Neal Bhai Reports — MCX Jumps on Options Trade Hopes, Transaction Fee Hike — The shares of MCX, the country’s only listed exchange, have witnessed incremental trading interest of late even as India’s biggest stock exchanges -NSE and BSE -have announced their intentions to list over the next one year.
The MCX stock has rallied over 24% so far this year against 8.2% gains reported by the benchmark Sensex. On Tuesday , it rallied as much as 10% before closing up 7.5% on expectations of regulator Sebi allowing commodity exchanges to launch options trade.
The rally was also supported by a 24% increase in transaction costs by the exchange. Transaction charges constituted 86%, or `203 crore, of total operating revenue in FY16. Brokers say that since the exchanges command an over 80% market share, the rise in transaction costs will be absorbed and benefits would accrue to the company . Though MCX appears well placed to benefit from regulatory actions like introduction of new products (options and indices) and participation of institutional investors over time, these could also increase competition in the dog-eat-dog world of exchanges. Many believe that if NSE gets permission to offer a commodity futures segment, it will be better placed to attract mutual funds and FPIs not only because there are many extant market participants but also because of inherent strengths like more robust Settlement Guarantee Fund (SGF). At the end of FY16, NSE’s SGF stood at `966 crore against `188 crore of MCX.
However, on the hike in transaction fee, the stock seems to have discount ed incremental benefit to the topline.Assuming a strong correlation between the transaction charges to the turnover, especially that for non-agri futures that account for more than 90% of its volumes, and hence, a direct impact on MCX’s topline, the stock appears to be over-priced. Even after applying a 35% net profit margin that MCX enjoyed two years back, the stock appears to be trading at 40 times its FY17 earnings and 30 times its expected FY18 earnings. This is similar to valuations MCX commanded around its listing when its used to boast an annual turnover of more than `100 lakh crore.
However, since 2013, introduction of CTT (commodity transaction tax) on non-agri commodity futures and a slump in global commodity prices have brought down its turnover by half even as an overhaul in shareholding is done with. CTT at 17 per lakh of turnover has caused exit of many jobbers, scalpers and to some extent day traders from the market. — Gold Silver Reports