Commodities and commodity related firms have performed well of late, including base metals, crude oil, steel and cement-oriented firms.

The volatility in energy markets, globally weakening dollar and related spurt in demand for commodities are expected to drive these markets in the backdrop of AI-induced volatility in the main street.

Here, we analyse four actively managed funds that invest in these sectors to highlight the better performing ones.

Cyclical commodities

Commodities are cyclical. This should imply that returns from investing in commodity funds is as much a function of timing as it is about the skills of the fund manager.

With that yardstick in place, we look at the three components of the industry to assess the stage in commodity cycle they are in.

Base metals have rallied in the beginning of the year. The indicative index LMEX (London Metal Exchange) which tracks aluminium, copper, zinc, lead, and others, hit a lifetime high in January 2026 surpassing its post-Covid high in 2022.

The index has corrected 5 per cent till February 2026 and is expected to remain above past averages. Demand factors including EVs, batteries, energy storage and shortfall in supplies have been boosted by the weakening dollar.

But with the dollar finding support coupled with hawkish expectations from the incoming Fed Chair (lower than expected rate cuts) and weaker demand from China and the global economy, further rally may not sustain in base metals. That said, at the current levels, which is above previous decade averages, the sector can benefit significantly from the operational leverage.

Domestic steel stocks have found new legs, rallying 30 per cent in the last six months (Nifty Metals). Safeguard duties, to avoid cheaper steel imports, are in place with visibility of next three years.

This should arrest the decline of steel prices which have corrected by 30 per cent from their peaks in 2021-22. The input materials (coking coal and iron ore) are also benign adding to the operational leverage of the companies.

Demand is expected to stay strong with infrastructure capex reiterated at higher levels in the Budget and automobile sales gaining strength. On similar factors, cement sector is also expected to fare well; lower input prices, improving cement prices and strong demand from infrastructure building.

The two sectors are also expected to benefit from consolidation and expansion in the industry at the top.

Brent Crude, which has been declining, hit the lowest levels of $60 per barrel by 2025 end.

The commodity gained $10 by January 2026 end as US-Iran tensions flared and as the shipping lines were disrupted. Indian imports from Russia also declined supporting the spike in crude prices.

With tensions still ongoing, crude outlook will be higher. So, the margin impact should be monitored closely for domestic oil marketing companies. Gross refining margins which depend on downstream demand for petrochemicals is on an upward trajectory. But if crude prices rise and economic activity slows, refineries could witness a squeeze on refining margins.

Overall, the commodity outlook is mixed.

Base metals have corrected from the peak but could likely sustain at higher levels. Domestic steel and cement companies will benefit from demand and prices (input and output). Crude prices could spike which can impact oil marketing companies and refineries negatively (if economy slows as well).

Funds & performance

The two relevant indices, Nifty Metal and Nifty Commodities, have performed in line with the broader Nifty 50, returning an average 5-year CAGR of around 13.5 per cent in the last decade measured on a daily rolling return basis.

But over shorter 3-year and 1-year timeframes, Nifty Metal has outperformed, returning an average rolling return of 17 per cent and 27 per cent respectively compared to Nifty 50’s 13.6 per cent and 14.3 per cent and Nifty Commodity’s 15 per cent and 19 per cent respectively. This reiterates the cyclical nature of returns in commodities and the importance of timing entry and exit.

The four funds examined, that are tracking the sectors, delivered well compared to the indices as shown in the table. Amongst the four, DSP Natural Resources & New Energy fund has outperformed in the period of its operations.

While ICICI Pru Commodities fund and Tata Resources & Energy have also delivered well, so did the indices in their respective periods.

Steel sector leads portfolio allocation across funds at 17-25 per cent by weights in Jan 2026. But, Tata Resources leads with cement portfolio at 17 per cent allocation followed by steel at 12 per cent in January 2026. DSP Natural fund has increased weights to oil in January 2026 at 14 per cent and reduced exposure to petroleum products at 10 per cent.

Published on February 28, 2026