Nifty Auto

What is Nifty Auto?

Nifty Auto is a sectoral stock market index managed by the National Stock Exchange (NSE) of India. It is designed to track the performance of the top automobile and automobile ancillary firms listed on the NSE, serving as a benchmark for the Indian auto sector’s equity market activity. It presents a complete view of the Indian auto industry, encompassing makers of cars, motorcycles, commercial vehicles, auto components, tyres and batteries.

The Indian auto sector is key to the nation's GDP, employment and industrial production, and Nifty Auto provides critical information on the health and direction of this industry. Market players like investors, fund managers and analysts follow the index closely to measure the industry's growth, investment prospects and risk exposure. It is extensively utilised in the development of sector-specific investment vehicles like exchange-traded funds (ETFs) and mutual funds, assisting investors like you achieve focused exposure to the automotive industry.

Nifty Auto is periodically rebalanced to ensure that it accurately reflects the state of the industry, taking into account the latest market capitalisation, liquidity, and eligibility criteria. By tracking Nifty Auto, you can participate in the growth stories of India’s leading and most influential automobile companies.

Nifty Auto stocks selection criteria

The selection of stocks for inclusion in the Nifty Auto index follows a transparent and rules-based methodology to ensure that the index accurately reflects the performance of India’s automobile sector. Primarily, a stock must be listed and traded on the NSE and classified under the automobile or automobile ancillary sector as per the Industry Classification Benchmark. The stock must also be a part of the Nifty 500 universe, ensuring that only the most liquid and large companies are considered.

One of the key parameters is the stock’s average free-float market capitalisation over a specified period, typically six months. Free-float market capitalisation takes into account only the shares available for public trading, excluding those held by promoters or the government. In addition, the stock must have a minimum average daily turnover and trading frequency, ensuring sufficient liquidity so that you can easily buy or sell shares without significant price impact. The top 15 companies based on free-float market capitalisation and liquidity are selected to form the index.

The Nifty Auto index undergoes a semi-annual review, during which stocks that no longer meet the eligibility criteria may be replaced by new entrants. This dynamic approach ensures that the index remains relevant, representative, and responsive to changes in the Indian automobile sector. The strict selection criteria help maintain the relevance index, ensuring that it consists of the sector’s most prominent and actively traded companies.

How is the Nifty Auto index calculated?

The Nifty Auto index is calculated using the free-float market capitalisation weighted methodology, which means that the weight of each constituent stock in the index is determined by its free-float market capitalisation. To begin with, the free-float market capitalisation of each company is computed by multiplying the company’s share price by the total number of publicly available shares, excluding holdings by promoters or the government.

The index value is then derived by adding up the free-float market capitalisations of all constituent stocks and dividing this sum by a base market capitalisation, which is normalised to a base value (usually 1,000) at the inception of the index. The formula can be expressed as:

Index Value = (Sum of Free-Float Market Capitalisation of All Constituents) / Base Market Capitalisation × Base Index Value

Corporate actions such as stock splits, bonus issues, rights issues, or changes in the index constituents trigger adjustments in the base market capitalisation to ensure that such events do not distort the index value. The prices used in the calculation are the latest traded prices of the constituent stocks. The index is reviewed and rebalanced semi-annually to ensure the composition remains current and reflective of the sector’s realities. This calculation methodology ensures that Nifty Auto accurately represents the investment performance of the largest and most liquid automobile sector companies in India, making it a reliable and transparent benchmark for market participants.