India is expected to be the world’s third-largest automotive market in terms of volume by 2030. The pandemic has subsided, and in August 2022, the production and sales of passenger vehicles in India have reached record heights (the sharpest year-on-year growth witnessed in FY23). Currently, the automobile industry contributes 7.1% of India’s GDP and 49% of its manufacturing GDP.

The Government aims to develop India as a global manufacturing and a Research and Development (R&D) hub. With the growing population of India, greater availability of credit and financing options and with government policy support, the Indian Automobile Industry has the potential for healthier growth in the long run – particularly in manufacturing Electric Vehicles and auto components required for their production.

It’s interesting to note that all the major Indian automakers have gradually shifted their focus to the electric vehicle (EV) market. Only Tata Motors Ltd., among other industry titans, has now introduced India’s most affordable electric vehicle (EV), solidifying its leadership in the battery-powered vehicle market at a time when manufacturers are preparing to ride the country’s green wave. Also, this can be the best time to invest in the auto sector, as the festive season starts from Raksha Bandhan up till Diwali, and automobile sales are on the up across India. The auto sector seems to have a positive outlook in the long run. Many investors are seeking to profit from the expansion of the auto industry.

ICICI Prudential Mutual Fund has launched ICICI Prudential Nifty Auto Index Fund; it is an open-ended index scheme replicating Nifty Auto Index. The scheme will give investors an opportunity to earn from the expected growth in the automobile sector, including the EV segment.

Commenting on the launch of this fund, Mr Chintan Haria, Head – Product Development & Strategy at ICICI Prudential Mutual Fund, said, “We believe through this fund, 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.”

Table 1: Details of ICICI Prudential Nifty Auto Index Fund

Type An open-ended index scheme replicating Nifty Auto Index Category Index Fund
Investment Objective The objective of the scheme is to invest in companies whose securities are included in the Nifty Auto Index and subject to tracking errors to endeavour to achieve the returns of the above index. This would be done by investing in all the stocks comprising the Nifty Auto Index in the same weightage that they represent in the Nifty Auto Index. However, there is no assurance or guarantee that the investment objective of the scheme shall be achieved.
Min. Investment Rs 1,000/- and in multiples of Re 1 thereafter. Additional Purchase Rs 1,000/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
Plans
  • Regular
  • Direct
Options
  • Growth
  • Income Distribution cum capital withdrawal (IDCW)
SIP/SWP/STP Available
Entry Load Not Applicable Exit Load Nil
Fund Manager
  • Mr Kayzad Eghlim
  • Mr Nishit Patel
Benchmark Index Nifty Auto TRI
Issue Opens: September 22, 2022 Issue Closes: October 06, 2022

(Source: Scheme Information Document

The investment strategy for ICICI Prudential Nifty Auto Index Fund will be as follows:

The corpus of ICICI Prudential Nifty Auto Index Fund will be invested in stocks constituting the respective benchmark of the scheme and in exchange-traded derivatives on the Nifty Auto Index.

The scheme’s performance may not be commensurate with the performance of the respective benchmark of the schemes on any given day or over any given period. Such variations are commonly referred to as tracking errors. The scheme intends to maintain a low tracking error by actively managing the portfolio in line with the index.

The stocks comprising the Nifty Auto Index is periodically reviewed by NSE Indices. A particular stock may be dropped, or new securities may be included as a constituent of the index. In such an event, the scheme will endeavour to reallocate its portfolio, but the available investment/disinvestment opportunities may not immediately permit precise mirroring of the index. The portfolio shall be rebalanced within 7 calendar days to ensure adherence to the asset allocation norms of the scheme.

Similarly, in the event of a constituent stock being demerged/merged/delisted from the exchange, the scheme will reallocate the portfolio and seek to minimise the variation from the index. Further, the scheme intends to participate in securities lending as permitted under regulations.

Under normal circumstances, the Asset Allocation will be as under:

Table 2: Asset Allocation for ICICI Prudential Nifty Auto Index Fund

Instruments Indicative Allocations (% of Net Assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity and Equity related securities of companies constituting the underlying index (Nifty Auto Index) 95 100 Very High
Money Market instruments, including TREPs* and Units of debt schemes# 0 5 Low to Medium

*or similar instruments as may be permitted by RBI/ SEBI, subject to requisite approvals from SEBI / RBI, if needed.

#Excluding subscription money in transit before deployment/payout.

(Source: Scheme Information Document

About the benchmark

The NIFTY Auto Index is designed to reflect the behaviour and performance of the Automobile segment of 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 & 3 wheelers, Auto Ancillaries, and Tyres.

Here’s the list of top 10 constituents by their weightage under the Nifty Auto Index as on:

Note that the index will rebalance semi-annually in March and September.

Who will manage ICICI Prudential Nifty Auto Index Fund?

Mr Kayzad Eghlim and Mr Nishit Patel will be the designated fund managers for this scheme.

