The astounding rise in the number of new demat accounts in the last two years has pushed fund houses to change their product strategy. Fund houses are now trying to use the emerging opportunities by launching exchange-traded funds (ETFs). In order to invest in ETFs, you need to have a demat account.
Two fund houses, ICICI Prudential MF and Nippon India MF, are rolling out their Auto ETFs—ICICI Prudential Nifty Auto ETF and Nippon India Nifty Auto ETF—from January 5, 2022. The interesting thing here is that both the fund houses claim that they have come up with India’s first Auto ETF.
ICICI Prudential MF told Outlook Money that their claim is based on the fact that their scheme will get listed on exchanges earlier, so they are the first. ICICI Prudential Nifty Auto ETF NFO is closing on January 10, 2022 whereas Nippon MF Auto ETF is closing on January 14, 2022. So, in this case ICICI Prudential Nifty Auto ETF will be listed on exchange before Nippon India MF Nifty Auto ETF.
Both the schemes will invest in stocks that form the Nifty Auto Index in the same proportion as the index. The index has 15 companies from auto and auto ancillary sectors. Top three constituents of the index are automobile heavy weights Maruti, Tata Motors and Mahindra & Mahindra. These three together constitute more than 50 per cent of the index weight.
From an industry perspective, the auto sector is cyclical in nature. It closely follows various phases of the economic cycle. The profits of companies that operate in this space rise or fall in line with consumer confidence. Some of the factors that augur well for the sector are the growing average household income leading to higher purchasing power, availability of skilled labour at relatively lower cost, presence of robust research and development centres aiding in sector growth, and supportive government policies to boost electric mobility in the country.
“We believe that through ICICI Prudential Nifty Auto ETF, investors will be able to tap into the evolving space of the Indian automobile industry. With India being an emerging global hub for auto component sourcing, coupled with the government support for electric mobility, we believe this space is likely to be under the spotlight,” says Chintan Haria, head–product development and strategy, ICICI Prudential Mutual Fund.
Should You Invest In These NFOs?
In terms of performance, the Nifty Auto Total Return Index (TRI) has outperformed Nifty 50 TRI in seven of the 11 preceding years. However, it is worth mentioning here that Nifty Auto TRI index has underperformed Nifty 50 TRI in the last four years. If you are planning to take some exposure in the automobile sector, auto ETFs could be an alternative as they offer diversification across automobile companies and reduce the risk associated with investing in a single stock.