Beaten down metals look ripe for a boom, ETFs may be the right bet

Mumbai: Aggressive investors looking for a thematic bet in their equity portfolios could consider an allocation to exchange-traded funds (ETFs) tracking the Nifty Metal index, which has dropped about 12.5% in the past month. The benchmark Nifty fell 6.3% in this period.

"Valuations have also cooled down now making it an attractive bet with a 2-3 year view," said Prateek Sinha, founder of Deep Wealth.

The Nifty Metal index trades at a price-to-book (PB) ratio of 2.59 times, lower than 3.6 times of the Nifty 50 index.


ICICI Prudential and Mirae Asset are the two mutual funds with ETFs that track the Nifty Metal index.

Investment advisors said this ETF is suited for investors with higher risk appetite because, unlike a diversified equity fund, this product has 15 stocks with the top holdings being Tata Steel, Hindalco, JSW Steel, Adani Enterprises and Vedanta. Moreover, returns from sectoral indices tend to be lumpy. At the same time, it is less risky than holding individual stocks.

The Nifty Metal index has outperformed the Nifty in eight out of the 18 calendar years.

According to ICICI Prudential Mutual Fund, strong support from the government will aid the metals sector. High economic growth in India is also expected to boost the metals space.

"The metal sector, encompassing crucial industries like steel, aluminium, and copper, is integral to infrastructure and economic development," said Chintan Haria, principal investment strategist at ICICI Prudential AMC. "It allows investors to benefit from the uptick in metals due to expected higher global inflation amidst lower interest rates,"

In the past year, the Nifty Metal index gained 39.91%, while the benchmark Nifty 50 rose 26.3%.

Fund managers are also hoping that China's stimulus package to revive the economy would boost the demand for metals.

"The Chinese government has taken several steps to clear inventory of unsold homes, which in turn could benefit the metal sector," said Ankit Jain, fund manager at Mirae Asset Management.