Fundamentally Strong Rare Earth Smallcaps for Your Watchlist

There was a time, not so long ago, when the world found liberation in globalisation.

Capital flowed freely, each country found its niche, developed expertise around it, and the world seemed borderless for trade.

Taiwan emerged as the global chip hub. India became the pharmacy to the world. China - the global factory, and countries like Bangladesh and Vietnam carved their space in textiles.

It was a system built on core competencies and synergies, where everyone played to their strengths and acted reliant. It worked almost seamlessly-until the cracks appeared.

As the pandemic struck, the world realised how dangerously dependent it had become China, which turned out to be the weakest link. From chips to APIs, when China shut down, the world stalled... and when the pandemic subsided, other fault lines emerged.

Political tensions rose. Protectionism crept back into global policies. Trade wars became more common. During Trump's regime, the US imposed impractical tariffs that didn't just target competitors but hurt its own economy in the process.

India is gradually working its way around the growing crisis, creating substantial wealth in specific sectors in a relatively short time frame.

Sectors like electronics, defence, and auto components have found a 'Make in India' tailwind with policy support. Companies like Dixon, Amber Enterprises, and PG Electroplast saw their stocks surging as domestic manufacturing gained traction.

In defence, the government's capital allocation and policy support gave rise to a new breed of manufacturing champions and multibagger stocks.

But this is just the start...

New crises are in the making, bringing opportunities with them.

The recent one is the rare earth crunch. The government has been quick to announce rare earth incentives scheme of upto Rs 50 bn to address it.

Rare earth elements are critical to some of the most essential in critical industries-electric vehicles (EV), renewable energy equipment, semiconductors, medical devices, and defence systems.

So what's the catch? China controls nearly 90% of global rare earth (refined) supply. And it's now flexing its muscles by choking supplies to other nations, including India.

So what happens when something as seminal as rare earth materials starts becoming rare?

Well, there are two choices.

First - build a local ecosystem, develop mining and refining capabilities, and establish alternate supply chains.

Second - innovate out of the problem-find new technologies that eliminate or reduce the need for rare earths altogether.

Some Indian companies are making these choices and these deserve to be on your watchlist.

I'm going to focus specially on companies in smallcap space.

The first is Sterling Tools. It's known for making fasteners for the auto sector-nuts and bolts that keep the industry together.

But it's also doing something far more exciting. Through its subsidiary, Sterling Gtake E-Mobility, it has entered the EV motor control space.

What makes this move more interesting is its partnership with a UK-based company, Advanced Electric Machines, to develop rare earth-free motors in India. That's not just smart positioning-it's a potential first-mover advantage in an entirely new category.

Then there's Permanent Magnets Limited. It's a company that makes magnets and magnetic assemblies for electricity meters, autos and industrial equipment.

The company has indicated plans to build a full rare earth magnet manufacturing and supply chain in India.. It's still early days, but if they succeed, it could be a game-changer in reducing India's dependence on Chinese imports for critical magnet components.

Speaking of rare earth elements, you can't miss Gujarat, that houses Ambadongar deposit, a rich source of rare earth elements.

The company at the center of this resource is GMDC, a government-owned mining player that's been quietly pivoting from lignite to critical rare earth minerals.

With an investment plan of Rs 30-40 bn, GMDC is aiming to build an entire ecosystem from mining to refining. If executed well, this could be a big inflection point for the company.

And let's not forget the companies that are literally pulling value out of waste. Owais Metal and Mineral Processing has developed a unique way to extract rare earth materials like Tantalum, Niobium, and Titanium from industrial slag-at a purity of 99.9%.

With a production capacity of 100 kg per day and estimated annual revenues of nearly Rs 580 m at profit margins of 36-40%, this company is a perfect example of turning crisis into innovation. The client base ranging from EVs to defence to medical tech makes it even more interesting.

But the story doesn't stop at mining and extraction. Enter recycling firm Eco Recycling, one of India's earliest players in the e-waste space.

As electronics pile up, so does the treasure hidden within them-metals like cobalt, nickel, and manganese, all of which are critical to modern technology.

Traditionally, the black mass was exported for metal recovery. Now, Eco Recycling is working on doing it right here in India. As per its management, there are at least 17 valuable metals that can be recovered from e-waste-and the building the tech to do it.

Then there are companies making end industries rare earth proof...

Time Technoplast is the second-largest composite cylinder manufacturer in the world. Now, it's making cylinders that can store hydrogen, an alternative green fuel that's gaining traction as countries look beyond EVs and lithium batteries.

Time Technoplast is the first Indian company approved to make these hydrogen storage cylinders for fuel-cell powered drones and vehicles. It has also got approval from France, opening doors to global markets.

Whether or not China relents, the world needs alternatives... and governments want independence. The end user industries want reliance and predictability. And there are small companies rising up to meet these needs.

None of this is investment advice. These aren't stock tips or recommendations.

But these are the companies that deserve to be studied further and should be on your watchlist amid the rare earth crisis.

Happy investing.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)