Mr Kayzad Eghlim has more than 30 years of experience in financial services, and he holds an MBA, M. Com, and B. Com degrees. Before joining ICICI Pru AMC, he was associated with IDFC Investment Advisors Ltd. as Dealer – Equities; Prime Securities as a Manager; Canbank Mutual Fund (IS Himalayan Fund) as a Fund Manager; and Canbank Mutual Fund as Equity Dealer assisting the Fund Manager. He worked with the Primary Market Department (IPO) at the beginning of his career.

At ICICI Pru AMC, Mr Kayzad currently manages ICICI Prudential Equity – Arbitrage FundICICI Prudential Nifty 100 ETFICICI Prudential Nifty Next 50 Index FundICICI Prudential Nifty ETFICICI Prudential NV20 ETFICICI Prudential Sensex ETFICICI Prudential Nifty Index FundICICI Prudential Equity Savings FundICICI Prudential Nifty Low Vol 30 ETFBHARAT 22 ETFICICI Prudential S&P BSE 500 ETFICICI Prudential Nifty Next 50 ETFICICI Prudential Bharat 22 FOFICICI Prudential Bank ETFICICI Prudential Midcap Select ETFICICI Prudential Midcap 150 ETFICICI Prudential Alpha Low Vol 30 ETFICICI Prudential IT ETF,ICICI Prudential Nifty Low Vol 30 ETFICICI Prudential Healthcare ETFICICI Prudential FMCG ETFICICI Prudential Consumption ETFICICI Prudential Smallcap Index FundICICI Prudential Private Banks ETFICICI Prudential Silver ETF Fund of FundICICI Prudential Nifty Auto ETFICICI Prudential Nifty Infrastructure ETFICICI Prudential Nifty 200 Momentum 30 Index Fund, and ICICI Prudential Nifty IT Index Fund.

Mr Nishit Patel joined ICICI Prudential Asset Management Company Limited in November 2018 and was working under ETF Business. He is a Chartered Accountant and B. Com graduate. At ICICI Pru AMC, Mr Patel currently manages ICICI Prudential Midcap Select ETFICICI Prudential Nifty 100 ETFICICI Prudential Nifty Next 50 Index FundICICI Prudential Nifty ETFICICI Prudential NV20 ETFICICI Prudential Sensex Index FundICICI Prudential Nifty Index FundICICI Prudential Regular Gold Savings Fund (FOF)ICICI Prudential Gold ETFICICI Prudential Sensex ETFICICI Prudential S&P BSE 500 ETFICICI Prudential BHARAT 22 FOFICICI Prudential Nifty Next 50 ETFICICI Prudential Bank ETFICICI Prudential Private Banks ETFICICI Prudential Midcap 150 ETFICICI Prudential Alpha Low Vol 30 ETFBHARAT 22 ETFICICI Prudential IT ETFICICI Prudential Nifty Low Vol 30 ETFICICI Prudential FMCG ETFICICI Prudential Healthcare ETFICICI Prudential Consumption ETFICICI Prudential Smallcap Index FundICICI Prudential Silver ETF Fund of FundICICI Prudential Passive Multi-Asset Fund of FundsICICI Prudential Nifty Auto ETFICICI Prudential Nifty 200 Momentum 30 ETFICICI Prudential Nifty Infrastructure ETF, and ICICI Prudential Nifty 200 Momentum 30 Index Fund.

Fund Outlook – ICICI Prudential Nifty Auto Index Fund

ICICI Prudential Nifty Auto Index Fund aims to provide returns that closely correspond to the total return of the benchmark Nifty Auto Index subject to tracking errors. The underlying benchmark Nifty Auto Index reflects the behaviour and performance of the automobile segment of the financial market.

The scheme, replicating the Nifty Auto Index, will track the listed automobile stocks, wagering on the auto universe’s possible growth amid a strong macroeconomic recovery and rising individual income. The underlying index focuses on the blue-chip auto and auto ancillary sector; companies in the index are focused on producing Electric vehicles.

The automobile sector closely follows various phases of the economic cycle, as it is cyclical and may be affected due to macroeconomic changes in the future. Currently, the sector is witnessing a growing push for clean energy and the environment; ethanol blending and Electric vehicles are themes driving auto stocks in the next few years. The automobile industry is likely to witness positive sales in the future.

However, do note that the demand level to rise for the auto sector may take a while, and the scheme may carry concentration risk due to limited exposure to a single sector. In addition, the persistent repercussions of the Russia-Ukraine conflict, spiralling inflation and the RBI’s announcement on September 30, 2022, to hike policy rates again by 50 basis points to curb demand and control inflation may cause a significant risk to economic growth. The margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is unknown. These factors, among many others, could have a bearing on the underlying index’s performance and its top constituents and may affect the scheme’s portfolio negatively if the sector moves out of favour.

The performance of the NIFTY Auto Index and the underlying sector will determine the success of the ICICI Prudential Nifty Auto Index Fund. Thus, it’s a very high-risk investment proposition, and only aggressive investors who have the ability to time the exit well can consider having a tactical allocation to the sector.

This article first appeared on PersonalFN here


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