The domestic metal equity space remains among the most underowned, even as global trends turn favourable for the commodity segment, with base metal prices notching fresh highs. This presents a significant opportunity in the commodity-focused equity space, as both stocks and funds may have significant room to run.
Base metals are extending their strong gains, with a supply crunch, soaring industrial demand, and a weakening dollar fuelling the momentum.
Over the past month, copper and aluminium prices have jumped eight percent each, while zinc has gained nearly five percent. Copper spot prices have hit fresh all-time highs at $11,097 per metric ton on the London Metal Exchange (LME), while aluminium and zinc are trading near record highs in international and domestic markets.
According to a note by Elara Capital, the resurgence comes at a critical inflection point in prices, reminiscent of the early stages of major commodity upcycles seen in 2009, 2015, and 2019. The rally in metals was followed by a strong outperformance in domestic metal stocks.
“Historically, such reversals have coincided with strong outperformance in Indian metal stocks, suggesting that the present recovery could mark the beginning of a multi-year commodities cycle,” noted Elara.
The financial services firm conducted an analysis between physical commodity funds (which invest directly into commodities) and commodity equity funds (which invest in commodity-related companies). The research revealed a “consistent and leading relationship”, as investors flows into physical commodity funds tend to precede flows into commodity equity funds.
“The typical sequence observed is that investors first allocate capital to physical commodities during the early phase of a commodity upcycle,” said Elara, “As confidence in the broader commodity theme strengthens and price momentum builds, this liquidity then shifts toward commodity-related equities.” This rally will extend even as inflows into physical commodities begin to plateau.
Elara pointed to similar patterns seen during the 2014–2017 and 2019–2021 phases, and a dynamic early phase of this is beginning to play out once again. Physical commodity funds have been seeing robust inflows since January 2024, while on the other hand, strong inflows into the commodity equity funds have only begun to accelerate since June 2025.
“This divergence suggests that the current commodity upcycle still has meaningful headroom,” said the report. At the current juncture, the MSCI World Metals & Mining Producers Index (excluding Gold and Silver) is hovering near its highest level since May 2008, which was last tested 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. “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,” added Elara.
A similar move in industrial metals could mark the beginning of a long-awaited leadership shift within the global commodity complex.
Metal stocks are underowned by mutual funds
Within the domestic mutual fund universe, the Metals sector ranks as the third most underowned, trailing only NBFCs and FMCG.
Based on active weights at aggregate and AMC levels, fund houses show a cautious stance. Currently, Jindal Steel & Power stands out as the only over-owned stock in the sector, which is 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 an active overweight position.
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