Operation Sindoor ignites defence mutual fund rally; 1-month returns surge to nearly 18%

India’s nascent defence mutual fund category is delivering a stellar comeback, with 1-month returns surging sharply in May. A wave of investor interest has been triggered by recent geopolitical events—particularly Operation Sindoor, India’s high-profile military operation—combined with government policies favouring domestic defence manufacturing.

According to Value Research data, defence mutual funds—most of which track the Nifty India Defence Index—have delivered 1-month returns ranging from 13.67% to 18.75%, with an average of nearly 17.7% across the board.

Sectoral funds outperform broader markets

While the broader equity markets have been relatively flat to moderately positive, defence mutual funds have outperformed most categories, fueled by strong stock-specific rallies in companies linked to defence production, avionics, and electronic systems.

Fund Name	1-Month Return (%)
Aditya Birla Sun Life Nifty India Defence Index Fund	18.43%
Groww Nifty India Defence ETF	18.52%
Groww Nifty India Defence ETF FoF	18.75%
HDFC Defence Fund	13.67%
Motilal Oswal Nifty India Defence ETF	18.52%
Motilal Oswal Nifty India Defence Index Fund	18.45%

Source: Value Research

All funds except HDFC Defence Fund are index-based and mirror the performance of the Nifty India Defence Index, a sectoral benchmark that has sharply gained following heightened market attention on defence.

Volatile six months, but a strong rebound

Defence mutual funds have been on a rollercoaster ride over the past several months. After peaking in December 2024, the category saw deep corrections in January and February 2025. But sentiment began to shift in April, culminating in a sharp 17.7% spike in May, powered by Operation Sindoor and fresh government spending cues.

Month	Avg Return (%)
May ’25	17.70%
April ’25	10.80%
March ’25	0.10%
Feb ’25	-4.70%
Jan ’25	-15.10%
Dec ’24	15.60%
Nov ’24	-10.50%

Source: Value ResearchTop stocks driving the rally

What’s behind the surge? A closer look at top holdings in the Nifty India Defence Index reveals that several constituent stocks have delivered 30–40% returns in just one month, pulling the index and associated mutual funds higher.

Stock	1-Month Return
Paras Defence	37.21%
Data Patterns	32.29%
DCX Systems	27.82%
Bharat Dynamics	24.33%

Source: NSE

These companies are involved in manufacturing critical defence technologies, including surveillance systems, aerospace components, and strategic electronic systems. With India aiming to become more self-reliant in defence, these stocks have emerged as early beneficiaries.

Why the sudden spike?

Two key drivers explain the sudden shift in market momentum toward defence mutual funds:

• Operation Sindoor: This high-profile military operation underscored the strategic significance of India’s defence readiness, leading to renewed investor focus on the sector.
• Boost in Defence Spending: The Union Budget for FY25 increased India’s defence outlay to $20 billion, with a clear policy shift: 75% of capital procurement has been earmarked for domestic manufacturers. This has led to both institutional and retail optimism around listed defence companies.

Growing AUM shows investor confidence

Despite being relatively new, most of these funds have managed to attract healthy assets under management (AUM). Investors are warming up to the long-term story of India’s push for Atmanirbharta (self-reliance) in defence production.

Scheme Name	AUM (₹ crore)
Aditya Birla Sun Life Nifty India Defence Index	461.46
Groww Nifty India Defence ETF	106.95
Groww Nifty India Defence ETF FoF	39.29
HDFC Defence Fund	5,487.27
Motilal Oswal Nifty India Defence ETF	202.68
Motilal Oswal Nifty India Defence Index Fund	2,875.46

Source: Value Research

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