Metal stocks: A trend, first in five years, sends key signal

Elara Securities in a fresh note said after nearly three years of subdued activity, long-term flow momentum into commodity equity funds has made a decisive comeback. The brokerage said similar sharp reversals were observed in January 2009, October 2015, and October 2019, which were followed by strong outperformance in Indian metal stocks. The only notable exception was during April 2012–June 2014, when global commodity flows revived but Indian metals failed to keep pace. 

"Our weekly GLT report has been consistently flagging this revival over the past few months, and the current upcycle marks the most powerful recovery in commodity flows in the last five years, since 2020," it said.

Elara said the physical to equity rotation in commodities has re-emerged after five years. "Our analysis of fund flow patterns reveals a consistent and leading relationship between physical commodity funds and commodity equity funds. Historically, inflows into physical commodity funds tend to precede those into commodity equity funds by several months," Elara said.

The brokerage said the typical sequence observed is that investors first allocate capital to physical commodities during the early phase of a commodity upcycle. As confidence in the broader commodity theme strengthens and price momentum builds, this liquidity then shifts toward commodity-related equities, extending the rally even after inflows into physical commodities begin to plateau, it said. 

"For instance, similar patterns were observed during the 2014–2017 and 2019–2021 commodity bull phases. Currently, we are witnessing an early phase of this dynamic once again. Inflows into physical commodity funds have been robust since January 2024, while inflows into commodity equity funds have only begun to accelerate since June 2025," Elara said.

This divergence, it said, suggests that the current commodity upcycle still has meaningful headroom.

Elara said the ongoing revival in the commodity cycle appears to be structurally driven. A key indicator supporting this view is the ratio of the ‘World Metals & Mining Producers Index (ex Gold & Silver)’ to US equities, which has rebounded from strong support.

This ratio captures the relative performance of global metal and mining producers versus broader US equity markets. The trend suggests that global investors are gradually rotating capital back into the commodity complex after years of favouring growth-oriented US equities, reflecting expectations of stronger pricing power, supply constraints, and renewed earnings momentum across the metals and mining space.

Within the domestic mutual fund universe, the Metals sector ranks as the third most under-owned, trailing only NBFCs and FMCG. 

"Our analysis of active weights—both at the aggregate and AMC level—shows a cautious stance across most fund houses. Jindal Steel & Power stands out as the only over-owned stock in the sector, driven primarily by overweight positions from Kotak, HDFC, and DSP Mutual Funds. In contrast, JSW Steel emerges as the most under-owned metal stock, with HDFC MF being the sole major fund maintaining a active overweight position," it said.

Global metal stocks on the verge of a major breakout, Elara said. The MSCI World Metals & Mining Producers Index (excluding gold and silver) is now trading near its highest levels since May 2008 — a zone that was retested in March 2022. With renewed investor interest and accelerating inflows into both physical commodity and commodity equity funds, the index appears poised for a potential structural breakout, Elara said.

"This setup mirrors the price action seen in gold during 2024, where sustained fund inflows and tightening supply-demand dynamics drove a decisive breakout after years of consolidation. A similar move in industrial metals could mark the beginning of a long-awaited leadership shift within the global commodity complex," it said.

Industrial commodities such as copper, aluminium, and zinc are all nearing multi-year breakout zones, signalling the potential start of a renewed upcycle in base metals, Elara said.

"Silver, too, is attempting to surpass its historical resistance levels — the twin peaks seen in 1981 and 2011 — though it currently faces pressure as prices consolidate near decade-high levels. Once this technical supply overhang is absorbed, these metals could witness a sharp upward re-rating. Aluminium is already breaking-out from its 3-year resistance zone," it said.