Nifty India Defense Index gave 100% return in one year, what lies ahead :Nifty India Defense Index has given a tremendous return of 100.71% in the last one year. On the basis of this impressive return, it can also be called the best performing index of the country in a year. Such stellar performance of the index is going to increase the interest of investors. This is the reason why many index funds tracking this sector have also been launched in the last few months. But the important question is that after giving 100% returns in one year, is there still scope for more profits in the funds tracking this index? Especially considering that the return of Nifty India Defense Index during the last three months has been around (-)4%. We will discuss this question further, but first let us understand what the Nifty India Defense Index means.
What is Nifty India Defense Index?
Nifty India Defense Total Return Index is a special sectoral index tracking the stocks of companies related to the defense sector of India, the objective of which is to track the performance of the defense sector. This index includes those companies which earn at least 10% of their total income from the defense sector. The companies included in this index are selected on the basis of their free-float market capitalization, in which the weightage of each stock is limited to 20%.
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Stocks included in Nifty India Defense Index
A maximum of 30 stocks can be included in the Nifty India Defense Index, but at present only 16 companies are included in it, out of which the top 10 stocks and their weightage are as follows:
- Bharat Electronics Ltd. : 20.73%
- Hindustan Aeronautics Ltd. : 20.41%
- Solar Industries India Ltd. : 15.11%
- Mazagoan Dock Shipbuilders Ltd. : 7.59%
- Cochin Shipyard Ltd. : 6.50%
- Bharat Dynamics Ltd. : 6.06%
- Zen Technologies Ltd. : 4.98%
- Data Patterns (India) Ltd. : 4.34%
- Astra Microwave Products Ltd. : 4.06%
- Garden Reach Shipbuilders & Engineers Ltd. : 2.87%
Apart from these, the remaining 6 stocks included in the index are –
- MTAR Technologies Ltd.
- Paras Defense and Space Technologies Ltd.
- Centum Electronics Ltd.
- Larsen & Toubro Ltd.
- Dixon Technologies (India) Ltd.
- Avantel Ltd.
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Sectoral Allocation of Index
Nifty India Defense Index mainly consists of two sectors:
– Capital Goods: 84.89%
– Chemicals: 15.11%.
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What is the profit potential ahead after 100% returns?
Nifty India Defense Index has given an impressive return of 100.71% in the last one year. This excellent performance of the index has become the center of attraction for investors. But the rapidly increasing valuation of this sector is also making it risky. However, in the last three months it has also seen a decline of about -4%. Due to the strong policies of the government and the policy of self-reliant India, a lot of potential is still being seen in the Indian defense sector. The government has set a target of defense production at Rs 3 lakh crore and defense export target at Rs 50,000 crore by FY2029. Along with this, the defense budget has been increased to Rs 6.22 lakh crore in FY2024-25, which can play a big role in the growth of this sector. Since 2018, the income of these companies has registered an increase of 9% and profit has increased by 20%. The order book of most of the companies involved in the defense sector is strong and due to the increasing possibilities in this sector, there is scope for growth in the future.
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What are the options for investment in defense sector?
Some of the major mutual funds, exchange traded funds (ETFs) and fund of funds (FoF) focusing on defense sector in India are:
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Motilal Oswal Nifty India Defense ETF: This is an exchange traded fund that directly tracks the Nifty India Defense Index.
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Motilal Oswal Nifty India Defense Index Fund: This index fund also tracks the Nifty India Defense Index and as a passive fund invests in the companies included in the index.
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Aditya Birla Sun Life Nifty India Defense Index Fund: This index fund launched by Aditya Birla Sun Life Mutual Fund, which tracks the performance of Nifty India Defense Index and provides investment opportunity in the defense sector.
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Groww Nifty India Defense ETF and FoF: The recently launched ETF and Fund of Funds (FoF) by Groww Mutual Fund also track Nifty India Index Fund. Through these also investors can invest indirectly in the companies of this index.
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HDFC Defense Fund: India’s first and only active defense fund, which invests in a portfolio of companies actively selected by the fund manager from among the companies included in the Nifty India Defense Index.
Investments can be made in defense sector companies through all these funds and ETFs.
Should one invest in these funds now?
Investors who are bullish on the long-term prospects of the defense sector in India can consider investing in funds that track or follow the Nifty India Defense Index. However, it should also be kept in mind that investing in sectoral or thematic funds is more risky. For those investing in these, it is important to decide the entry and exit points at the right time, which can be a difficult task for new investors. Investors who want to invest in this sector even after understanding all the risks, must keep some important things in mind.
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Keep these things in mind while investing
– Assess the risk: Invest after understanding the risks associated with the defense sector.
– Do not make it a part of the core portfolio: Do not make sectoral funds like Defense Index a part of the core portfolio and limit the investment in it to 5-10%.
– Consider multicap or flexicap funds: If your risk appetite is moderate, then investing in multicap or flexicap funds can be a good option. Such funds can also have exposure to the defense sector as per the environment and prospects.
Nifty India Defense Index has shown an excellent performance by giving 100% returns in one year, but its valuation and volatility have increased in recent months. In such a situation, if you are excited about the long-term prospects of this sector and have the ability to take more risk, then this can be an interesting option for you. But always keep in mind that you should give limited space to investment in sectoral funds in your portfolio and take any investment decision very thoughtfully.
(Disclaimer: The purpose of this article is only to provide information and not to advise investment in any scheme. The past returns of any index related to the stock market cannot guarantee the same performance in the future. Any investment decision should be taken by your investment advisor. Do it only after taking opinion.)
