Retail investors in India are pouring money into defence stocks after Prime Minister Narendra Modi’s push for domestic arms manufacturing drove the sector index up nearly 56 per cent in a year. At least four large asset managers have launched sector-specific funds as experts forecast India’s defence production will grow by as much as 20 per cent a year until the end of the decade.
India shares a long, tense border with an increasingly assertive China, and with ongoing conflicts in the Middle East and Ukraine, there is strong demand for weaponry both at home and abroad. But whereas New Delhi has been the world’s largest arms importer for more than two decades, Modi is now pushing for the military to buy more weapons at home. He hopes that defence will help to turn India into a global manufacturing hub. The drive for indigenisation has led to burgeoning order books at large local companies such as Hindustan Aeronautics, which produces fighters, helicopters and jet engines; Bharat Dynamics, which makes ammunition and missiles; and Mazagon Dock Shipbuilders, the country’s largest naval shipyard. Long the domain of state-owned firms, which still account for 85 per cent of arms production, Modi has opened up the sector to private companies, including the likes of Adani Group, Larsen & Toubro and Tata Sons. The prime minister has set an annual target of nearly $35bn by the end of the decade for domestic defence production, from about $20bn this year. A Balasubramanian, chief executive of the asset manager Aditya Birla Sun Life — which launched a defence fund in August — said the “very large and growing order book” at the top companies was a “selling point” for investors. But he noted that state-owned companies still dominated the sector and the government maintained a shareholding of about 80 per cent in some of the largest companies. “Unlike most other spaces that are truly open, this is not an entirely open space,” Balasubramanian said