Bernstein sets 3,830 rupee target for MCX

Bernstein initiates coverage on Multi Commodity Exchange of India (MCX) with an Outperform rating. The target price is set at 3,830 rupees. This implies a 15 percent upside from the September 7 closing price of 3,330 rupees. The brokerage cites strong momentum in commodity derivatives volumes as the primary driver. It also highlights significant room for retail participation to expand.

The firm prefers MCX over the Bombay Stock Exchange. It expects commodity derivatives growth to continue while equity derivatives moderate. MCX contract volumes have shown stronger-than-expected momentum. Options contracts traded rose 4.3 times year-on-year in August. Futures contracts increased 2.1 times over the same period.

Earnings projections exceed market consensus

Bernstein projects revenue from operations to rise to 30,098 crore rupees in FY27. This is an increase from 23,020 crore rupees in FY26. Net profit is projected to increase to 18,394 crore rupees. This compares to 13,314 crore rupees in the previous year. The brokerage is 11 percent ahead of consensus on FY27 options volume estimates. It is 7 percent ahead on futures volumes.

The firm also leads consensus on earnings projections. It is 10 to 12 percent ahead on FY27 and FY28 earnings. Bernstein values the stock at 45 times FY28 estimated earnings. This valuation reflects the expected volume momentum supporting future upgrades.

Retail shift drives volume growth

A continuing shift of traders towards commodity derivatives underpins the view. Only about 25 percent of retail equity derivatives traders currently participate in commodities. This leaves significant room for cross-selling. Brokers are incentivized to direct traders towards commodities. This follows greater regulatory pressure on equity derivatives.

The implementation of the closing auction session in equity markets provides an interim boost. Retail brokers have an incentive to diversify revenue away from equity options. MCX options contracts have risen sharply since the exchange scaled the segment in FY21. Traders increasingly favor options over futures. Higher gold and silver prices have also increased interest in commodity markets.

Regulatory changes offer further upside

A recent consultation paper proposes wider foreign portfolio investor participation. This includes commodity-index derivatives and physically settled contracts. Bernstein expects greater FPI participation to deepen liquidity. The brokerage has not yet included this potential volume boost in its forecasts.

Easing stress-testing requirements could reduce settlement-guarantee fund requirements. This may release capital and increase float income. It could also support higher dividend payouts. MCX derives around 86 percent of its revenue from transaction charges. Roughly two-thirds of these charges come from options. One-third comes from futures.

Bullion dominates the futures business. Energy contracts have historically been important for options. Bernstein remains positive on gold prices given the global fiscal backdrop. Higher gold prices directly support MCX futures revenue. This is because transaction charges are linked to notional turnover. The report notes that a faster-than-expected normalization of equity derivatives volumes poses a risk. Source: GN markets/commodities (en-US).