Credit: Special Arrangement
Over the last 10-15 years, there has been considerable focus from automobile players and governments alike around the world on reducing environmental pollution as well as reducing dependence on fossil fuels such as petrol and diesel.
As a result, electric vehicles (EVs) progressively became the key mobility solutions for many advanced and developing economies, with global firms such as Tesla and BYD becoming key players in the space.
In India, the EV space has seen massive interest and growth across two, three and four-wheelers in recent years. The EV industry is expected to surge 15x to $118 billion in 2032 from $8 billion in 2023. This phenomenal growth brings with it the lucrative opportunity to invest in automobile companies, battery manufacturers and component producers.
For retail investors, a suitable way to tap into this theme is through the ETF route, which allows tracking a diverse range of companies within the EV ecosystem.
Why EVs score
Now EVs enjoy several advantages over regular vehicles that run on internal combustion engines that consume fossil fuels.
One, over the lifetime of an EV, the operating expenses relating to fuel (only battery charging) and maintenance are quite low, making them cost effective.
Two, falling battery prices due to advancement in technology are making EVs affordable.
Three, petrol and diesel prices are volatile, and are imported in India. EVs face no such issues.
Four, electric vehicles are safe with fewer moving parts and advanced driving technology.
Five, government policies that incentivise EVs are added attractions to EV adoption, especially as there is no environmental pollution caused.
Nifty EV and new age automotive index
There are broadly three category of companies making up the value chain of the EV industry – upstream, midstream and downstream.
The upstream companies supply and process chemicals. Manufacturers of batteries, components and software/technology providers form the midstream part. Downstream companies are makers of passenger and commercial vehicles, apart from new-age automotive players.
In this regard, the Nifty EV and new Age automotive index brings all these companies together in an excellent diversified mix of segments.
Stocks related to the EV business are selected from the Nifty 500 universe. Auto components, passenger vehicles, information technology and 2/3 wheelers are the top few sectors of the index.
Although EVs represent a single theme, they encompass multiple sub-segments, allowing for participation from a diverse mix of companies, thereby reducing concentration risk.
The index is periodically rebalanced, ensuring it remains aligned with changing market dynamics
Taking the ETF route
For investors, taking the ETF route can be an effective and cost-efficient for exposure to the theme as a diversifier. It may be advisable to consult your registered investment advisor or mutual fund distributor to understand where the passive investment fits in your portfolio.
Since the ETF would be traded on the exchanges, there would be reasonable liquidity in the units, so buying and selling becomes easy.
Further, since the ticket size is low, you can invest small sums periodically to average costs.