India's defence sector ETFs have seen the exchange-traded funds increase by up to 7% within the last two weeks. Due to increased geopolitical tension between India and Pakistan, ESG funds are again gaining hold, thanks to a new surge of interest from investors focused on defence-linked assets.
The Groww Nifty India Defence ETF Fund of Fund (FoF) was a top performer in the recent gains and outperformed other defence ETFs. The Motilal Oswal Nifty India Defence ETF also rallied, keeping up with the industry-wide trend. The movement proceeds after high cross-border tensions as markets react towards risk perception by moving capital into defensive instruments.
Investor confidence in the defence industry prospects has increased, as seen by recent meetings between the Indian government and local defence manufacturers. Reports show that authorities considered accelerating defence procurement plans to boost military preparedness. The market participants view these developments as indicators of increased future demand for domestic production of defence equipment.
This change of mood has influenced the companies in the defence index, taking the ETF up. Investor interest and a growing belief that the government will prioritize indigenous defence production in view of the regional security challenges have contributed to this.
Defence ETFs have gained momentum following improved performance in the sector's underlying stocks. The main components of such ETFs—from Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL), and other state-linked firms—all gained in price as investors acted on changing geopolitics.
Fund managers reported recording more inflows in defence sector ETFs, as some funds saw a significant increase in assets under management. This growth indicates increasing interest from retail and institutional players in strategic sectors that align with the national policy direction.
In a geopolitical environment where the situation is still fluid, defence sector ETFs can also continue drawing inflows. Although the announcement of the ceasefire between India and Pakistan has addressed pressing concerns, market participants are cautious. Most investors seem to prefer sector-specific hedging against future potential instability.