InCred Warns of Up to 40% Crash in Vedanta Aluminium, Hindalco, and NALCO Shares, Urging Investors to Sell Amidst Industry Concerns.

The recent sharp decline in aluminium prices has significantly affected aluminium stocks, leading to a bearish outlook from InCred Equities, which has recommended investors exit all aluminium-related investments. The brokerage warns of a potential downside of 30-40% for these stocks, critiquing the current bullish narrative surrounding aluminium as fundamentally flawed. InCred emphasized that aluminium functions as an above-ground circular metal, rather than a traditionally consumed commodity, suggesting that concerns around supply deficits are misplaced. The vast availability of nearly 1.5 billion tonnes of aluminium remaining above ground serves as a stark reminder that secondary sources, particularly recycled material, play a crucial role in mitigating primary supply concerns.

China continues to exemplify this dynamic, with its primary aluminium output nearing policy caps while simultaneously increasing its secondary consumption and scrap imports. According to InCred, nearly 80% of China’s scrap supply is sourced domestically, allowing it to balance the apparent primary deficits through robust recycling capacity. This evolving landscape is likely to overshadow the primary supply narrative and demonstrates the critical importance of the secondary market in assessing aluminium’s future pricing dynamics.

The brokerage also addressed the geopolitical landscape, noting that disruptions in the Middle East are viewed as temporary supply shocks. Affected primary capacity estimated at 2.2 million tonnes per annum is expected to normalize quickly, minimizing long-term impacts on supply. Consequently, as geopolitical tensions ease and the war-risk premium unwinds, the London Metal Exchange (LME) aluminium prices are projected to undergo corrections despite currently low inventories and regional premium tightness.

Market reactions to the declining aluminium prices have already manifested, with shares of major players such as Vedanta, NALCO, and Hindalco experiencing notable declines. Vedanta’s stock fell over 4% in one trading session and has suffered a cumulative drop exceeding 10% since its recent market listing. NALCO’s and Hindalco’s shares also saw reductions upwards of 3% and 2%, respectively. In light of these developments, InCred maintains a ‘Reduce’ recommendation on NALCO and Hindalco Industries, viewing current valuations in the sector as unsustainable in the face of adverse pricing trends.

Source: The Economic Times

(Expert Note: This report was prepared by the Wealthova team.)