Over the past six months, the Nifty Metal has tumbled over 13%, starkly underperforming the broader Nifty 50, which has slipped by just 2%. All constituents of the Nifty Metal index, barring National Aluminium Co. Ltd (Nalco) and Welspun Corp. Ltd, have given negative returns over the past six months.
Hindustan Zinc has been hit the hardest, plunging 32%, followed by Steel Authority of India Ltd (Sail) and Hindustan Copper Ltd, which have seen declines of 24% and 23%, respectively.
Many fund managers believe that investors should hold off for now and take another look at the sector once there is more clarity on China’s recovery and the US trade policy under the new administration.
Note of caution
Sunil Damania, MojoPMS’s chief investment officer (CIO), said two factors drive the cautious approach to metals.
First, the Indian economy has been grappling with subdued growth, as reflected in disappointing gross domestic product (GDP) numbers over the last two quarters. This sluggishness directly impacts demand for metals across key industries such as construction, infrastructure, and automotive.
Second, increased imports of cheaper metals from neighbouring countries have significantly affected domestic metal companies’ realizations. This dumping practice exerts pressure on margins and disrupts market dynamics, further weighing the sector’s performance.
“The sector’s trajectory is closely tied to developments in China, the largest consumer of metals globally,” Damania said. The Chinese government is actively implementing measures to stimulate its domestic economy. “Should these efforts succeed, we could see a significant recovery in metal prices, positively impacting the valuations of metal companies,” he said.
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Besides, the actions of newly elected US President Donald Trump are a key factor to watch, as they could impact China’s indirect metal exports. Any disruption to these exports might reduce China’s domestic demand, potentially weakening consumption and prompting China to adopt more aggressive export strategies.
Uncertainty persists, especially regarding potential tariff policies under the Trump administration, which could impact global trade and the metals sector. While there is hope the Indian government may impose anti-dumping duties on certain metal items, no timeline is set.
Even Trideep Bhattacharya, president and CIO of equities at Edelweiss Asset Management Ltd, has maintained an underweight stance on metals for the year ahead.
He explained that Trump’s victory has ushered in the era of a strong dollar. Simply put, most metals, such as gold, silver, copper, and aluminium, are priced in US dollars globally. A stronger dollar makes these metals costlier for buyers using weaker currencies, dampening demand and lowering prices. This particularly impacts emerging markets reliant on imports. Moreover, a strong dollar can slow global trade by making US exports less competitive.
“The structural growth story in metals remains missing as the sector continues to face persistent headwinds,” he said. He added the sector’s growth drivers, such as global prices and demand from major consumers like the US and China, have yet to gain momentum.
Even though Bhattacharya agrees with the general consensus to avoid or maintain low exposure to metals, he believes aluminium could outperform steel due to its comparatively higher usage in new-age industries.
Harsha Upadhyaya, CIO-equity at Kotak Mahindra Asset Management Co. Ltd, has also recommended staying away from metals, citing challenges like sluggish global growth and ongoing overcapacity in China.
Similarly, veteran investor Taher Badshah, CIO at Invesco Mutual Fund, believes it is wise to reduce exposure or avoid metals and commodities for the time being.
Some, like Souvik Saha, investment strategist at DSP Asset Managers Pvt. Ltd, believe the main reason for avoiding this sector is the volatility in raw material prices. Historically, metals and mining have always had a low weight in indices, thanks to their high volatility, making fund managers hesitant to go big on this sector, he said.
“Most investors prefer using proxies to play this space. That said, a few companies have done well, which shows how the market has evolved into a stock picker’s one rather than top-down strategies,” Saha explained.
