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MFs hike exposure to metal stocks amid rising prices

MFs hike exposure to metal stocks amid rising prices

17 May 2021

A sustained increase in metal prices prompted domestic mutual funds to double their exposure to the sector within just 13 months to 3.2% at the end of April 2021 according to data compiled by . It was the highest in 29 months on a cumulative basis.

The sector’s weight in the mutual funds’ portfolio increased for five months in a row. In April, it rose by 60 basis points, one of the highest among all sectors. Despite that, it is still lower when compared with its weight of 3.7% in the benchmark S&P BSE 200 index. Which means the mutual funds’ portfolios still have a room of about 50 basis points at the aggregate level for the sector before it reaches neutral status from underweight. Out of the top 20 fund houses, nine are currently overweight on the sector while the remaining funds have an allocation in the range of 1-2.5% each.


Record high prices of steel, aluminium, and copper have driven earnings upgrades of metal companies. The domestic prices of these metals are still at 15-25% discount to Chinese imported prices and prices in countries under free trade agreement (FTA). Due to this, the domestic prices may not fall sharply in the near term unless demand drops precipitously.

According to estimates, every Rs 1,000 per ton increase in steel price increases operating profit of steel producers by Rs 1,250-1,300 crore annually. This is one of the reasons why

and reported earnings upgrades of as high as 20-40% for FY22 despite the second wave of the pandemic.

The metal sector had a peak weight of 8.2% in the Nifty 50 in 2004 and dropped to the low of 1.6% in September 2020. Since then, it has consistently improved to 3.2% in April 2021.