Nifty Metal’s Record Run — Are Valuations Flashing Warning Signs?

The Nifty Metal Index has gained 24.04% so far this year, making it the top-performing sectoral index on the NSE in 2025. The advance far outpaced the 9.4% rise in the Nifty 50 over the same period. The metal index has also been hitting fresh records during the last few sessions.

The rally was led by Hindalco Industries, which climbed 42.97%, followed by Hindustan Copper at 40.47%, JSW Steel at 34.22%, and Tata Steel at 33.54%.

The sector’s valuation has climbed well above its long-term average. The Nifty Metal Index now trades at a price-to-earnings ratio of 21.72, compared with its five-year average of 15.82, according to Bloomberg data. The premium suggests that stock prices have risen faster than earnings growth.

Some companies within the index still trade below the average. Hindalco, despite being the biggest gainer, trades at 11.88 times earnings, Bloomberg data showed. Hindustan Zinc, NMDC, Vedanta and Welspun Corp also remain at lower multiples than the broader index.

Brokerage reviews of the recent quarter show a steady expansion in output and demand. India’s crude steel production grew around 14% year-on-year during the quarter, supported by new capacity additions. Domestic demand stayed firm, rising about 8% from a year earlier, JPMorgan noted earlier this month

Iron ore miners such as NMDC and LMEL reported strong production in an otherwise weak seasonal period, which supported operating performance, Equirus Securities said in a note this month. The brokerage also said Hindalco’s India business benefited from higher aluminium prices, while its overseas subsidiary Novelis continued to lag.

Equirus added that steel shares have outperformed this year largely because of re-rating and expectations of lower Chinese output, even though fundamentals remain subdued. It noted that global steel prices stayed under pressure as Chinese exports increased amid softer demand.

The metal index’s 24% rise has outperformed other key NSE sectors such as PSU Bank, Auto and Financial Services, while IT and Media declined. Analysts say the next few quarters will show whether earnings growth can support current valuations.

Five companies in the index continue to trade below its average multiple, leaving selective opportunities even as overall valuations stay elevated. The sector’s strength so far has come from firm domestic demand and higher production, but future gains may depend on how profits evolve against these higher price level.