Bernstein has initiated coverage on Multi Commodity Exchange of India (MCX) with an ‘Outperform’ rating and a 12-month target price of Rs 3,830, implying 15% upside from the stock’s September 7 closing price of Rs 3,330, as it sees strong momentum in commodity derivatives volumes and further room for retail participation to grow.
The brokerage prefers MCX over BSE, as it expects the growth in commodity derivatives to continue while equity derivatives enter a period of moderation. Bernstein said MCX’s contract volumes have shown stronger-than-expected momentum, with options contracts traded rising 4.3 times year-on-year in August and futures contracts increasing 2.1 times.
Bernstein expects the momentum to translate into higher earnings estimates. It is 11% ahead of consensus on MCX’s FY27 options volume estimates and 7% ahead on futures volumes. It is also 10-12% ahead of consensus on FY27 and FY28 earnings.
The brokerage expects MCX’s revenue from operations to rise to Rs 30,098 crore in FY27 from Rs 23,020 crore in FY26, according to its estimates. Net profit is projected to increase to Rs 18,394 crore from Rs 13,314 crore over the same period. The figures in the report are in Rs million, implying Rs 30,098 crore and Rs 18,394 crore respectively.
Bernstein’s view is based on a continuing shift of traders towards commodity derivatives. It estimates that only around 25% of retail equity derivatives traders currently participate in commodity derivatives, leaving significant room for cross-selling as brokers look to diversify their revenue away from equity options.
The brokerage said the implementation of the closing auction session (CAS) in equity markets has also provided an interim boost to commodity derivatives participation. Retail brokers, it said, have an incentive to direct traders towards commodities as equity derivatives face greater regulatory pressure.
MCX’s options business has been a key driver of the recent growth. Options contracts traded have risen sharply since the exchange began scaling the segment in FY21. The brokerage said traders are increasingly favouring options over futures, while higher gold and silver prices have also helped increase interest in commodity markets.
Bernstein also sees regulatory changes as a potential volume catalyst for MCX. A recent consultation paper proposes wider participation by foreign portfolio investors (FPIs) in commodity-index derivatives and physically settled commodity contracts, subject to safeguards. The brokerage expects greater FPI participation in bullion and base-metal futures and options to deepen liquidity, although it has not included the potential volume boost in its forecasts yet.
The easing of stress-testing requirements for commodity clearing houses could also benefit MCX by reducing its settlement-guarantee fund requirements. Bernstein expects this to potentially release capital, increase float income and support higher dividend payouts.
Another potential upside comes from gold prices. Bernstein has not built a sharp rise in gold prices into its estimates, but remains positive on the metal given the global fiscal and monetary backdrop. Higher gold prices would directly support MCX’s futures revenue because futures transaction charges are linked to notional turnover.
MCX derives around 86% of its revenue from transaction charges, with roughly two-thirds of those charges coming from options and one-third from futures. Bullion dominates the futures business, while energy contracts, particularly crude oil and natural gas, have historically been important for options.
Bernstein expects MCX’s strong volume momentum to continue to support earnings upgrades. It estimates the exchange’s FY27 options and futures volumes to be 7% and 11% above consensus respectively, while valuing the stock at 45 times FY28 estimated earnings.
The brokerage, however, flagged risks from a faster-than-expected normalisation in crude and gold volatility, weaker gold prices following global rate hikes and any significant tightening of regulations governing retail derivatives participation.
Read More: Bernstein turns bullish on MCX as commodity derivatives gain momentum —