ICICI Prudential Mutual Fund launches first auto index fund

The fund will track the Nifty Auto Index which is designed to reflect the performance of the automobile sector. The index comprises 15 listed companies and also represents auto-related sectors such as auto ancillaries and tyres. The index is built using the free float market capitalization method.

As of August 30, the top three stocks in the index were Mahindra & Mahindra, Maruti Suzuki India and Tata Motors, weighing 19.9%, 19.2% and 13.4%. Since inception, the index has returned 16.4% (total return). As of August 30, the 5-year total return for the index was 5.8%.

As per a press release by the fund house, the weightage of any stock should not exceed 33%, and the total weightage of the top 3 stocks at the time of rebalancing should not exceed 62%. The index is rebalanced semi-annually in March and September.

Speaking on the launch of the product, Chintan Hariya, Head – Product Development & Strategy, ICICI Prudential Mutual Fund said, “In terms of volume, by 2030, India is expected to be the third largest automotive market in the world. We are confident that through this fund, investors will be able to enter the emerging niche of the Indian automobile industry. With India being an emerging global hub for auto component sourcing as well as government support for electric mobility, we believe this space is likely to be in the limelight.”

According to the fund house, the auto industry is cyclical in nature, but the profits of companies in this sector rise or fall according to consumer confidence. The industry has a very high return on capital employed (ROCE) and cash generation as compared to other sectors. The fund house expects that as per capita income rises, penetration is likely to increase as affordability and income levels increase, leading to increased discretionary spending thereby supporting the sector.

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