Good For Long Term

But given the risks in the broader market and uncertainty in crude contract, fresh exposure can be avoided now

- Rajalakshmi Nirmal

We initiated a buy on MCX in November 2018. That was when NSE and BSE had flagged their first commodity contracts and waived transaction charges for members.

We expected the Multi Commodity Exchange of India to soak up most volumes in the commodity market, even after the entry of two other players, given the exchange’s long history in commodity market and its connect with physical market participants.

Also, we were confident that the regulatory changes brought about by SEBI could help increase participation in commodity market.

In over a year since the call, the two bourses, NSE and BSE, have negligible presence in the commodity derivatives market.

In base metals, energy, and precious metals, MCX is still the market leader with over 98 per cent market share. Commodity derivatives market volumes have also increased since then, thanks to increased participation by corporates and widening of the exchange’s client base and members.

From ₹699 in November 2018, the stock price is now at ₹1,072.

At the current market price, it discounts its estimated earnings for 2020-21 by 21 times. In the past few years it has traded in the PE band of 21-23 times on one-year forward earnings.

Investors in MCX can hold on to the stock. Given the risks in the broader market, additional exposure to this small-cap stock is not advisable.