Nifty Auto vs Nifty Metal: Which sector should investors prefer for long term? Experts answer

With the Lok Sabha election results approaching, the Indian market has been exceptionally volatile in the month of May. While the benchmark Nifty is currently down 0.3 percent in the month so far, it cracked over 3 percent in the first half. After declining sharply, it recovered to hit a new peak and the 23,000-mark for the first time ever. Now again, the benchmark has been correcting amid weak global trends and a rise in US bond yields.

While experts expect the volatility to continue till the results, they see strong gains on a likely Modi win led by heavyweights, all sectors as well as the broader indices. The election results and the upcoming Budget will be the next key triggers for the market.

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Amid this background, let's analyse, between Nifty Auto and Nifty Metal, which sector has a better investment opportunity?

Both Nifty Auto and Nifty Metal have outperformed the benchmark Nifty in 2024 YTD. While Nifty Auto has gained almost 28 percent this year so far, Nifty Metal has grown over 23 percent as against a 4.5 percent rise in the Nifty in this period.

Both indices have witnessed a similar trend in the last one year as well, outperforming the benchmark with the auto index as the better performer. The Nifty Auto index has rallied 67 percent in the last 1 year while the Nifty Metal surged over 64 percent. In comparison, the benchmark Nifty rose 22 percent in this time.

In 2024 YTD, Nifty Auto has given positive returns in all 5 months so far while Nifty Metal has been in the green in 3 of the 5 months so far.

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Nifty Auto jumped 4.7 percent in May so far, extending gains for the 7th straight month since November 2023. Between November 2023 and May 2024, the index has rallied 48 percent. Meanwhile, it rose around 5 percent in March and April each, advanced over 6 percent in February and 3.3 percent in January 2024.

On the other hand, Nifty Metal added 5.3 percent in May so far, extending gains for the third straight month. It jumped over 11 percent in April and 4 percent in March. However, the index was in the red in the first 2 months of the current calendar year, down 0.6 percent in February and 0.06 percent in January.

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Nifty Auto hit its peak in late December, whereas Nifty Metal hit its record high in May this year.

Currently, Nifty Auto is just 1 percent away from its record high of 24,038.60. Meanwhile, it is has surged over 67 percent from its 52-week low of 14,168.75, hit in June 2023.

On the other hand, Nifty Metal is just a little over 2 percent away from its record high of 10,060.25, hit this month. Meanwhile, it is also over 67 percent higher than its 52-week low of 5,876.40, hit in June 2023.

Read here: Market Meltdown: Indian stocks lag behind global peers in May

In the long term, Nifty Auto has given multibagger returns between the two. The auto index has rallied over 126 percent in the last 3 years while Nifty Metal has jumped around 95 percent. In comparison, the Nifty index has gained over 47 percent.

Constituents

In 2024 YTD, all except one (MRF) Nifty Auto constituents have been in the green.

Exide Industries has gained the most, 59.5 percent, followed by M&M, Samvardhana Motherson, and Bosch, up over 40 percent each. Meanwhile, Bajaj Auto, Hero Moto, Ashok Leyland, Tata Motors DVR, Tata Motors, and Balkrishna Industries also jumped between 20 percent and 34 percent each. Furthermore, Eicher Motors, TVS Motor Company and Apollo Tyres gained 14.5 percent, 11.3 percent and 3.8 percent, respectively in this period. However, MRF lost a little over 1 percent in this year so far.

Read here: Hindalco vs Vedanta: Which metal stock should you pick for long term?

In the Nifty Metal index as well, all constituents, except one (Ratnamani Metals Tubes) were positive in 2024 YTD.

Hind Zinc was the top performer and gave multibagger returns this year so far, rallying 124 percent, followed by Vedanta, which surged 76 percent. Meanwhile, NALCO, JSPL, Hind Copper, SAIL, Tata Steel, Jindal Stainless and NMDC also advanced between 24 percent and 48 percent each. Other stocks Hindalco, Adani Enterprises, Welspun Corp, APL Apollo Tubes, and JSW Steel also added between 2 percent and 15 percent each. However, Ratnamani has shed 3.5 percent in 2024 so far.

Which index has a better long-term investment opportunity?

Deepak Jasani, Head of Retail Research at HDFC Securities, prefers auto over metals.

The metals sector is cyclical, dependent on demand-supply conditions across the globe, and hence at best can be a tactical play for a few months or quarters. High leverage levels of most companies lead to distress in downturns. The automobile sector in a country like India is still in a growth phase. Though the automobile sector also at times gets impacted by cyclicality, the innovation, interest rate trajectory, and income levels of rural and urban populace determine the speed and duration of growth and we can see the value add generated by the auto companies which results in good times in all-time high levels in automobile stocks and the index.

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Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities, has also picked the auto index.

Metals are more cyclical in nature compared to the auto sector. To make money from a cyclical sector is extremely difficult. You need to time your entries as well as exits well to lock profits. The performance of metal stocks is closely dependent on global growth. The sector is also influenced by global commodity prices and demand-supply situation. Environmental clearance and regulations also play an important role. On the other hand, the auto sector has a tailwind of the burgeoning middle class in India. The sector is extremely competitive and even needs high capex to be profitable. 

Thus, considering both the above points it would be preferable to pick the Nifty Auto index for long-term investment.

Similarly, Vikram Kasat, Head - Advisory, Prabhudas Lilladher, is also in favour of the auto space.

In FY24, both Nifty Auto and Nifty Metal had impressive performances. However, we believe Nifty Auto still has significant growth potential. Projections for commercial vehicles (CV) and passenger vehicles (PV), combined with increasing consumer preference for electric vehicles (EVs) and affordable mobility solutions, indicate a strong outlook. Therefore, we have a clear bias towards Nifty Auto.

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Nishit Master, Portfolio Manager, Axis Securities PMS, as well, has picked the auto sector.

We continue to like both the Nifty Auto and Nifty Metal indexes currently. However, given the global uncertainties, Nifty Auto seems better positioned in the long term.

Narendra Solanki, Head - Fundamental Research - Investment Services, Anand Rathi, also selected auto.

Prefer auto as it is more focused on domestic factors of growth and sees relatively low impact due to global factors and cycles as it is with the metals.

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

The broader market indices will continue to experience pressure in the lead-up to the election results. Both Nifty Auto and Nifty Metal are performing exceptionally well fundamentally, and with the Indian market on an upward trend, I prefer the auto sector for the long term. Although I anticipate metal sectors to maintain their momentum and witness substantial growth, metals are more volatile based on industrial demand and global events.

Read here: Tata Motors vs M&M: Which auto major should you pick for the long term?

Technical View

Gaurav Bissa, VP, InCred Equities, has chosen the metals index.

Nifty Metal index will be the preferred space for the long term. The charts are strong on the monthly charts and a fresh breakout from an ascending channel is visible which can catapult the prices higher. Broader markets are likely to outperform going forward. The indices have witnessed a strong breakout which can keep the momentum strong.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.