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Heralded as a harbinger of the good times for the primary market in the country when it came out with its IPO in late February this year, the shares of Multi Commodity Exchange Ltd (MCX) slipped below its issue price within two months of listing on Friday.
The scrip sank to a low of Rs 1,007, which was below the issue price of Rs 1,032 during the day's trading, even as the commodity prices are firming up.
Rise & fall
There do not seem to be any specific reasons for the downward spiral the stock had witnessed, other than the overall weakness the market itself had witnessed, when the Sensex tanked by over 300 points. But was that reason enough for the stock to go down so steeply in such a short time?
When the company came out with an IPO in February, analysts gave it a strong thumbs-up as they considered it a great investment opportunity. Their optimism was based on the fact that globally exchanges enjoy a high P/E and the MCX issue was a high quality issue in a primary market starved of good quality issues.
Shortlived hope
When the stock spurted to Rs 1,400 levels soon after listing, there was a general optimism that the MCX issue would be followed by other quality issues and the Government's divestment target of Rs 33,000 crore during the current fiscal would be met. But the MCX scrip has been on a downward journey after touching those levels, hitting fresh 52-week lows before slipping below the offer price.
According to market specialists, in general, the commodity markets appeared to be jittery on regulatory action to curb speculation. The recent spate of regulatory measures to curb gold consumption may also be having an impact on sentiment towards commodity plays, they averred.
Making a pitch for the stock, Citi had argued that MCX management ‘is a step ahead in innovation, product mix and business volumes' and felt that it should retain its potent mix of ‘high returns and potentially high growth'. It would benefit from rise in market share and that it was cash surplus ‘with no debt/capex requirements in near future' adds strength to the stock, it said.
‘External reasons'
Speaking to Business Line on Friday, Mr Arun Kejriwal, Founder, Kejriwal Research and Investment Services, said the sharp downward spiral the stock price had witnessed was because of external reasons and not because the stock had suddenly become less than investment-grade.
Misconception
He said there was a misconception that the FIIs were big traders in the MCX and if there was any large scale exit of the FIIs because of the twin issues of GAAR and the Mauritius Treaty, there would be a huge sell-off by them, leading to loss in value of holdings. This misconception of FII selling was a factor for the investors rushing to the exit door in so far as MCX was concerned.
He said after the steep correction, MCX stock has ‘become a buy' and he did not expect any further erosion in the value of the stock, though he was not able to say whether the market itself may not correct further because of policy uncertainties or rupee depreciation.
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