Commodities

Booming stock market hits commodity trading on MCX

PALAK SHAH Mumbai | Updated on August 28, 2021

MCX’s average daily trading volume now has dropped by 40 per cent from its decade ago period.

Booming stock markets have led to waning interest for commodity trading on the Multi Commodity Exchange (MCX), India's largest commodity bourse. Trading volumes in gold, the flagship product of MCX, are at a multi-year low, and analysts say the exchange has been hit by a sense of overwhelming despondency, with volumes in other segments too not picking up or coming close to the peak of 2011. MCX has a monopoly in bullion metals, base metals, and crude oil trading in India.

MCX churned an average daily trading volume (ADTV) of around ₹48,326 crore in 2011, which has now come down by 40 per cent to around ₹28,972 crore. In the past ten years, the overall trading volumes came nowhere near the peak levels of 2011, even if they witnessed year-on-year rise, only to be followed by sharp declines. Data shows that ADTV for gold futures at MCX are down by nearly 54 per cent to just ₹5,723 crore this year compared to the peak of ₹12,436 crore in 2011. This is even though India is one of the largest consumers of gold globally, and the demand and imports of the yellow metal have only witnessed multifold growth.

Crude oil

MCX also prides itself in crude oil trading but the volumes in this segment too have remained in a range in the past decade. The ADTV of crude oil futures touched a high of ₹9,421 crore on MCX in 2012, and ₹9,963 crore (futures plus options) made a new high of ₹9,963 crore. For 2021, the crude oil ADTV is down to ₹5,280 crore. According to analysts, the volumes have failed to pick up at MCX, although post-2014, banks, mutual funds, exchange-traded funds and foreign institutional investors were allowed to participate in the exchange, and options trading was given a go-ahead.

MCX has also lost out in the race to equity exchanges National Stock Exchange (NSE), and the BSE to attract more traders. BSE currently has 7.8 crore registered unique clients (UCs) and NSE 4.5 crore. But MCX, even though with no competition in bullion and crude oil trading platforms since 2003, has managed to win just 69.86 lakh (as of July 2021) registered UCs.

In contrast to the sagging trading volumes on its platform, the share price of MCX witnessed a leap of faith as it saw five-fold gains from a low of ₹290 in August 2013 to touch a high of ₹1,875 in October 2020. Investors lapped up MCX stock mainly as Rakesh Jhunjhunwala, considered the big bull of Indian stock markets, picked up nearly 5 per cent stake followed by other well-known high net worth investors. Kotak group currently owns 15 per cent stake in MCX. MCX is currently valued at ₹7,482 crore, with its share price trading at around 43.68 times premium (as per tje BSE website) to its net earnings, a major portion of which also comes from interest income. MCX has cash reserves of ₹685.29 crore as per its March 2021 balance sheet.

MCX is in the middle of a complete overhaul of its trading technology since it has decided to change from 63Moons Technologies as its service provider to TCS. The exchange has been struggling to acquire technology to start a spot exchange platform for Gold. Analysts have now pinned their hopes on market regulator SEBI allowing 100 per cent ownership for exchanges' to see a further boost for MCX.

Published on August 26, 2021

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