India's only actively managed mutual fund dedicated to the defence sector made deliberate portfolio moves in March, adding shares across six companies while introducing one new name and making a complete exit from another. HDFC Defence Fund, managed by Rahul Baijal and Priya Ranjan, increased its holdings in Hindustan Aeronautics Limited, Eicher Motors, Aequs, Bharat Electronics, Solar Industries, and Bosch, according to data from ACE MF. The adjustments reflect a continuing conviction in domestic defence manufacturing at a time when India's capital allocation to the sector remains structurally elevated.
What Changed in the Portfolio
The most substantial addition by volume was in Aequs, a precision manufacturing company with growing exposure to aerospace and defence supply chains. The fund added 10.51 lakh shares, bringing its total holding to nearly 17.68 lakh shares. HAL, the state-owned aerospace giant and one of the fund's cornerstone positions, received an addition of 50,000 shares, taking the total to 25.50 lakh shares. HAL carries an allocation of 12.18% of the fund's net asset value, reflecting its weight in India's indigenous aircraft and helicopter production programmes.
Eicher Motors, whose presence in a defence fund may seem counterintuitive at first, connects through its subsidiary Royal Enfield — a supplier of motorcycles to Indian armed forces — and more broadly through the ancillaries segment, which now accounts for 21.69% of the fund's sectoral exposure. An additional 45,000 shares brought the fund's total holding in Eicher to 4.95 lakh shares. Smaller additions were made in Bharat Electronics (2.70 lakh shares), Solar Industries (22,672 shares), and Bosch (7,151 shares).
The most notable new entrant was Sedemac Mechatronics, added for the first time with 3.97 lakh shares valued at Rs 60.15 crore. Sedemac is a Pune-based company specialising in electronic control systems, an increasingly critical component as defence platforms become more software and sensor-dependent. Its inclusion signals an interest in deepening exposure to the electronics and embedded systems layer of India's defence ecosystem.
On the other side, the fund completely exited Avalon Technologies, selling its entire holding of 1.33 lakh shares worth Rs 13.64 crore. No other position was reduced during the month, and the total number of stocks in the portfolio held steady at 22.
Where the Weight Sits
The fund's largest single allocation by NAV is Bharat Electronics at 18.70%, followed by Bharat Forge at 15.27%. These two positions together account for just over a third of the portfolio, making the fund's performance closely tied to the fortunes of India's primary defence electronics supplier and one of its leading forging and advanced systems manufacturers. Solar Industries, which produces explosives and propulsion systems for defence applications, holds a 10.54% allocation.
By market capitalisation, the fund is not exclusively a largecap vehicle. It holds 50.38% in largecaps, 25.14% in smallcaps, 19.77% in midcaps, and 4.71% in others — a distribution that introduces meaningful volatility but also captures upside from smaller, faster-growing defence suppliers that larger funds often overlook. The sectoral spread across Capital Goods (52.68%), Automobiles and Ancillaries (21.69%), and Chemicals (12.94%) shows that the fund defines "defence and allied" broadly, encompassing the entire supply chain rather than limiting itself to primary contractors.
Performance in Context
Since its launch on June 2, 2023, the fund has delivered a compounded annual growth rate of 37.42%, benchmarked against the Nifty India Defence TRI. Over the last one year, it has returned 31.53%, while the three-month figure stands at 4.37%. These numbers reflect the strong re-rating that Indian defence stocks have undergone as the government has accelerated indigenisation mandates, expanded defence capital expenditure budgets, and pushed for exports through schemes like the Defence Acquisition Procedure.
Fifteen stocks saw no change in allocation during March, including Mazagon Dock Shipbuilders, Bharat Dynamics, Data Patterns, BEML, and Bharat Forge, among others. The stability across that group suggests the fund managers are satisfied with current weightings in those names rather than actively trimming or building. For investors, the fund remains a concentrated, thematic bet on India's long-term commitment to building domestic defence capability — a structural theme with a multi-year policy tailwind, but also one that carries the concentration risk inherent to any single-sector fund.