Defence Funds: Mutual funds In Demand after Operation Sindoor

#DefenceFundsInDemand

As of April 30, 2025, the fund held a portfolio of 22 stocks with total assets under management (AUM) amounting to Rs 5,487 crore

Mumbai: Defence mutual funds in India have seen a one-month return surge, ranging from 13.67% to 18.75%, primarily due to increased market focus on defence sector investments and geopolitical activities.

Indian defence sector-oriented mutual funds are witnessing a notable surge, with one-month returns ranging from 13.67% to 18.75%. This surge is attributed to heightened investor interest, driven by recent geopolitical events such as Operation Sindoor and government policies that favour domestic defence manufacturing.

The average return across these funds is approximately 17.7%, significantly outperforming the broader equity markets, which have remained mostly flat to moderately positive. This performance is largely influenced by strong rallies in stocks of companies involved in defence production, avionics, and electronic systems.

Data from Value Research indicates that most defence mutual funds track the Nifty India Defence Index. Among the top-performing funds are Groww Nifty India Defence ETF and its associated Fund of Funds, showing returns of 18.52% and 18.75% respectively. The Aditya Birla Sun Life Nifty India Defence Index Fund and Motilal Oswal Nifty India Defence ETF also reported returns above 18%. The HDFC Defence Fund, while still delivering a strong 13.67% return, slightly lagged behind others in the category. These funds have benefited from a renewed investor focus on the defence sector, fuelled by government initiatives and market dynamics.

The Nifty India Defense Index, the leading performer among sectoral indices, surged by 5.5% to reach a peak of 8,309.15 on the National Stock Exchange (NSE) during Friday’s trading session. Meanwhile, the Nifty 50 Index experienced a slight decline of 0.17%, standing at 25,019.80.

The past six months have been volatile for defence mutual funds, marked by a peak in December 2024 followed by corrections in early 2025. However, sentiment shifted in April, leading to a remarkable 17.7% spike in May. This turnaround has been spurred by Operation Sindoor’s impact and fresh government spending cues, which have revitalised investor confidence.

In April, HDFC Defence Fund raised its stake in six stocks, which include Hindustan Aeronautics, Solar Industries, BEML, MTAR Technologies, Astra Microwave Products, and Centum Electronics.

As of April 30, 2025, the fund held a portfolio of 22 stocks with total assets under management (AUM) amounting to Rs 5,487 crore.

During April, the fund acquired approximately 1.29 lakh shares of Hindustan Aeronautics (HAL), increasing its total holdings to 24.87 lakh shares from 23.58 lakh shares in March. Additionally, the fund added 90,393 shares of BEML, bringing the total to 16.14 lakh shares compared to 15.24 lakh in March.

The fund also boosted its holdings in Astra Microwave Products from 35.96 lakh shares in March to 36.66 lakh shares in April. Furthermore, the fund acquired 37,423 shares of Solar Industries, 17,012 shares of MTAR Technologies, and 1,877 shares of Centum Electronics.

The fund maintained its exposure to 16 stocks throughout the month, which include Adani Energy Solutions, Avalon Technologies, Diffusion Engineers, InterGlobe Aviation, Larsen & Toubro, Rishabh Instruments, Premier Explosives, and Power Mech Projects.

Launched on June 2, 2023, the scheme currently has a allocation of 46.14% to large-cap, 14.52% to mid-cap, 34.6% to small-cap, and 4.74% to other categories.

The fund is well diversified across seven sectors, with 65.25% in capital goods, 17.29% in chemicals, 5.91% in infrastructure, 2.92% in electricals, 2.54% in aviation, 0.80% in power, and 0.55% in iron & steel.

Stock-specific rallies in companies within the Nifty India Defence Index have played a crucial role in this resurgence, with several stocks recording substantial gains in a short period. This demonstrates the sector’s potential for substantial growth amid strategic geopolitical shifts.

Key stocks driving this rally include Paras Defence, Data Patterns, DCX Systems, and Bharat Dynamics, all of which have delivered returns between 24.33% and 37.21% over the past month. These gains highlight the increasing market interest in defence-related stocks, which have become focal points for investors looking to capitalise on India’s defence sector growth. The strategic positioning of these companies, coupled with government encouragement for domestic production, has created an attractive investment landscape for mutual funds focused on this sector.

The Nifty India Defence index has seen a continuous upward trend for six consecutive days, experiencing a surge of 18%. This outperforms the benchmark index, which has only risen by 3% during the same period. The index is currently at its highest level since July 15, 2024, reaching a record high of 8,302.05 on July 11, 2024, according to NSE data.

Stocks such as Cochin Shipyard, Garden Reach Shipbuilders & Engineers (GRSE), Mazagon Dock Shipbuilders (MDL), Data Patterns (India), Paras Defence and Space Technologies, Zen Technologies, Bharat Dynamics (BDL), Hindustan Aeronautics (HAL) and MTAR Technologies from the Nifty India Defence index have seen gains ranging between 3% and 12%.

In addition, Bharat Electronics, BDL, MDL, Paras Defence and Solar Industries have reached their respective all-time highs on the NSE, amidst a market that is experiencing overall subdued activity.