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About Nifty Auto

The Nifty Auto Index was launched by the National Stock Exchange (NSE) of India in April 2005. It plays a crucial role in tracing and reflecting the performance of publicly listed automobile companies in India’s stock market.

Calculation of the Index

The calculation of the Nifty Auto Index is done through a weighted average of the stock prices of the companies forming it. The market capitalisation of each company determines the weight assigned to it. This way, the calculation involves the utilisation of the free-float market capitalisation approach. Larger companies carry more influence in determining the movements of the index. The Nifty Auto Index constitutes a total of 15 leading automobile companies, offering a well differentiated representation of the Indian automotive sector.

Stock Selection Criteria

In order to be included in the Nifty Auto Index, securities must meet certain rigorous criteria set by the NSE.
  • The companies should be listed on the NSE.
  • The companies should belong to the Automobiles sector.
  • The company should have a trading frequency of at least 90% in the previous six months.
  • The company should have a listing history of at least six months.
The companies should also adhere to market caps for individual and cumulative stock weightage during rebalancing. The NSE rebalances the index semi-annually to ensure its quality and thoroughness.

Performance of the Index in the Past

Economic cycles, government policies, and market conditions are some factors that have historically led to fluctuations in the Nifty Auto Index. The index showed downward trends during the 2008 global financial crisis and the COVID 19 in March 2020. Despite the setbacks, the index has rebounded.

Due to the cyclical nature of the automotive sector, it often performs well during economic upheaval. This is directly mirrored by the Nifty Auto Index. In 2023, the Nifty Auto index performed better than its peer indices. In 2023, the index jumped 25% YTD which translates to a performance better than both Nifty 50 and Sensex.

Trading in the Index

Direct investment in the Nifty Auto Index is not allowed. It can only be used as a source of information and analysis to make investment/ trading decisions. It’s just a benchmarking tool but not a financial security per se. There are several financial products available in the market that are linked with the Nifty Auto Index. For instance certain mutual fund schemes and ETFs are linked with the Nifty Auto Index.

Bottom Line

Overall, the Nifty Auto index serves as a good guiding light for investors looking to invest in the Indian automotive sector. The index’s varied composition, rigorous selection criteria and the performance trends make it a very handy tool for investors regarding their decisions for automotive picks.
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