Vedanta Aluminium, Nalco, Hindalco shares: Aluminium price falls but Emkay sees up to 53% upside

Shares of Vedanta Aluminium Metal Ltd, National Aluminium Company Ltd (Nalco) and Hindalco Industries Ltd have corrected alongside aluminium prices, which have fallen below $3,000 a tonne from their June 2026 highs. Emkay, however, sees an upside of up to 53 per cent in aluminium stocks and believes the decline should not be viewed as the beginning of a prolonged downcycle.

The brokerage remained cautious in the near term amid the reassessment of Middle East supply disruptions, faster-than-expected smelter restarts and additional capacity in Indonesia. However, it said low global inventories, the gradual recovery of Gulf Cooperation Council smelters and constraints on Chinese supply continued to support aluminium prices. Its stress test found Hindalco better placed than Nalco to withstand further price declines.

"We stress-tested our non-ferrous coverage to assess downside risks to earnings and valuations, at a bear Al price assumption of $2,800/t and alumina at $340/t. Nalco faces relatively higher downside, given its greater exposure to upstream aluminium realizations and operating leverage. In contrast, Hindalco appears better placed to withstand the correction, supported by its diversified earnings profile and downstream operations," Emkay said.

The domestic brokerage said Hindalco's relatively attractive valuation could support a positive market reaction, particularly as its stress test indicated a reasonable upside even under the bear-case scenario.

Emkay suggested 'Buy' on Vedanta Aluminium Metal Ltd with a target of Rs 550, suggesting 53 per cent potential upside. Its Hindalco target at Rs 1,150 implied 29 per cent upside. The brokerage suggested 'Reduce' on Nalco and a target of Rs 340, still suggesting 7 per cent potential upside.

Aluminium prices have fallen 9 per cent over the past month as the gradual recovery of Emirates Global Aluminium and Aluminium Bahrain operations eased concerns about prolonged shortages. GCC output rose 2 per cent month on month but remained 43 per cent lower year on year. Primary aluminium exports reached 158 kilotonnes in August 2026, while higher Chinese exports also helped cushion the supply shortfall.

A stronger US dollar, elevated bond yields, softer physical premiums in Asia and the unwinding of bullish positions have also weighed on aluminium prices and equities. The decline in shares reflects lower spot-price assumptions, the possibility of earnings downgrades and a partial reversal of the supply-scarcity premium built into valuations.

Softer physical premiums indicate easing near-term tightness, with the MJP premium for the fourth quarter of calendar year 2026 falling 35 per cent quarter on quarter to $255 a tonne. Emkay said these factors had removed part of the supply-scarcity premium and weakened bullish positioning.

The brokerage, however, said the extent of supply normalisation remained uncertain because restoring GCC production and delivering additional metal to end markets would take time. Additional Indonesian capacity and Chinese exports could mitigate, but not fully eliminate, the supply deficit caused by disruptions in the Middle East.

Emkay expects the global aluminium deficit to stand at 1.6 million tonnes in calendar year 2026 and 700 kilotonnes in calendar year 2027. It said China's ability to sustain an increase in primary metal supply remained constrained by its capacity ceiling.

London Metal Exchange inventories remained exceptionally low at about 239 kilotonnes, close to multi-decade lows, despite the correction in prices. Physical premiums also remained elevated in several markets. The European duty-paid premium was about $520 a tonne in mid-October, while the US Midwest premium was substantially higher because of physical availability and tariff-related costs.

According to Emkay, the divergence between weaker benchmark prices and elevated regional premiums indicates that the physical supply chain has not fully normalised. LME prices are increasingly reflecting expectations of a future supply recovery, while physical premiums and inventories continue to show tightness in immediately available metal.

The brokerage said a sustained rebuilding of exchange inventories, rather than a decline in benchmark prices alone, would provide stronger evidence that the market had moved into a structurally comfortable supply environment.