Nifty Metal Tumbles After Sharp Rally; Aditya Welekar says the dip could be a buying opportunity

The Nifty Metal Index fell sharply on Thursday as profit booking and rebalancing in global commodity markets triggered a correction after a strong rally, said Aditya Welekar, AVP, Axis Securities.According to Welekar, metal stocks had risen sharply in recent months, with valuations pricing in a near-perfect bull case scenario. “Any decline in underlying commodity prices would undoubtedly lead to a correction in equity prices,” he said, adding that the recent rebalancing of global commodity indices, including gold and silver, has led to technical corrections in commodities and spillover volatility in metal stocks.

The Fed rate outlook is adding to near-term volatility

Another major factor weighing on metals is the uncertainty surrounding the US Federal Reserve’s interest rate cuts. Strong U.S. services data and mixed labor market signals have fueled debate over the timing and size of interest rate cuts in the 2026 calendar year. “If the U.S. labor market remains strong, the Fed may not feel any urgency to cut rates, which could be negative for commodities,” Welekar said.

However, from a fundamental perspective, the supply-demand dynamics remain supportive for metals. “Supply growth is limited while demand use cases continue to increase. Any near-term price decline could provide a buying opportunity at lower levels,” he said.

Valuations are up, but fundamentals are supportive

Welekar pointed out that many metal stocks were trading 1-1.5 standard deviations above the long-term valuation average. Aluminum stocks, which typically trade at 5.5 to 6 times EV/EBITDA, are now trading at more than seven times, supported by aluminum prices hovering around $3,000 per tonne.

“To sustain these valuations, commodity prices must 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 U.S. labor data surprises sharply on the upside.

Third-quarter earnings are likely to be muted; Outlook for the fourth quarter improves

On the earnings front, Welekar expects third-quarter results from both ferrous and non-ferrous companies to be somewhat subdued. Non-ferrous players may experience pressure due to company-specific issues such as weaker Novelis performance for Hindalco and lower alumina prices for Nalco. Steel companies may experience subdued spreads, which could lead to modest quarter-on-quarter EBITDA moderation. That said, the outlook improves after the third quarter. “Current metal prices, lower commodity inflation and safeguard duties on steel are supportive. Construction activity picking up post-monsoon should support steel demand in the fourth quarter,” he said.

Correction seen as an entry point

Welekar believes the sharp decline in metal stocks is largely a one-off adjustment caused by a rebalancing of the commodity index, although volatility may persist for a few more sessions. “If stocks correct further after third-quarter results, long-term investors can use these dips to build high-quality metal stocks,” he said.

While short-term volatility may persist, analysts overall remain constructive on the medium-term prospects for the metals sector, supported by favorable fundamentals and improving demand conditions.