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In view of the looming geopolitical tensions around the world, defence is a strategically important sector for a country's economic growth.
India is the fourth largest spender of defence, and in the last decade, we have seen a significant increase in the budget allocation towards the defence sector.
With the Modi-led-NDA government's emphasis on 'Make India' Aatmanirbharta or self-reliance in defence, India's defence sector production has crossed the Rs 1 trillion milestone in FY 2022-23, a rise of 12% of the previous year, as per the press release of the Ministry of Defence. Over the next five years, India's defence production is estimated to increase to Rs 3 trillion according to the defence ministry.
India's defence exports crossed Rs 210 billion in the concluded financial year, a 32.5% growth over FY23, as per the press release of the government. By 2028-29, defence exports are expected to touch Rs 500 billion according to the defence ministry. So, is a key player in defence exports.
[Read: 6 Equity Mutual Funds to Benefit from India's Defence Sector]
Infographic: India's Defence Sector Dynamics
The above graph is used to explain the concept and is for illustration purposes only and should not used for the development or implementation of an investment strategy.
(Source: ; Nomura Defence sector report.)
The companies engaged in the defence sector have generated stellar returns in the last few years. And not wanting to miss the bus and capitalise on the potential of India's sector many equity mutual funds are invested in India's defence sector and some have launched 'Defence Sector Funds'.
Motilal Oswal Mutual Fund too has come up with Motilal Oswal Nifty India Defence Index Fund, a passively managed open-ended Scheme tracking the Nifty India Defence Total Return Index (open for subscription from June 13, 2024, to June 24, 2024, during the NFO period).
The Nifty India Defence Index aims to track the performance of a portfolio of stocks that broadly represent the defence theme.
From the Nifty Total Market index, stocks forming part of eligible basic industries (based on AMFI industry classification) or stocks which are present in the Society of Indian Defence Manufacturers (SIDM) member list and obtain at least 10% of revenues from the defence segment are included in the index and are chosen based on 6-month average free-float market capitalisation. The minimum number of stocks within the index is 10, and stock weights are capped at 20% each.
Table: Top Constituents of Nifty India Defence Index
(Source: NSE Indexogram Factsheet as of May 2024)
In other words, the Motilal Oswal Nifty India Defence Index Fund allows you to have exposure to some of the heavyweight players of India's defence sector, which includes capital goods and chemicals. Besides the large-cap companies, even certain mid-caps and small-cap companies are part of the Nifty India Defence Index.
By following a passive investment strategy and seeking to invest in the constituents of the Nifty India Defence Total Return Index, Motilal Oswal Nifty India Defence Index Fund aims to achieve returns equivalent to its benchmark, i.e. the Nifty India Defence Total Return Index, subject to tracking error.
Graph 1: Nifty India Defence Index Has Created Wealth for Investors
(Source: NSE Indexogram Factsheet as of May 2024)
Particularly after the Modi-led-NDA government's clarion call to Aatmanirbhar Bharat in May 2020 (amidst the COVID-19 pandemic), the Nifty India Defence Index has seen a phenomenal run-up, creating remarkable wealth for investors.
Graph 2: Performance Nifty India Defence TRI v/s. Nifty 50 TRI
Performance from 31-Dec-19 to 31-May-24.
Disclaimer: Performance results have many inherent limitations, and no representation is being made that any investor will, or is likely to achieve. Past performance may or may not be sustained in future.
The above graph is used to explain the concept and is for illustration purposes only and should not used for the development or implementation of an investment strategy.
(Source: ; Nifty Indices)
The graph above shows that the returns clocked by the Nifty India Defence TRI have noticeably outdone the bellwether, the Nifty 50 TRI.
Mr. Prateek Agrawal, MD & CEO of Motilal Oswal Mutual Fund, at the launch of Motilal Oswal Nifty India Defence Index Fund, said:
"With the Motilal Oswal Nifty India Defence Index Fund, we aim to capitalise on the projected $100 billion to $120 billion expansion in the defence sector over the next six years. As the fourth largest defence spender globally, India's focus on self-reliance and modernisation offers substantial opportunities for domestic defence companies. This fund is poised to benefit from India's robust advancements in defence technology and infrastructure."
Motilal Oswal Nifty India Defence Index Fund will be launched by Mr. Swapnil Mayekar who possesses over 13 years of experience in fund management and product development. He's been with Motilal Oswal since March 2010. He holds a master's in commerce (M.Com) with a specialisation in financial management and is the fund manager of several other index funds and exchange-traded funds at Motilal Oswal Mutual Fund.
The scheme is available for subscription during the New Fund Offer (NFO) period from June 13, 2024, to June 24, 2024, and has both Regular Plan and Direct Plan options for investment. The minimum investment amount is Rs 500/- and in multiples of Re 1 thereafter. In the case of the Systematic Investment Plan (SIP) mode, the minimum amount and SIP instalments are as under:
(Source: Scheme Information Document)
Note if you are considering investing in this scheme, make sure your risk appetite is very high and an investment horizon of around 7 to 8 years as your investment will be concentrated in India's defence sector.
To know more about Motilal Oswal Nifty India Defence Index Fund, download and read the Scheme Information Document and Key Information Memorandum.
Happy Investing!