In recent times, mutual funds in India have displayed a pronounced bullish attitude towards defence stocks, infusing confidence among investors and analysts in the sector.
Several compelling factors are propelling mutual funds’ enthusiasm for Indian defence stocks. For instance, war profiteering and the ever-increasing national budgets for defence around the world have given a solid boost to defence stocks.
India, the fastest-growing major economy, with the world’s second-largest armed forces, is focused on modernising its armed forces. Moreover, thanks to PM Modi’s Make in India initiative, is on a steady path of self-reliance in the area of defence equipment manufacturing apart from exploring export opportunities.
Leading Indian Names in the Sector
Some of the nation’s top defence players are Hindustan Aeronautics, Bharat Dynamics, Bharat Electronics, Mazagon Dock Shipbuilders and Cochin Shipyard while the leading tech defence players include MTAR Technologies, Bharat Forge, and Bharat Electronics.
Geopolitical Dynamics Fuelling Confidence in Stocks
India’s mutual funds are increasingly investing in defence equities amid rising global tensions and security concerns. This is due to increased defence spending, driven by regional rivalries and conflicts. Indian defence companies are attracting mutual funds due to the promise of sustained revenue growth, making them a strategic investment avenue. Interestingly, out of 206 diversified mutual fund schemes, 131 had invested in at least one defence stock as of 31st July 2022. Among these, ten schemes had an exposure of 5% or more, while 18 had an exposure of less than 1%, and 78 others had an exposure between 1% and 2%. The average defence sector exposure of diversified equity funds was 2.4%, and the average single stock exposure was 1.5%. The maximum single-stock exposure was 4.6%.
IPOs, Merger & Acquisition Activities Driving Confidence ATMASTCO Ltd, specialising in Engineering Procurement and Construction (EPC) projects in the ferrous and non-ferrous sectors, has recently obtained a license to manufacture protective, full-body military gear for both men and women defence personnel and its fully owned subsidiary, Atmastco Defence Systems Pvt Ltd, has emerged as a key player in the defence sector. Mutual funds tracking
consolidation trends and strategic partnerships in the defence sector would recognise ATMASTCO’s potential significance in such activities, which could impact stock prices and investment strategies.
Having recently announced its IPO to cover its working capital requirements, ATMASTCO’s contribution underscores the interconnectedness of companies operating within the defence industry and their impact on investment decisions made by mutual funds.
As mutual funds assess opportunities in the defence sector, factors such as technological innovation, revenue growth potential, risk mitigation strategies, and involvement in industry dynamics, exemplified by companies like ATMASTCO, would influence their investment choices and overall portfolio strategies.
