Defence stocks, mutual funds fire up: Should investors focus on current rally?

As geopolitical tensions rise and national defence takes centre stage, defence stocks have quietly delivered blockbuster gains in 2025. The BSE Defence Index has surged nearly 60% over the past year, far outpacing the Sensex’s 17% return, according to data from ACE Equity as of April-end.

Frontline defence companies like Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL), and Mazagon Dock Shipbuilders have led the charge. HAL’s stock climbed nearly 55% in a year, supported by strong demand for its light combat helicopters and a robust order book worth over ₹80,000 crore. BEL clocked a 45% return, powered by rising orders for radar systems and electronic warfare technologies. Meanwhile, Mazagon Dock saw a staggering 100% surge in its stock price, buoyed by upcoming warship and submarine projects and generous dividend payouts.

Smaller players are also making waves. Paras Defence and Space Technologies Ltd jumped 7.18% to close at Rs 1,458.45. On May 9, amid heightened India-Pakistan border tensions, shares of ideaForge Technologies soared 14%, while Zen Technologies hit a 5% upper circuit.

Year-to-date, Bharat Dynamics has gained 37%, Paras Defence 41.65%, HAL 8%, and BEL 7.76%, underscoring growing investor interest in India’s defence manufacturing space.

Defence mutual funds

Investors are focusing on defence mutual funds and defences in the Indian markets. Defence sector mutual funds are basically thematic mutual funds that are designed to invest in stocks that align with a predetermined theme. 

Defence mutual funds are composed of a portfolio of stocks from companies that are primarily engaged in the research, development, manufacture, or sale of products and services related to defence and military operations.  

Thematic mutual funds focused on India’s defence sector have delivered strong returns in 2024, significantly outperforming broader market indices like the BSE 500 TRI. Among them, the Groww Nifty India Defence ETF FoF (Direct) has posted the highest year-to-date (YTD) return of 9.28%, followed closely by ABSL Nifty India Defence Index Fund (Direct) at 9.24%, and Motilal Oswal Nifty India Defence Index Fund (Regular) at 9.21%.

On a 1-month basis, the Groww fund again leads with 16.45%, compared to 16.04% for ABSL and 16.00% for Motilal Oswal. Over 3 months, all three funds show impressive growth between 19.35% and 19.39%, indicating consistent short-term momentum in the defence sector.

In contrast, the BSE 500 TRI has underperformed across all timeframes—registering a YTD decline of 2.87% and negative returns over 6 months (-4.11%).

While all three defence funds track the Nifty India Defence Index, offering similar exposure, the Groww fund slightly edges ahead in short-term performance. However, investors should note that these are new funds with no 1-year or long-term track record, and performance could be volatile due to the sector’s cyclical nature.

Source: Value Research