Government Focus on Critical Minerals Intensifies, But Regulatory Risks Persist

Bottom Line

Government policy and budgetary support are signaling the start of a structured growth cycle for the Indian mining sector, particularly for companies focused on critical minerals and rare earth elements. Investors should increase exposure to equities and new asset management products (such as the Nifty Metal ETF FoF) that will benefit from the second round of mining license block auctions and the 'Rare Earth Corridor' announced in the Budget 2026-27. However, it is essential to maintain a selective stance due to increasing regulatory pressure on public sector undertakings (PSUs) like Hindustan Copper and coal companies.

Key Developments

1. Second Round of Exploration License Block Auctions Commences — On 12 February 2026, Union Minister G. Kishan Reddy inaugurated the second round of auctions for 11 critical mineral blocks across 8 states. This initiative aims to enhance private sector participation and reduce import dependency. Portfolio implication: Direct investment opportunity in mining-related equipment and technology service provider companies. Potential positive impact on the equities of small and medium mining companies that successfully bid in the auction.
2. Budget 2026-27: Allocation for Rare Earth Corridors and Green Technology — The budget provided significant funds (₹20,000 crore and ₹5,400 crore) for establishing 'Rare Earth Corridors' in states like Odisha, Kerala, Andhra Pradesh, and Tamil Nadu, as well as for Carbon Capture (CCUS) and clean mining technology. Portfolio implication: Improved long-term revenue visibility for companies involved in rare earth mining and processing. New business opportunities for technology companies specializing in green mining tech.
3. Jharkhand Government's ₹929 Crore Demand Notice to Hindustan Copper — On 13 February 2026, Jharkhand's Mining Department issued a notice of ₹929 crore (approx. $10.3 million USD) to Hindustan Copper Limited (HCL) over allegations of illegal mining from the Surda mine. Portfolio implication: Signals rising regulatory and legal risks for public sector mining undertakings (PSU Miners). Short-term volatility in these companies' shares may increase. Investors should review the regulatory compliance history when taking positions in such stocks.
4. Discussions on India-Brazil and India-Chile Mining Agreements — An agreement on rare earth metals is likely to be signed during the Brazilian President's visit to India (18-22 February). Furthermore, the Free Trade Agreement (FTA) with Chile is in its final stages, aiming to secure supplies of lithium, copper, and cobalt. Portfolio implication: Reduced import dependency on lithium and other critical minerals will lower domestic manufacturing costs, benefiting the automotive (EV), electronics, and renewable energy sectors. Positive for companies linked to these sectors.
5. Mirae Asset Launches Nifty Metal ETF FoF — From 10 February 2026, Mirae Asset Mutual Fund has launched a Fund of Funds (FoF) for the Nifty Metal ETF, allowing retail investors to gain exposure to the metals and mining sector with a minimum investment of ₹5,000. Portfolio implication: Increased retail investment liquidity in the sector could provide support to shares of large mining and metal companies (which are part of the Nifty Metal Index). This offers investors a lower-risk, diversified route to take sector-specific exposure.

Sector Pulse

Risk Watch

• Risk of Regulatory Compliance & Legal Claims — The hefty demand notice issued to Hindustan Copper by the Jharkhand government and revenue deposit notices issued to coal companies by the mining department indicate that state governments and regulators are increasing pressure on resource revenue. This could pressure the profitability of mining companies, especially PSUs. Probability: Medium. Impact: High.
• Global Supply Chain Dependency — Agreements are ongoing with countries like Canada, France, Brazil, the Netherlands, and Chile to reduce dependence on China, but the outcomes of these talks are uncertain. Global geopolitical tensions or policy changes in partner countries could impact these agreements. Probability: Low. Impact: Medium.
• Risk of Capital Expenditure (Capex) Delays — Major projects like the ₹5,000 crore investment announcement by Shyam Steel in Bihar may face challenges such as land acquisition, environmental clearances, and infrastructure gaps, potentially delaying return on investment (ROI). Probability: Medium. Impact: Medium.

Outlook

Key events and indicators to monitor next week:

• Brazilian President's Visit to India (18-22 February): Monitor the terms and scope of the joint extraction agreement on rare earth metals expected to be signed.
• Coal India Limited's Dividend Record Date: Announcement of the record date for the third interim dividend of ₹5.50 per share, which will indicate investor sentiment in PSU mining shares.
• Response to Second Round EL Block Auctions: The number of companies bidding and the intensity of bids in the auction, which will signal genuine private sector interest.

Positioning consideration: Maintain an overweight stance in companies active in the critical minerals and rare earth chain (from exploration to processing) due to policy momentum, while maintaining an underweight or selective stance in traditional PSU miners due to regulatory risks.