We will discuss what’s fueling the rally of defense, infrastructure, and manufacturing stocks and why mutual funds are doubling down on these sectors.

The Story

In the past year, defense, manufacturing, and infrastructure funds have registered impressive growth, significantly outpacing the broad market index.

Adding to it, mutual funds are launching more sector-specific funds, driving further inflows.

The question is, why are these sectors in the limelight of investors and what’s fueling their growth?

Let’s look at each of these sectors one by one.

The exceptional performance in the defense sector is largely attributed to the Indian government’s aggressive push for defense modernization and indigenization.

The Defence Sector

The growth in defense exports, reaching ~ $2.63 billion in FY 2023-24, a 32.5% year-on-year increase, highlights the government’s strong push, with exports surging 31 times over the last decade. India is setting its sights on an aggressive defense export target, aiming to establish itself as a key player in the global defense market by 2025.

The Infrastructure Sector

Over the past three years, the government has doubled infrastructure spending to boost the economy. As a percentage of GDP, it has increased from 1.7% in 2019-20 to 3.4% this year.

The National Infrastructure Pipeline (NIP) and the Gati Shakti program are driving investment across various sectors, including transportation, energy, and logistics​.

The Manufacturing Sector

Initiatives like ‘Make in India’ and ‘Atmanirbhar Bharat’, along with global trends like the ‘China+1’ strategy – where companies are diversifying manufacturing away from China to countries like India – have led to a surge in investments.

This influx is benefiting various manufacturing sub-sectors, including electronics, automotive, textiles, and industrial goods.

Do you notice a common thread among these three sectors? They are all significantly influenced by government spending and policies.

How do government spending & policies benefit these sectors?

Think of it this way: when the government invests in building national highways, it increases the demand for materials like steel and cement. As a result, companies in these sectors benefit from the higher demand.

When the government pushes for domestic manufacturing by giving policy support, it becomes rewarding to set up a manufacturing unit here for global players.

To conclude

Government policies are like the winds, while your investment is the boat. You can’t control the direction of the wind, but you can adjust your sails to navigate more efficiently and reach your destination faster.


It’s a good moment for these sectors, but it’s smart to stay aware of the risks too. Like any investment, it’s about keeping an eye on the bigger picture and not just the recent gains.