Nifty Auto vs Nifty Metal: Which sector should investors prefer in the long run? Experts answer

As the Lok Sabha election results approached, the Indian market was exceptionally volatile in May. While the benchmark Nifty is currently down 0.3 per cent this month, it has fallen over 3 per cent in the first half. After a sharp decline, it again reached a new peak and crossed the 23,000-point mark for the first time in history. Now the benchmark is being revised again in the face of weak global trends and an increase in US bond yields.

While experts expect volatility to continue until the results, they see a strong rally on the back of a likely Modi victory leading heavyweights across sectors as well as broader indices. The next key factors for the market will be the election results and the upcoming budget.

Against this backdrop, let us analyze between Nifty Auto and Nifty Metal, which sector has better investment opportunities?

Both Nifty Auto and Nifty Metal have outperformed the benchmark Nifty in 2024 year-to-date. While Nifty Auto has gained almost 28 per cent this year, Nifty Metal has gained over 23 per cent as compared to 4.5 per cent gain in Nifty during this period.

Both indices have shown a similar trend over the last year as well, outperforming the benchmark, with the auto index outperforming. The Nifty Auto index has surged 67 per cent in the last one year, while Nifty Metal has surged over 64 per cent. In comparison, the benchmark Nifty has risen 22 per cent during this time.

Year-to-date 2024, Nifty Auto has returned positive returns in all the 5 months so far, while Nifty Metal has been in the black in 3 of the 5 months so far.

So far, Nifty Auto has jumped 4.7% in May, extending its gains for a seventh straight month since November 2023. Between November 2023 and May 2024, the index rose 48%. Meanwhile, in March and April it increased by about 5 percent, in February it increased by more than 6 percent, and in January 2024 by 3.3 percent.

On the other hand, Nifty Metal is up 5.3 per cent in May so far, extending its gains for the third straight month. In April it increased by over 11% and in March by 4%. However, for the first two months of the current calendar year, the index was in the red, falling 0.6 percent in February and 0.06 percent in January.

Nifty Auto hit its peak in late December while Nifty Metal hit its all-time high in May this year.

Currently, Nifty Auto is just 1 percent away from its record high of 24,038.60. Meanwhile, it is up more than 67 percent from the 52-week low of 14,168.75 reached in June 2023.

Nifty Metal, on the other hand, is just over 2 percent away from the record high of 10,060.25 it hit earlier this month. Meanwhile, it is also over 67 percent above the 52-week low of 5,876.40 reached in June 2023.

In the long run, Nifty Auto has provided them with bags of returns. In the last 3 years, the auto index has risen by over 126 percent, while Nifty Metal has risen by about 95 percent. For comparison, the Nifty index gained over 47%.

Ingredients

Year-to-date in 2024, all Nifty Auto components except one (MRF) were in green.

Exide Industries gained the most, 59.5 percent, followed by M&M, Samvardhana Motherson and Bosch, each with more than 40 percent. Meanwhile, Bajaj Auto, Hero Moto, Ashok Leyland, Tata Motors DVR, Tata Motors and Balkrishna Industries also rose by 20 to 34 percent. Moreover, Eicher Motors, TVS Motor Company and Apollo Tires gained 14.5%, 11.3% and 3.8% respectively during this period. However, MRF has lost just over 1% so far this year.

In the Nifty Metal index too, all components except one (Ratnamani Metals Tubes) have been positive since YTD 2024.

Hind Zinc has been the best performer this year and has delivered a multi-bag ROI so far, clocking 124 per cent, followed by Vedanta which is up 76 per cent. Meanwhile, NALCO, JSPL, Hind Copper, SAIL, Tata Steel, Jindal Steel and NMDC also gained between 24 and 48 percent. Other stocks Hindalco, Adani Enterprises, Welspun Corp, APL Apollo Tubes and JSW Steel also rose by 2-15 per cent each. However, Ratnamani has lost 3.5 percent in 2024 so far.

Which index offers better long-term investment opportunities?

Deepak Jasani, director of retail research at HDFC Securities, prefers cars over metals.

The metals sector is cyclical, dependent on demand and supply conditions around the world, so at best it can be a tactical play for a few months or quarters. The high level of financial leverage in most companies leads to unrest during periods of economic downturn. The automotive sector in a country like India is still in a growth phase. While the automotive sector is also sometimes affected by cyclicality, innovation, the trajectory of interest rates and the income levels of rural and urban populations determine the speed and duration of growth, and we can see the added value generated by automotive companies resulting in strong performance times, reaching all-time highs shares of automotive companies and the index.

Apurva Sheth, director of market outlook and research at SAMCO Securities, also selected the auto index.

Metals are more cyclical compared to the automotive sector. Making money in the cyclical sector is extremely difficult. You need to time your entries and exits well to lock in profits. Metal stock prices are closely dependent on global economic growth. The sector is also influenced by global raw material prices and the supply and demand situation. Environmental permits and regulations also play an important role. On the other hand, the auto sector has a headwind from India’s growing middle class. The sector is extremely competitive and requires even high investment outlays to be profitable.

So, considering both the above points, it would be better to choose Nifty Auto index for long-term investment.

Similarly, Vikram Kasat, chief advisor to Prabhudas Lilladher, is also in favor of the car space.

In FY24, both Nifty Auto and Nifty Metal delivered impressive results. However, we believe Nifty Auto still has significant growth potential. Commercial vehicle (CV) and passenger vehicle (PV) forecasts, coupled with growing consumer preference for electric vehicles (EV) and affordable mobility solutions, point to strong prospects. Hence, we have a clear bias towards Nifty Auto.

Nishit Master, Portfolio Manager, Axis Securities PMS has also targeted the automotive sector.

Currently, we still like the Nifty Auto and Nifty Metal indices. However, given the global uncertainty, Nifty Auto seems to be in a better position in the long run.

Narendra Solanki, Fundamental Research Manager – Investment Services, Anand Rathi also opted for the car.

I prefer auto because it is more focused on domestic growth drivers and has relatively little impact due to global factors and cycles, as is the case with metals.

Trivesh D, COO, Tradejini, also likes auto in the metal space.

Broader market indices will continue to feel pressure in the run-up to election results. Both Nifty Auto and Nifty Metal are performing exceptionally well and given the upward trend in the Indian market, I favor the automotive sector in the long run. While I expect the metals sectors to maintain momentum and experience significant growth, metals are more volatile due to industrial demand and global events.

Read here: Tata Motors vs M&M: Which car specialization should you choose for the long run?

Technical view

Gaurav Bissa, vice president of InCred Equities, chose the metals index.

The preferred area in the long run will be the Nifty Metal index. Charts are strong on the monthly charts and there is a fresh breakout from the rising channel, which could catapult prices higher. Broader markets are likely to outperform in the future. The indices saw a strong breakout, which may keep the dynamics at a high level.

Disclaimer: The views and recommendations presented above are those of individual analysts or brokerage firms, not of Mint. We advise investors to seek the opinion of certified experts before making any investment decisions.