Favourable Commodity Trends May Drive Strong Rally in Domestic Metal Stocks

Domestic Metal Stocks May See Strong Rally as Global Commodity Trends Turn Favourable

India’s metal sector is gearing up for a potential rally as global commodity trends turn decisively favourable, reigniting investor interest in a space that has remained largely underowned for months. Analysts believe that a surge in global base metal prices — led by copper, aluminium, and zinc — could trigger a strong outperformance in domestic metal equities, setting the stage for a multi-year commodity upcycle.

The renewed momentum follows a sharp increase in physical commodity fund inflows, signalling that large institutional investors are positioning for a rebound in industrial metals. According to analysts, this trend could soon translate into robust gains for metal stocks listed on Indian exchanges.

Base Metals Extend Gains Amid Supply Crunch and Strong Demand

Base metal prices have witnessed a steady climb over the past month, driven by a tight supply environment, robust industrial demand, and a weakening US dollar.

• Copper and aluminium prices have risen nearly 8% each,

• Zinc has gained around 5%,

• Copper spot prices hit a record $11,097 per metric ton on the London Metal Exchange (LME).

Meanwhile, aluminium and zinc are trading near their all-time highs in both international and domestic markets.

Market analysts note that this rally resembles the early phases of previous commodity upcycles — notably those of 2009, 2015, and 2019 — which subsequently saw Indian metal stocks deliver outsized returns.

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Elara Capital Sees Signs of a Multi-Year Commodities Cycle

In a recent research note, Elara Capital highlighted that the commodity market’s resurgence is occurring at a key inflection point.

“Historically, such reversals have coincided with strong outperformance in Indian metal stocks, suggesting that the present recovery could mark the beginning of a multi-year commodities cycle,” Elara noted.

Their analysis compared investor flows between physical commodity funds (which invest directly in commodities) and commodity equity funds (which invest in commodity-related companies).

The study found a consistent and leading relationship — with capital typically moving first into physical commodities and later into equity funds as confidence in the sector builds.

“Investors initially allocate capital to physical commodities during early upcycle phases. As confidence strengthens, liquidity shifts toward commodity-related equities,” Elara explained.

This pattern, they added, is already unfolding, indicating that the commodity upcycle has meaningful headroom left.

Fund Flows Indicate Early-Stage Bull Market in Metals

Elara pointed out that physical commodity funds have been seeing strong inflows since January 2024, while inflows into commodity equity funds only started accelerating around June 2025.

Such divergence, according to the firm, suggests that the broader metals rally is still in its early phase.

Currently, the MSCI World Metals & Mining Producers Index (excluding gold and silver) is trading near its highest level since May 2008, a key resistance zone last touched in March 2022.

“With renewed investor interest and accelerating inflows, the index appears poised for a potential structural breakout,” Elara added. “This setup mirrors the price action seen in gold during 2024, where strong inflows and tightening supply-demand dynamics led to a decisive breakout after years of consolidation.”

Metal Stocks Underowned Despite Improving Fundamentals

Interestingly, despite the favourable global backdrop, domestic mutual funds remain underweight on the metals sector.

Within India’s mutual fund portfolios, metals rank as the third-most underowned sector, trailing only non-banking financial companies (NBFCs) and fast-moving consumer goods (FMCG).

According to recent fund allocation data, Jindal Steel & Power is currently the only overowned metal stock, primarily due to overweight positions by Kotak, HDFC, and DSP Mutual Funds.

In contrast, JSW Steel remains the most under-owned stock, with HDFC Mutual Fund being the only large fund maintaining an active overweight stance.

Other major players like Hindalco Industries, Tata Steel, and NMDC continue to see underweight allocations despite improving global trends — a signal that institutional participation in the sector could still increase if metal prices remain firm.

Analysts Expect Broader Participation in Coming Quarters

Market strategists believe that as the commodity uptrend consolidates, more domestic and global funds will rotate capital into metal and mining equities.

The reasoning is straightforward: stronger metal prices enhance corporate earnings visibility, lower leverage ratios, and improve return metrics for producers.

If historical patterns hold true, metal stocks could outperform broader indices, driven by both earnings recovery and valuation re-rating.

A Leadership Shift Brewing in Global Commodities

The structural setup, analysts argue, mirrors previous leadership shifts seen in gold and energy markets, suggesting that industrial metals could soon become the new growth leaders within the global commodity complex.

A prolonged rally in metals could also reignite investment in mining, smelting, and infrastructure capacity, benefiting not only domestic companies but also the broader Indian economy.

As demand for green technologies, electric vehicles, and renewable infrastructure continues to expand, the need for base metals like copper and aluminium is expected to grow exponentially — further reinforcing the bullish long-term outlook.

Conclusion: Metals May Lead the Next Market Cycle

The combination of tight supply, strong demand, and improving global liquidity has created a rare setup for the Indian metals sector. Despite being underowned, the fundamentals now appear compelling for a potential multi-year rally.

With copper and aluminium prices hitting fresh highs and investor flows aligning with historical upcycle patterns, domestic metal stocks could emerge as the next big outperformers in the Indian equity landscape.

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