Review
This article discusses the Nifty EV & New Age Automotive Index covering the EV ecosystem or new-age auto technologies in India and whether these stocks are suitable for investors.
This article is a part of our detailed article series on specific indices in India. Ensure you have read the other parts here:
This article discusses the Nifty Top 10 Equal Weight Index covering the 10 largest mega-cap stocks in India and whether these stocks are suitable for investors.
This article discusses the blistering performance of the Nifty Defence index and how much defence stocks have beaten the broad market since its launch.
The Nifty EV & New Age Automotive index is an index (like the SENSEX or Nifty 50) tracking a new theme of EV and specific Automotive stocks.
As per the index Factsheet, the index details are as follows:
| Metric | Description |
|---|---|
| Methodology | Periodic Capped Free Float |
| No. of Constituents | 33 |
| Launch Date | May 30, 2024 |
| Base Date | April 02, 2018 |
| Base Value | 1000 |
| Calculation Frequency | End of day |
| Index Rebalancing | Semi-Annually |
| Year | NSE Indices |
|---|---|
| 2013 | 36 |
| 2014 | 38 |
| 2015 | 48 |
| 2016 | 57 |
| 2017 | 69 |
| 2018 | 76 |
| 2019 | 78 |
| 2020 | 77 |
| 2021 | 87 |
| 2022 | 94 |
| 2023 | 104 |
| 2024 | 107 |
NSE makes money by creating indices and licensing that data to AMCs to launch index funds, ETFs, and other mutual funds tracking the index. It is such a great business that the number of indices published by NSE has increased three times from Jan-2013 to Jan-2024.
As per the index Factsheet, these are the stocks in the Index:
Stocks forming a part of the Nifty 500 are eligible to be a part of the index provided they are involved in the production and supply of electric or new-age automotive vehicles, batteries, components, raw materials, and technology
Given the rising interest in the EV & New Age Automotive theme all over the world and now in India amongst investors, it was inevitable for NSE to launch an index tracking the theme. There were already Smallcases tracking the EV theme before this.
The index has these stocks:
The updated list is here: stocks
The Nifty EV & New Age Automotive index was started with a base date of 2nd April 2018 and a starting value of 1000. The performance chart below shows how this index has performed vs the broad market index Nifty 50 and two peer indices Nifty Auto and Nifty Transportation & Logistics:
Readers should make a note of the break-away performance of the index vs. the peer indices in Q1 2021 and then again around March 2023. If you are planning to invest in this index, you should carefully study the reason for this outperformance based on the news in the market at this time.
These rolling charts work on a window basis. Each point on the chart is calculated using a 3-year SIP like this:
The data shows that until Q1 2024, the new Nifty EV & New Age Automotive index gave a higher return than the rest but has since then fallen behind the peers.
Here using the same rolling window concept, we have calculated the standard deviation of the monthly returns using 36 months:
Surprisingly, the new Nifty EV & New Age Automotive index has consistently lower risk vs. the peer indices. One would normally expect “new age” stocks to be riskier than more established companies but that is not the case here.
With higher returns and relatively lower risk, the next expected outcome is a higher return per unit risk performance of this index as shown below:
An interesting observation from the rolling correlation (which measures how much the indices are similar to each other) chart:
The Nifty EV & New Age Automotive index, from early 2023 onwards, has pulled away even further from its peers and the broad market. The investor needs to understand the reasons it did as part of the needed due diligence.
An important point for all indices with backtested results is that they can be created by tweaking the rules to give great results in the past. Such results may or may not be seen in the future. This particular index did not exist before May 2024 and the entire history since 2018 is only backtested data.
To understand how to use data to understand if this index is good or not:
You cannot directly invest in an index. You either need:
If you do not have an index fund or do not wish to invest in an ETF, the next best alternative is to invest directly in the underlying stocks. The current list of stocks is available on this page under “Index Constituent” in the Downloads section.
On 10-Jun 2024, Mirae Asset Management filed a draft application with SEBI for an Exchange Traded Fund (ETF) tracking the Nifty EV & New Age Automotive index.
Also in June 2024, so did Groww for an ETF and an FOF that invests in the ETF:
Investors should note that this is a New Fund Offering (NFO) but the investment product is an ETF and not a mutual fund.
ETFs, due to their nature of having poor liquidity, should be traded if and only if you are getting the price very close to the intraday NAV (iNAV).
Related:
Frequently asked questions on Exchange Traded Funds (ETFs): the complete guide
Hopefully, there will be index funds that will be launched later for investors who would like to invest in the EV & New Age Automotive theme.
“Investors should remember that excitement and expenses are their enemies.” - Warren Buffet
An investor who ticks one or more of the boxes below might consider investing:
☑ A keen follower of the EV and Auto/related sector news and companies
☑ Willing to invest a substantial portion of the portfolio (say 5% or more) as a satellite portfolio: What is a core-satellite portfolio and when can you use it?
☑ Would understand the inherent risks of theme-based investing
☑ Has research-based conviction on the entry and exit points for this theme
☑ Understands that thematic stocks have tendencies of a sudden reversal that can wipe out all gains
An investor who ticks one or more of the boxes below should not invest:
☑ Interested in this theme now that the index (and funds) exist
☑ Attracted by the recent high returns of this theme
☑ Has not done due diligence beyond reading about this index and funds online
☑ Will be investing a very small amount or will start a small SIP. Both indicate a lack of conviction and lead to portfolio clutter: How to clean up your mutual fund portfolio?
☑ Disagrees with the Warren Buffett quotation above
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This post titled NSE launches the Nifty EV & New Age Automotive Index. Should you invest? first appeared on 14 Jun 2024 at https://arthgyaan.com
