growth and profitability.
• Growth for the sector is 1% annually, which is a healthy one.

Technicals

Technically auto sector is trading at its ATH (all-time-high) i.e 13910.

The daily pivot level for the index is as follows.

On the last trading day, which was Friday, May 19, 2023, the Nifty Auto initially experienced a downward movement. However, it later witnessed a significant recovery, resulting in the index closing at 13,863. Notably, there was a hammer formation at the bottom, which is considered a potential bullish signal. Additionally, the trading volume for the day surpassed the volume observed in the previous 20 days, indicating a positive indicator.

Based on the current scenario, it appears that the index is in a consolidation phase. As a result, the levels of 14,085-14,100 and 13,657-13,550 are likely to become crucial levels for the index.

Disclaimer:-

We are not a SEBI registered Investment Advisor. This is not a recommendation but only a case of sample analysis that might help you to do research on your own.