Two volatile sectors with good returns
Among the various sectoral indices available in National Stock Exchange and Bombay Stock Exchange, IT, and Auto indices are common indices that investors keep a close watch on. Both sectors are volatile but thoughtful investment can earn great returns with time. So, if you belong to the category of risk-bearers these two indices can bring you good fortune if invested tactfully. You need to have a good amount of knowledge and due diligence to study and predict the performances of the stocks you invest in.
NIFTY IT index lists 10 major players in the software, hardware, infrastructure, and IT-enabled Services (ITes) industry. Tata Consultancy Services (TCS) and Infosys are the two key players that account for almost 50% of the index. Other major players in the nifty it are Tech Mahindra, HCL Technologies, Wipro, MphasiS, MindTree, L&T Infotech, Coforge, and L&T Technology Services. The IT index was founded in 1996 with a base value of 1,000. Since its inception, the index has reached the level of 26,000. Hence you can imagine the level of returns IT stocks brought for the early investors. However, IT as an industry bears the brunt of global political and economic changes. India being an outsourcing hub and constituting a major contributor in the global IT space, the surge is likely to continue for many more years.
NIFTY Auto is another sectoral index that draws the attention of investors. The auto index comprises of 15 stocks from Automobile, Auto ancillaries, Tyres, and rubber products, Castings, Forgings, and Fasteners. The major players include Ashok Leyland and Bajaj Auto which produce a major chunk of commercial vehicles in the country. Other players include Balkrishna Inds, Bharat Forge, Bosch, Eicher Motors, Mahindra & Mahindra, Maruti Suzuki, MRF, Tata Motors, and more. The nifty auto index was founded in 2004 with a base value of 1000. Currently, the prices have shot up to 12,000. Both the indices are reconstituted semi-annually like most other sectoral indices.
How to invest?
You can trade directly in IT and Auto stocks by selecting them from the respective indices. For IT stocks, investing in Futures and Options (F&O) is also an alternative. However, F&Os are not available for Auto stocks. In both cases, you can opt for Exchange-Traded Funds (ETFs) which are cheaper options to invest in.
Which one is better to invest,NIFTY IT vs NIFTY AUTO?
The returns for Auto stocks are limited to ~4% in the last 5 years. On the other hand, IT stocks have outperformed and provided returns at ~24% in the last 5 years. Hence, the comparison shows clearly how IT stocks have given outstanding returns over the years. However, the IT sector is highly volatile, and investors need to do detailed research to gauge and predict the future performance of IT stocks. The Auto sector is less volatile, but the sector’s performance is highly dependent on the demand-supply gap and other socio-economic factors. The choice is yours.