The Nifty Metal Index experienced a sharp decline on Thursday as profit booking and global commodity rebalancing triggered a correction following a strong rally. The selloff affected the entire metals sector, with all 15 constituents of the index trading in negative territory, making it the top sectoral laggard for the session.

Expert Analysis Points to Tactical Correction

Aditya Welekar, AVP at Axis Securities, attributed the decline to multiple factors affecting the metals sector. According to Welekar, metal stocks had rallied sharply in recent months with valuations pricing in a near-perfect bull-case scenario. "Any pullback in underlying commodity prices was bound to lead to a correction in stock prices," he explained.

The correction was further amplified by recent rebalancing in global commodity indices, including gold and silver, which led to technical corrections across commodities and spillover volatility in metal stocks.

Federal Reserve Outlook Adds Pressure

Uncertainty around US Federal Reserve rate cuts emerged as another key factor weighing on metals. Strong US services data and mixed labour market signals have sparked debate over the timing and quantum of rate cuts. "If the US labour market remains strong, the Fed may not feel urgency to cut rates, which could be negative for commodities," Welekar noted.

Valuation Concerns Despite Strong Fundamentals

Welekar highlighted that many metal stocks were trading at elevated levels, with aluminium stocks particularly stretched. The sector dynamics show:

"To sustain these valuations, commodity prices need to 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 US labour data surprises sharply on the upside.

Earnings Outlook and Investment Strategy

Looking ahead, Welekar expects muted performance in the near term but sees improvement beyond the current quarter. He anticipates that non-ferrous players may face pressure due to company-specific issues, while steel companies may experience subdued spreads leading to modest EBITDA moderation.

However, the fundamental outlook remains supportive. "Supply growth is limited, while demand use cases continue to expand. Any near-term dip in prices can offer a buying opportunity at lower levels," Welekar emphasized.

Market Correction Seen as Entry Point

Welekar believes the sharp fall in metal stocks represents largely a one-off adjustment driven by commodity index rebalancing, though volatility could persist for a few sessions. "If stocks correct further after results, long-term investors can use those dips to accumulate quality metal stocks," he advised.

The expert's analysis suggests that while near-term volatility may continue, the medium-term outlook for the metal sector remains constructive, supported by favourable supply-demand dynamics and improving demand conditions across multiple sectors including construction, electric vehicles, and data centres.

NALCO shares surged to a fresh 52-week high, extending a remarkable four-day rally that has captured investor attention amid a global aluminium price boom. The stock climbed as much as 3% to ₹357.50 on Wednesday, capping off a 14% gain over just four trading sessions.

Global Aluminium Prices Drive Market Sentiment

The rally has been underpinned by aluminium prices hitting their highest level in more than three years, with London Metal Exchange prices breaching the $3,000-per-tonne mark to trade at $3,082.00. This surge reflects tight supply conditions globally, as production constraints have weighed heavily on inventories.

Supply-side challenges have emerged from multiple fronts. China has implemented caps on smelting capacity, while European producers face production constraints due to elevated electricity costs. These factors have created a supply squeeze that has pushed prices to multi-year highs.

Demand prospects remain robust, supported by sustained requirements from the construction and renewable energy sectors. NALCO's managing director Brijendra Pratak Singh indicated that the global aluminium market is expected to move into a supply deficit in 2026 and 2027, with increasing demand from electric vehicle, construction, power, and data center sectors.

Strong Q2 Financial Performance

The recent price surge builds on NALCO's solid September-quarter earnings, which demonstrated the company's ability to capitalize on favorable market conditions.

The significant margin expansion from 38.7% to 45% reflects stronger pricing power and improved cost discipline, highlighting management's operational efficiency during favorable market conditions.

Expansion Plans and Growth Outlook

NALCO's growth trajectory is supported by strategic capacity expansion initiatives. The company is implementing a timely ramp-up of its fifth stream alumina refinery, targeting a capacity addition of 1 million tonnes per annum by FY27. This expansion is expected to serve as a key growth driver despite some cost overruns.

The company has outlined broader capital expenditure plans worth ₹30,000.00 crore for:

• A 0.5 MTPA smelter facility
• A 1,080 MW captive power plant
• Accelerated spending expected from FY28

Technical Analysis and Market Position

NALCO's stock performance has been impressive across multiple timeframes. The shares delivered nearly 50% returns in 2025 and are already up 11% in 2026. From a technical perspective, the stock is trading above all eight key simple moving averages, from 5-day to 200-day periods, signaling bullish momentum across all timeframes.

However, technical indicators suggest some caution may be warranted. The Relative Strength Index stands at 85.5, indicating strongly overbought conditions that could lead to a potential pullback. The Moving Average Convergence Divergence remains firmly positive at 18.9, reinforcing the strength of the current upward trend.