Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Markets / Mark To Market/  Investors trading in MCX shares must keep eye on valuation ticker
BackBack

Investors trading in MCX shares must keep eye on valuation ticker

The MCX stock is now trading at a stiff price-to-earnings multiple of 29.2 times FY19 earnings
  • ADT had fallen in FY18, when trading in gold and other commodities were hit owing to demonetization
  •  (Reuters )Premium
    (Reuters )

    Commodity trading volumes are rising to new highs on the Multi-Commodity Exchange of India Ltd (MCX), and this is somewhat rubbing off on its share price. MCX shares rose 4.8% after it reported better-than-expected results for the March quarter.

    While income from operations rose 12% to 79.1 crore in the quarter, operating profit rose 16% to 56.8 crore. This is notwithstanding the fact that average fee realization fell to 2.16 for every 1 lakh of turnover on the exchange, from 2.19 a year ago. Revenue growth was primarily on account of higher volumes.

    MCX has held on to its market share despite the recent entry of BSE Ltd and the National Stock Exchange of India Ltd (NSE) in the commodity derivatives space. “One risk many were foreseeing earlier, that of increased competition in commodity trading has not played out as feared. MCX has, in fact, improved its market share," said Amit Chandra, assistant vice-president at HDFC Securities Ltd.

    In fact, last year, the company regained some of the lost ground post-demonetization. Average daily turnover (ADT) on MCX increased as much as 26% in FY19 to 25,648 crore (see chart).

    View Full Image

    ADT had fallen in FY18, when trading in gold and other commodities were hit owing to demonetization.

    To be sure, the new firms in the commodity derivatives business are turning up the heat. BSE and NSE, which launched commodity-derivatives trading last October, are planning to introduce new products for traders. About 10-15 products are being explored, and that would lead to heightened competition. While the new platforms are yet to make a dent, their attempts to capture share can put pressure on MCX’s average realized fee, fear some analysts. BSE’s bullion trading platform has already garnered a 10% market share.

    Also, with physical delivery in commodities now being initiated in metals, analysts see some impact on volumes.

    However, so far MCX has fended off competition because of its already well-entrenched volumes, which tend to attract more participants. Analysts also point out that impact cost of trading goes up in exchanges where volumes are thin. That’s why most commodity traders tend to stay with MCX. Besides, it could gain further from tie-ups with banks to offer commodity investing. Mutual funds are also expected to launch new commodity products in the next two quarters.

    That said, the MCX stock is now trading at a stiff price-to-earnings multiple of 29.2 times FY19 earnings. So, even though the commodity tickers are expected to ratchet up further, investors might well keep a close watch on the earnings multiple.

    Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
    More Less
    Published: 28 Apr 2019, 10:41 PM IST
    Next Story footLogo
    Recommended For You
    GENIE RECOMMENDS

    Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

    Let’s get started
    Switch to the Mint app for fast and personalized news - Get App

    Chat with MintGenie