Stock Fundamentals

MCX: Promising exchange

Rajalakshmi Nirmal | Updated on November 25, 2018 Published on November 25, 2018

With SEBI’s regulatory changes and more participation, volumes are expected to go up

The Indian commodity market is growing. After a challenging last few years, the market is expanding now, thanks to the Securities and Exchange Board of India (SEBI) allowing subsidiaries of banks to become members of commodity exchanges, introduction of options – a low cost hedging tool and change in regulation that closed the option for companies dealing in precious metals to hedge outside India.

In the first 10 months of 2018, the total turnover recorded at MCX is ₹54.03 lakh crore, up 27 per cent from the same period last year.

Volumes and liquidity at the commodity exchanges in India may go up significantly over the next few years. The SEBI’s recent order mandating that listed companies disclose their commodity risks and hedging in their annual reports promises to bring more corporate participation in the commodities derivatives market. MCX — the largest commodity exchange in India (market share of 91 per cent) — is well-placed to benefit from the deepening of the commodity derivatives market.

Despite two equity bourses — the NSE and the BSE — starting gold and silver futures contract trading over the last month, MCX has been able to sustain volumes.

While the BSE has waived off transaction charges for a year in commodities derivatives, the NSE has waived off transaction charges for three months. MCX has not cut transaction charges and is confident of retaining market share.

Waiving off transaction charges alone can’t pull volumes. A proprietary trader or an algo investor who makes profits from buying/selling at small ticks, needs large volumes to make money. Currently, in bullion contracts, only MCX sees that kind of volumes.

Investors can buy the shares of MCX in the light of the recent regulatory changes. At the current market price of Rs 699, the stock discounts its estimated earnings for 2019-20 by 21 times, making it an attractive bet currently.

Business drivers

While the SEBI’s move to create universal exchanges by allowing equity exchanges to open trading in commodity derivatives raised concerns of market share loss for MCX, initial signals seem to indicate that liquidity may not move to new exchanges easily. The BSE launched its gold and silver futures contract this October. The average daily turnover (ADT) at the exchange’s gold futures contract is now ₹300 crore; at the NSE, it is ₹30-40 crore.

In MCX, the ADT in October in gold was ₹3,500 crore. Interestingly, this is higher than the average of ₹2,900 crore recorded at the exchange since the beginning of the year.

The increase in volume could be because of greater participation and widening of the client base. Axis Securities, the broking subsidiary of Axis Bank, has been offering trading in commodities futures contracts on MCX since August for its clients. SBI Cap Securities, HDFC Securities and ICICI Securities have also taken membership of MCX and are soon set to open commodities trading on MCX for their clients.


The exchange’s options contracts also seem to hold promise. While volumes here are miniscule at present, they may rise when many more institutional players participate. The SEBI is considering allowing MFs and PMS entities into the commodity derivatives market very soon ( some stakeholders indicate that it may happen as early as January 2019).

Given that options are a low-cost hedging tool, they may find more takers. MCX has not begun charging for options contracts; it will do so when volumes get to a critical mass with more participation — this may take three to six months.


The September quarter results met market expectation.

Operating income was up 6 per cent to ₹71 crore, Y-o-Y (in the half-year ended September 2018, operating income was up 14 per cent).

However, lower employee and technology expenses saw operating profits grow 10.9 per cent, Y-o-Y.

The operating profit margin for the quarter was 32.2 per cent, and expanded by two percentage points over the same quarter last year.


But compared to the June quarter, the margin was lower by 1.9 percentage points due to the cost of the LES (liquidity enhancement scheme on options) and higher licence fee paid to LME and CME.

The net profit for the quarter increased by 23 per cent, Y-o-Y, helped by lower depreciation and tax writebacks.

Published on November 25, 2018

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor