India’s defence sector is experiencing explosive growth, fueled by government initiatives and a burgeoning order book. In light of this, Motilal Oswal Asset Management Company (MOAMC) has launched a timely investment opportunity, ‘the Motilal Oswal Nifty India Defence Index Fund’. This fund follows in the footsteps of a similar offering from HDFC, which launched last year.
A new route for investors
The Motilal Oswal Nifty India Defence Index Fund is designed to track the performance of the Nifty India Defence Index, providing investors with a convenient way to gain exposure to the entire Indian defence sector. By investing in this fund, investors can benefit from a diversified passive portfolio of pure defence stocks, reflecting the overall performance of the sector.
Open for subscription until June 27, 2024, this fund aims to replicate the Nifty India Defence Total Return Index (TRI) to generate returns. Launched on January 19, 2022, the Nifty India Defence Index TRI comprises 15 companies that broadly represent the defence sector. Notably, the top 10 companies constitute approximately 94% of the portfolio, with stock weights based on free-float market capitalization and adjusted every six months (March and September).
Impressive performance standard
The Nifty India Defence Index has delivered remarkable returns, driven by increased government focus on domestic defence manufacturing. Over the 1-year and 3-year periods, the Nifty India Defence Index recorded compound annual growth rates (CAGR) of 177% and 89.5% respectively, as of May 31, 2024. These impressive metrics underscore the sector’s strong performance potential, though it may also experience higher volatility.
Government initiatives and sectoral growth
The Indian government’s focus on initiatives like “Atmanirbhar Bharat” (Self-Reliance) aims to reduce dependence on imported defence equipment and boost domestic production. This increased focus has led to substantial opportunities within the sector, with a projected pipeline of USD 138 billion over FY24-FY32F.
Market expert insights
Market experts highlight that companies in the defence sector have significantly improved their balance sheets and profitability, thanks to a continued increase in exports and higher defence expenditure by the government. This positive financial outlook makes the Motilal Oswal Nifty India Defence Index Fund an attractive investment proposition for those looking to capitalize on the sector’s growth.
