Metal Industry in India: From Forgotten Sector to Market Leader

For a long time, metal stocks were not the first choice for Indian retail investors. While sectors like banking, capital goods and PSUs grabbed headlines, metals quietly stayed in the background. But over the last year, that picture has changed meaningfully. Metal stocks have moved from being market laggards to market leaders and this shift is not driven by speculation alone. It reflects improving fundamentals, a recovery in demand and strong support from India’s domestic growth story.

To understand why metal stocks are performing well today, it is important to first look at why they looked dull earlier.

Why did metal stocks struggle earlier?

After the strong rally seen between 2020 and 2022, metal stocks entered a difficult phase. Globally, metal prices started cooling as economic activity slowed. China, which is the world’s largest consumer of metals like steel, copper and aluminium, faced a sharp slowdown in its property and construction sectors. This had a direct impact on global metal demand and prices.

At the same time, high global interest rates and a strong US dollar made commodities less attractive for investors. Money moved away from cyclical sectors such as metals and flowed into safer or faster-growing areas of the market. As a result, metal prices corrected from their peaks.

For Indian metal companies, this period meant pressure on margins. Selling prices softened in international markets, while input costs such as energy and coking coal remained high for some time. Earnings growth slowed and there were fewer positive surprises. Even though metal stocks did not deliver negative returns, they underperformed other popular themes. Gradually, metals became a “forgotten sector” in many retail portfolios.

What has changed now?

The current rally in metal stocks is built on much stronger foundations. Globally, expectations of interest-rate cuts and a softer US dollar have improved sentiment towards commodities. When rates peak and the dollar weakens, emerging markets and cyclical sectors like metals tend to attract fresh investments.

More importantly, the world is entering a new phase of capital expenditure. Areas such as renewable energy, electric vehicles, power grids, data centres, railways and defence require large quantities of steel, copper and aluminium. This has improved long-term demand visibility for metals.

India stands out clearly in this global landscape. While many economies are growing slowly, India’s metal demand continues to rise at a healthy pace. Steel demand in India is expected to grow around 9 per cent annually over the next two years, driven by infrastructure projects, housing, automobiles and capital goods. Government-led public spending, along with schemes like “Make in India”, PLI incentives and reforms in mining, has strengthened the outlook for the entire metal value chain.

This combination of global recovery and strong domestic demand has led to better earnings expectations for Indian metal companies. Balance sheets today are also much healthier than in previous cycles, with lower debt and improved cost structures.

How has the market reacted?

Equity markets have responded quickly to these improvements. The Nifty Metal Index has delivered strong gains in FY25, comfortably outperforming the broader market. Stocks that were under-owned earlier have seen a sharp re-rating.

Non-ferrous metal companies have been among the top performers. Stocks like Hindustan Copper and Hindalco have delivered strong returns, while names such as Tata Steel, Hindustan Zinc and NALCO have also participated in the rally. Both domestic and foreign investors have returned to the sector, attracted by improving margins, operating leverage and exposure to a potential commodity upcycle

Future outlook: What retail investors should keep in mind?

Looking ahead, the long-term story for Indian metal companies remains positive, but investors must remember that metals are inherently cyclical. India is already among the world’s leading producers of steel and aluminium and both capacity and consumption are expected to grow steadily till 2030. Demand from infrastructure, real estate, power, renewables and autos should keep domestic utilisation levels high. Policy measures such as safeguard duties and anti-dumping actions also offer some protection against cheap imports.

However, risks remain. Metal prices are linked to global cycles. A sharp global slowdown, excess capacity creation overseas, or a reversal in interest-rate and currency trends can impact prices and profits. After the recent rally, valuations in some stocks are no longer cheap, which means returns may be more volatile from here.

For retail investors, metal stocks work best as a satellite allocation rather than a core portfolio holding. A staggered approach, such as investing during corrections or through SIP-style buying, can help manage volatility. Diversifying across miners, integrated producers and value-added companies is also wiser than betting on a single stock.

In summary, metal stocks have moved from the shadows back into the spotlight. With India’s strong demand outlook and improving fundamentals, the sector can create wealth over the medium term. But success will depend on respecting the cycle, staying selective and maintaining discipline during both upswings and downturns.

Disclaimer: The article is for informational purposes only and not investment advice.