The Nifty Metal Index fell sharply on Thursday as profit booking and global commodity rebalancing triggered a correction after a strong rally, said Aditya Welekar, AVP, Axis Securities.
According to Welekar, metal stocks had rallied sharply in recent months with valuations pricing in a near-perfect bull-case scenario. “Any pullback in underlying commodity prices was bound to lead to a correction in stock prices,” he said, adding that recent rebalancing in global commodity indices, including gold and silver, led to technical corrections across commodities and spillover volatility in metal stocks.
Another key factor weighing on metals is uncertainty around US Federal Reserve rate cuts. Strong US services data and mixed labour market signals have sparked debate over the timing and quantum of rate cuts in calendar year 2026. “If the US labour market remains strong, the Fed may not feel urgency to cut rates, which could be negative for commodities,” Welekar noted.
However, from a fundamental perspective, supply-demand dynamics remain supportive for metals. “Supply growth is limited, while demand use cases continue to expand. Any near-term dip in prices can offer a buying opportunity at lower levels,” he said.
Welekar pointed out that many metal stocks were trading 1–1.5 standard deviations above long-term valuation averages. Aluminium stocks, which typically trade at 5.5–6 times forward EV/EBITDA, are now quoting above 7 times, supported by aluminium prices hovering near $3,000 per tonne.
“To sustain these valuations, commodity prices need to remain elevated for an extended period. The current correction is more tactical, driven by profit taking,” he said, adding that deeper corrections are unlikely unless US labour data surprises sharply on the upside.
On earnings, Welekar expects Q3 results for both ferrous and non-ferrous companies to be slightly muted. Non-ferrous players may see pressure due to company-specific issues such as weaker Novelis performance for Hindalco and lower alumina prices for Nalco. Steel companies may face subdued spreads, leading to modest quarter-on-quarter EBITDA moderation.
That said, the outlook beyond Q3 is improving. “Current metal prices, lower raw material inflation and safeguard duties on steel are supportive. Construction activity picking up post-monsoon should help steel demand in Q4,” he said.
Welekar believes the sharp fall in metal stocks is largely a one-off adjustment driven by commodity index rebalancing, though volatility could persist for a few sessions. “If stocks correct further after Q3 results, long-term investors can use those dips to accumulate quality metal stocks,” he said.
Overall, while near-term volatility may continue, analysts remain constructive on the medium-term outlook for the metal sector, supported by favourable fundamentals and improving demand conditions.
Curated by David Kim
