The sudden surge in FII buying comes as HSBC’s global metals team warns that a “super cycle” is likely emerging in select metals driven by surging electric vehicle demand, underinvestment in supply, and production disruptions. The bank now expects primary aluminium to swing into deficit in 2026, reversing its earlier surplus forecast, with shortages widening over the next five years.
“HSBC Global Metals team highlights that a combination of 1) strong demand in sectors like EVs and ESS; 2) lack of investments in recent years driving deceleration in supply growth; and 3) other supply issues (caps, disruptions) are likely to drive a ‘super cycle’ in select metals,” the bank said, forecasting LME aluminium prices at $3,200 per tonne in 2026, rising to $3,300 by 2030, 15-16% above Bloomberg consensus.
NSDL data reveals the stark divergence in FII flows for January: metals attracted ₹11,526 crore while capital goods drew ₹2,761 crore. Every other major sector saw heavy selling—financials hemorrhaged ₹8,592 crore, FMCG bled ₹7,497 crore, healthcare lost ₹6,162 crore, consumer services shed ₹5,513 crore, telecom dropped ₹4,777 crore, auto fell ₹3,594 crore, and realty declined ₹2,655 crore.
The buying spree has turbocharged metal stocks in 2026, with APL Apollo Tubes, National Aluminium Company, Hindustan Copper, Jindal Steel, Vedanta, and Tata Steel all posting double-digit returns of up to 17% year-to-date.
HSBC has sharply raised price forecasts across most metals, up 14% for copper and aluminium, and 7% for zinc to account for resilient demand, constrained supply, and a weaker dollar. The bank upgraded Hindalco and National Aluminium Company (NALCO) to Buy, calling Hindalco its “preferred name” in the Indian metals and mining sector.”We estimate China’s primary aluminium supply to stay largely flat over 2026-30 vs CAGR of 3.9% over 2020-25e,” HSBC said, noting the market is expected to remain in deficit over the next five years even as Chinese demand slows sharply. The bank revised earnings estimates up 6-24% across Hindalco, NALCO, and Hindustan Zinc, with forecasts now 5-45% above consensus.
HDFC Securities projects India’s metals sector will benefit from robust steel demand growth of 8-10% CAGR in fiscal 2027, driven by massive infrastructure spending under PM Gati Shakti, highways, railways, and urban housing initiatives. The brokerage expects per capita consumption to rise toward 120+ kg amid middle-class urbanization and the electric vehicle manufacturing push.
“Sector gears up for substantial capacity additions in FY27, with steel players commissioning 20-25 MT through greenfield expansions and debottlenecking,” HDFC Securities said, naming Jindal Steel and JSW Steel as top picks. Major expansions include JSW Steel’s 5-7 million tonnes at Vijayanagar and Dolvi, Tata Steel’s KPO-II Phase 2 (3 million tonnes), and Jindal Steel & Power’s Angul ramp-up to 9.5 million tonnes.
Aluminium demand is expected to surge 7-9% on power sector capital expenditure and renewables, with producers like Hindalco and NALCO targeting 0.5-1 million tonnes via smelter upgrades and bauxite mine integrations.
Yet not all market watchers are convinced the rally has legs. Market veteran Dipan Mehta struck a cautious note, warning that the best opportunities in cyclical stocks come during downturns and not mid-cycle.
“I think that metals have been a star performer for the last several quarters or so and largely it is because of increase in global prices and, of course, rupee depreciation has benefited select metal stocks as well,” Mehta said. “But it is like a moving train and if I was already invested in metals, I would remain invested, but at these levels I am not so sure.”
Mehta suggested investors focus on non-ferrous metals like copper, aluminium, and zinc, singling out Hindustan Copper despite its rich valuations. “They are undertaking a massive expansion and there are execution risks no doubt but if they are able to generate those kind of volume growth over the next three-four years or so, then this stock can certainly deliver even higher returns from these levels,” he said.
HSBC noted that investor positioning remains underweight on the sector, with sharply higher interest from emerging market investors versus “still lukewarm interest from domestic investors.” The bank expects valuation multiples to stay elevated as EM investors close their longstanding underweight positions in metals and mining.
(Data: Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)