'Buy' Maintained On MCX By HDFC Securities, Cites New Products, Stable Techs To Be Growth Engines

HDFC Securities Institutional Equities

We recently met with the management of Multi Commodity Exchange of India Ltd. and gained understanding that the company is gearing up for its next phase of growth. The strategic pillars driving this include the introduction of new products, boosting market participation, and enhancing technological capabilities. The regulator has, in principle, agreed to one weekly expiry per week for an exchange, making the launch of crude or index weekly expiry options a possibility.

While the weekly options will scale up the notional volume, the premium-to-notional ratio will be lower, so maintaining equilibrium to avoid the loss of premium is crucial.

The primary focus of MCX management over the last few years was on technology transition. The key focus from here will be product and market development, and the launch of mini contracts and monthly expiry gold options (Nov 24) are steps in this direction.

The options segment is dominated by crude and natural gas; the launch of cash settled index options contract will boost gold volume. The recently launched mini contracts are ~25/5% of futures and options volume.

We expect notional/premium volume to register a +58/43% CAGR over FY24-27E. The options notional volume was down ~21% in October but higher volatility has led to a rise in P/N% ratio, leading to only 6% fall in options premium.

We expect the premium average daily trading volume to be at Rs 38.02 billion for Q3 (versus 40 billion earlier) leading to a slight cut in EPS estimate for FY25/26E.

We expect the volume to increase gradually with scaling/launch of new products and rising FPI and investor participation in commodities. We maintain out Buy rating with a target price of Rs 7,000, based on 40x Dec-26E core EPS + net cash.

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