MCX Stock to Gain Further on Sebi Nod for Options Trading

The Multi-Commodity Exchange of India (MCX), which benefitted the most from the rising commodity prices and volatility in the last few weeks, would be the biggest gainer of the Sebi’s new circular allowing options trading on commodity indices. With better visibility on volume sustainability, the stock could see some re-rating, according to analysts.

The MCX stock, which has gained nearly 15% over the past one month, rallied as much as 5% on Friday to close at Rs 1,443.70, 1.5% higher. The average daily value (ADV) of futures traded on the MCX in March 2022 is 133% above the February 2021 level or 148% higher than December 2021 quarter average. Even the ADV option traded on the MCX in March 2022 was 31% higher than in February 2022.

“There is a vast scope of index options, which will help many importers and exporters undertake hedging. Index options are considered one of the most liquid options which will attract more participation going ahead,’ said Megh Mody, research analyst, Prabhudas Liladher. “The road map is quite compelling, and MCX will be a win-win situation from the inception of index options.”

The share price corrected 10% in 2021 compared to a 23% surge in the Nifty index due to the peak margin rule implementation which led to volume decline. MCX trades at 33 times one-year forward price to earnings, at a 21% discount to its long term average.

Historically, crude and natural gas from the energy sector and gold and silver from precious metals have been the major contributors to MCX volume. While the energy contribution has increased recently, analysts think there is further upside in precious metal ADV with the potential rise in gold prices.

While setting a target price of Rs 1900, UBS said MCX might finally buck the trend of declining volumes over the past five quarters triggered by the implementation of peak margin requirement. “MCX as an interesting counter-cyclical opportunity given the inflationary environment and the belief the market has not priced in the recent surge in ADV,” said Shaleeen Kumar, analyst, UBS.

According to Devesh Agarwal of IIFL Securities, volumes on MCX have bottomed out in FY22 and should grow from FY23 onwards, driven by commodity price volatility in the near term and increasing participant base in the medium to long run. “We expect MCX’s futures volumes to grow at 17% over FY22-24, while option volumes to grow at 34% per-annum-this is likely to drive PAT growth at 34% per annum over the same period,”

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