HSBC sees more upside in steel stocks in 2026; likes Hindalco, Tata Steel

HSBC on steel stocks: HSBC sees further upside in metal stocks as demand rises and imports stay restricted by policy support. Hindalco and Tata Steel get Buy ratings; Hindustan Zinc rated Hold

HSBC initiates coverage on metal stocks: The Nifty Metal index has climbed 20 per cent on the National Stock Exchange (NSE), so far in calendar year 2025, and analysts at HSBC believe this rally may have more legs.

 

According to them, robust domestic demand, competitive resource advantages, and a supportive regulatory environment augur well for a sustained upswing in India's metal sector. These factors, HSBC noted, also justify the premium at which Indian metals and mining stocks trade relative to global peers.

 

"Indian metals and mining stocks have re-rated in-line with the broader markets. Balance sheets are relatively strong as companies have deleveraged and the long-term outlook is bright as the metals intensity of GDP growth remains elevated, given increasing urbanisation and higher spending on infrastructure, housing construction, and industrial expansion," analysts at HSBC said in a coverage initiation report on 'India Metals and Mining' sector.

 

Among individual stocks, Hindustan Copper shares have advanced 32 per cent on the NSE year-to-date (YTD), Hindalco shares 31.29 per cent, JSW Steel 29.22 per cent, Tata Steel 25.47 per cent, Steel Authority of India (SAIL) 23.74 per cent, and National Aluminium Company (Nalco) 21.21 per cent.

 

Barring Adani Enterprises, which is down 0.75 per cent YTD, all other Nifty Metal constituents have delivered positive returns. By comparison, the Nifty index is up 10.7 per cent so far in 2025.  FOLLOW STOCK MARKET UPDATES LIVE

 

Why is HSBC bullish on Indian metal stocks?

 

As per HSBC, sustained domestic demand, stemming from rapid urbanisation and large-scale infrastructure development, has been one of the most decisive catalysts for the uptrend in metal stocks.

 

Public and private capital expenditure on transportation networks, industrial facilities, and housing continues to rise, with increasing consumption of core metals such as aluminium, steel, zinc, and copper.

 

India, the brokerage said, also benefits from substantial natural reserves -- particularly coal, bauxite, zinc, and iron ore – which allows domestic producers to operate at comparatively lower costs than international competitors.

 

"In addition, policy interventions such as import duties and regulatory safeguards protect Indian manufacturers from an influx of cheaper imports, especially from China," it noted.

 

India is now the second largest steel-producing country in the world. A large reserve base (bauxite, iron ore, coal and zinc), it opines, is an added positive. 

HSBC gives 'Buy' rating to Hindalco, Tata Steel

 

Amid this backdrop, analysts at HSBC picks aluminium and related stocks as its preferred bet. The brokerage has initiated coverage on Hindalco and Nalco stocks with 'Buy' ratings.

 

"With China enforcing a cap on production capacity and global demand holding steady, aluminium prices are expected to remain supported. For Hindalco, risks associated with the recent operational setbacks at its US subsidiary, Novelis, are expected to diminish from FY27 onwards," it said.

 

Separately, analysts at the brokerage believe 'Silver' as an investment play also remains attractive as interest in precious metals has risen globally. Among stocks, HSBC said Hindustan Zinc, with significant exposure to zinc and silver, remains fundamentally strong. However, it has assigned a 'Hold' rating to the stock due to elevated valuation multiples (10.3x EV/Ebitda multiple).  ALSO READ | Man Industries gains 6% on Aramco Asia MoU for Saudi manufacturing unit 

As for steel stocks, the brokerage thinks related shares may remain more cyclical despite India being the fastest-expanding steel market in the world, due to seasonal consumption patterns and evolving supply trends in China.

 

"We initiate coverage on Tata Steel with a 'Buy' rating because its losses in Europe should start to fall, in our view," it said.

 

Among others, HSBC have 'Hold' rating to Coal India stock, supported by attractive dividend payouts despite a well-supplied domestic coal market. Meanwhile, SAIL and NMDC, it said, are viewed less favourably due to rising capex commitments and modest profitability prospects. The brokerage assigned them 'Reduce' ratings.

 

Mind the risks

 

HSBC pointed out that aluminium prices have risen sharply year-to-date, and any slowdown in China or the United States could upset supply-demand balances and weigh on global prices. A stronger US dollar may add further pressure, it said.

 

"Companies embarking on fresh capital expenditure cycles -- particularly Hindalco and Hindustan Zinc -- may face leverage risks in the event of a downturn. Conversely, firms such as Nalco, NMDC, and Coal India remain better cushioned due to net cash positions," HSNC pointed out.

 

Import protection measures, including a 12 per cent safeguard duty, offer steel producers added resilience.

 

That said, while currency movements and global economic conditions may introduce near-term volatility, the structural outlook for India's metals and mining sector remains firmly positive, HSBC said.