Defence stocks have legs well beyond current market cycle: Groww AMC CEO Varun Gupta

Indian investors are showing a new level of maturity, embracing market volatility and shifting steadily toward long-term, goal-based investing. In an interview with ETMarkets, Varun Gupta, CEO of Groww Asset Management, discusses the rise of SIPs, the growing appeal of passive and thematic funds, and why defence isn’t just a tactical play but a structural story with strong legs.

Edited excerpts from a chat:

SIP flows have remained remarkably resilient despite global volatility. What’s your read on the psychology of the Indian retail investor right now? Are we seeing a structural shift in behaviour?
We’re certainly witnessing a structural shift in investor behaviour. The resilience of SIP flows amid global volatility reflects a growing maturity among Indian retail investors. There’s a deeper understanding now that equity, despite short-term swings, is a powerful tool for long-term wealth creation. Volatility is no longer seen as a threat but as a feature of the market and investors are increasingly embracing mutual funds as an accessible, diversified route to participate in equity markets.

Passive funds have seen strong traction. Where do you see smart beta and sectoral ETFs fitting into retail portfolios? Are these still underappreciated in India?
Passive investing is gaining strong ground in India. Investors now recognize that passive strategies offer low-cost, diversified exposure — not just to broad markets but also to specific themes and sectors. Smart beta and sectoral ETFs are also beginning to find their place in retail portfolios. While still underappreciated relative to global markets, interest is rising fast — evidenced by the increasing number of smart beta fund launches. In fact, our recent smart beta NFOs have seen encouraging traction, signaling growing retail appetite for such nuanced strategies.

With so many passive products now in the market, what role does product innovation play in differentiating offerings? What’s your take on balancing simplicity versus sophistication for the average investor?
Product innovation plays a critical role in standing out in an increasingly crowded passive space. At our end, we focus on identifying emerging themes and gaps in the market to create structured investment tools where few options currently exist. While some investors prefer straightforward products to get started, others look for more nuanced strategies. Our approach is to offer a thoughtful suite of solutions that caters to both ends of the spectrum, ensuring every investor finds something aligned to their needs and level of experience.

Defence as a theme has suddenly caught fire in investor portfolios. Is this a case of tactical play, or do you believe defence has legs as a long-term structural story?
While defence has certainly attracted attention as a tactical theme, we believe it’s a structural story in the making. With strong government support, improving financials of domestic players, and significant strides in indigenous technology, the sector is poised for long-term growth. The momentum may have brought it into the spotlight, but the fundamentals suggest it has legs well beyond the current market cycle.

What are the risks of thematic concentration in portfolios, especially when flows seem to chase recent outperformers? How do you approach this from a fund strategy standpoint?
Thematic investing can be powerful, but concentrated exposure always carries risk — especially when flows chase recent outperformers without considering long-term fundamentals. From a strategy standpoint, while we do consider investor interest, we only launch thematic funds where we see strong, long-term structural drivers. We avoid riding short-term trends that lack staying power. For us, it’s about building products that align with enduring shifts in the economy, not fleeting market momentum.

Additionally, we believe as thematic products grow in number and complexity, the role of financial advisors becomes even more important — helping investors navigate these options, assess suitability, and maintain a balanced portfolio aligned with their long-term goals.

There’s a lot of noise around geopolitical tensions and their impact on global supply chains. How are these dynamics shaping your global macro outlook and sector preferences?
Geopolitical tensions and recent tariff actions have certainly added to global uncertainty. Amidst this, we believe India stands out with strong structural drivers and relative resilience. We’ve positioned our portfolios to focus on domestic themes that are less exposed to external shocks. We're constructive on sectors that benefit directly from India’s growth story, as we see the country well-placed to navigate — and even benefit from — evolving global dynamics.

Amid rising valuations in certain pockets, how are you balancing risk and return while allocating across sectors?
In our active portfolios, we follow a disciplined QGaRP philosophy to balance risk and return. This approach blends quality and growth but always invests through the lens of valuation — ensuring we don’t overpay, even for strong stories. Especially in an environment with rising valuations in select pockets, we remain highly conscious of the risk-reward equation and maintain a sharp focus on portfolio construction that’s both resilient and opportunity-driven.

How do you see the mutual fund industry evolving over the next few years—especially with new players, fee compression, and increased retail awareness?
The mutual fund industry is clearly evolving, driven by rising retail awareness and the entry of new players. We believe this growing participation is a healthy sign of deepening market maturity. In fact, we're a beneficiary of this trend. As penetration increases, we believe the overall pie will expand — creating space for better products, more innovation, and stronger investor outcomes. While fee compression is a reality, it also pushes the industry to become more efficient and value-driven, ultimately benefiting both investors and the ecosystem at large.

Importantly, as more products and players enter the market, we believe the role of financial advisors will become even more critical. They will continue to play a key role in decluttering information, helping investors make sense of an increasingly complex landscape, and guiding them toward informed, goal-based decisions.