Motilal's Defence Index Fund: Should you buy?
Motilal Oswal launches NIFTY India Defence Index Fund, tapping into India's booming defense sector amid increased military spending and self-reliance push.
Motilal Oswal's latest offering, the NIFTY India Defence Index Fund, targets India's nascent defense sector, capitalizing on the nation's drive for military self-sufficiency and heightened defense expenditures.
Why it matters: defense in India sector is witnessing rapid growth, driven by geopolitical tensions and the government's self-reliant initiative.
By the numbers:
- India's defense budget increased from ₹2.1 trillion in FY14 to ₹5 trillion in FY23
- Global military expenditure reached $2.4 trillion in 2023, up at a 3% CAGR since 2014
- India ranks 4th globally in defense spending, allocating $84 billion in 2023
- Defense exports from India grew 334% in the last 5 years
Between the lines: Motilal Oswal's fund tracks the NIFTY India Defence Total Return Index, which includes companies involved in defense manufacturing, aerospace, and related technologies.
Here's the details about the fund:
- Fund type: Open-ended index fund
- Benchmark: NIFTY India Defence Total Return Index
- Minimum investment: ₹500 (lumpsum and SIP)
- Exit load: 1% if redeemed within 15 days, nil thereafter
- Fund managers: Swapnil Mayekar (equity), Rakesh Shetty (debt component)
Worth noting: The NIFTY India Defence Index has outperformed the broader market in recent years, with a 5-year CAGR of 58.4% vs. 16.7% for NIFTY 50.
Yes, but: The sector's performance is heavily dependent on government policies and geopolitical factors, which can be unpredictable. The index also has high concentration risk, with the top two stocks accounting for nearly 40% of the portfolio.
Key companies in the index
- Bharat Electronics Ltd. (19.7% weight)
- Hindustan Aeronautics Ltd. (19.5%)
- Solar Industries India Ltd. (14.0%)
- Cochin Shipyard Ltd. (9.0%)
- Bharat Dynamics Ltd. (8.4%)
The bottom line: the fund offers a unique and low cost opportunity to invest in India's growing defense sector. However, investors should be aware of the sector-specific risks, including stretched valuations before investing.
