Riding the bullion run, is MCX a Dhanteras play for equity investors?

With volumes soaring and profit run-rates touching records, MCX is emerging as the equity-market proxy for India’s obsession with precious metals. MCX shares have surged nearly 65% in the past six months to ₹9,332 on Friday, outpacing the 26% rise in shares of BSE Ltd, which runs that Bombay Stock Exchange. National Stock Exchange Ltd is not listed.

MCX's rally mirrors the festive surge in bullions itself. Domestic gold prices have risen nearly 10% month-on-month in October as festive consumption added to its safe-haven appeal amid looming global uncertainties, while silver has surged over 20% with rising industrial demand.

Traditionally, Dhanteras has marked the beginning of the gold-buying season in India — a cultural and emotional anchor for long-term wealth preservation.

But the sparkle of gold and silver extended beyond jewellery counters to the derivative market well ahead of Dhanteras, as their price and volatility spiked in September. Both metals now account for nearly 80% of MCX’s total futures volumes, noted ICICI Securities.

Trading activity has surged further in October. The brokerage reported that MCX’s futures average daily turnover (ADTV) jumped 76% month-on-month to ₹98,400 crore in October so far, while options premium ADTV rose 44% to ₹6,800 crore.

Swapnil Aggarwal, director at VSRK Capital, a wealth management firm, expects the dominance of bullions to continue, supported by steady demand from manufacturers, jewellers, and exporters. “It adds resilience but also makes MCX more sensitive to price swings (in gold and silver)," Aggarwal said.

A festive boom?

The festive season has accentuated that sensitivity. Silver imports have nearly doubled from last year, ETF inflows have firmed up, and retail participation in commodity derivatives has soared as investors, taking a breather from equity derivatives, seek action in commodities.

Retail participants currently contribute to 40% of the trading activity in MCX. They mostly participate in option trades, which is less capital intensive compared to futures.

In fact, options now contribute 60-65% of MCX’s operating revenue, compared with roughly 30% from futures, according to HDFC Securities. That transition coincided with the introduction of smaller, retail-friendly “mini" contracts and the shift from bi-monthly to monthly expiries, said experts.

“The move to monthly expiry has worked like an accelerant (for retail investors)," says Santosh Meena, head of research at Swastika Investmart, a listed brokerage. More frequent expiries in times of higher volatility mean traders roll over positions faster, increasing the exchange’s transaction revenue, he noted.

“MCX’s trading volume is primarily driven by market volatility. Unless volatility drops significantly, we are unlikely to see a substantial decline in volumes, despite the latest margin hikes," he added.

Bullion ride

MCX recently increased the minimum initial margin requirement on gold futures by 100 basis points (bps) to 7% and on silver futures by 150bps to 12.5%, in response to heightened volatility in precious metals. A bps is one-hundredth of a percentage point.

Higher margins typically raise the cost of trading, curb speculation and dampen trade volumes. Yet, analysts say the move will mainly deter short-term or highly leveraged traders, with limited long-term impact on volumes, as they see bullion rally to persist for sometime.

In fact, ICICI Securities estimates MCX's annual profit for FY26 to cross ₹1,500 crore if its current trading volumes and profitability continue the rest of the year. HDFC Securities, on the other hand, anticipates the bullion boom to fuel MCX’s profit margin above 55% in the third quarter — well ahead of NSE’s estimated 35-45% and slightly above BSE’s 45-50%.

Looming risks

While MCX enjoys near monopoly on commodity derivatives with high operational leverage, beneath the glitter lies a subtle challenge.

As MCX’s trading mix shifts toward bullion its premium-to-notional (P/N) ratio – a key indicator of revenue yield – has been trending lower. HDFC Securities projects the exchange’s blended P/N ratio to drop to 0.9% by FY27 from 1.63% in FY25, because trading interest is shifting from crude and natural gas to bullion contracts.

Crude oil and natural gas options typically have longer expiry, while the underlying commodities are more volatile than gold and silver. Hence, energy contracts have higher premiums and earn more transaction revenue for the exchange.

“Gold and silver contracts have P/N ratios of 0.5-0.6%, compared to 1.6-2.8% for crude and natural gas contracts," notes HDFC Securities.

This matters because MCX earns transaction fees on premium turnover, not notional value. As lower-yield bullion trades grow, the exchange will earn less revenue per trade. With options now forming the bulk of its revenue, this mix shift could materially weigh on MCX's top line, experts said.

Raj Gaikar, research analyst at SAMCO Securities, cautions that this could temper medium-term optimism around the exchange. He noted that market participants are betting on MCX's rising volumes, expanding margins, and platform stability. “But unless revenue growth accelerates further, the upside from current levels may be limited," he added.

Complementary play

Yet, Jateen Trivedi, vice president of commodity and currency research at LKP Securities argues that MCX stands out among its peers because of its product specialization, lower regulatory overhang and volatility-linked revenue model.

At 42 times its estimated FY27 earnings, MCX currently trades at 10% premium to BSE Ltd and shade below its own average one-year forward P/E ratio, according to HDFC Securities.

“Historically, MCX has traded at a 15% premium to equity exchanges based on the optionality and lower regulatory risk related to weekly options," the brokerage noted.

Moreover, the ongoing bullion boom has also created a positive sentiment around MCX, LKP Securities' Trivedi noted. According to him MCX presents a unique complementary Dhanteras play for investors — an equity that mirrors the shine of gold and silver, but with the scalability of a platform business.

“While it’s more volatile than NSE or BSE, it’s also better positioned to benefit from rising global uncertainty," added VSRK’s Aggarwal.

Nonetheless, experts cautioned that sustained double-digit volume growth and institutional traction will remain key to justifying MCX’s current valuations.