MCX in Focus as Commodity Derivatives Volumes Surge; Bernstein Sees Further Growth

Multi Commodity Exchange of India (MCX) has come into focus as activity in commodity derivatives gathers pace, with a sharp rise in both options and futures contracts strengthening expectations around the exchange’s growth trajectory. 

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Bernstein has initiated coverage on MCX with an ‘Outperform’ rating and a 12-month target price of ₹3,830. The target implies an upside of about 15% from the stock’s September 7 closing price of ₹3,330. 

The brokerage’s view rests largely on the recent acceleration in commodity derivatives volumes and the scope for more retail traders to participate in the segment. 

Options and Futures Volumes See Sharp Growth 

Trading activity on MCX has expanded considerably, particularly in options. 

Options contracts traded on the exchange increased 4.3 times year-on-year in August, while futures contracts rose 2.1 times over the same period. 

Bernstein expects this momentum to carry into the current financial year. Its FY27 options volume estimate is 11% ahead of consensus, while its futures volume estimate is 7% higher. 

The brokerage is also 10-12% ahead of consensus estimates for MCX’s earnings in FY27 and FY28. 

Retail Participation Leaves Room for Expansion 

One of the central factors behind Bernstein’s outlook is the relatively low overlap between traders participating in equity derivatives and those active in commodities. 

According to its estimates, only about 25% of retail equity derivatives traders currently participate in commodity derivatives. 

This leaves room for brokers to introduce more of their existing trading customers to commodities, particularly as equity derivatives face greater regulatory pressure. 

The implementation of the closing auction session in equity markets has also provided an interim boost to commodity derivatives participation, according to the brokerage. 

Options Become a Larger Part of MCX Business 

Options have emerged as an important driver of MCX’s recent growth after the exchange began scaling the segment in FY21. 

Trading preferences have increasingly shifted towards options over futures, while higher gold and silver prices have also contributed to greater interest in commodity markets. 

Transaction charges currently account for around 86% of MCX’s revenue. Roughly two-thirds of those charges come from options and the remaining one-third from futures. 

Within futures, bullion is the dominant segment. Energy contracts, particularly crude oil and natural gas, have historically played an important role in the options business. 

Gold prices can also influence MCX’s futures revenue because transaction charges on futures are linked to notional turnover. 

Regulatory Changes Could Broaden Participation 

Possible regulatory changes are another area being watched for their impact on commodity derivatives. 

A recent consultation paper proposes allowing wider foreign portfolio investor participation in commodity-index derivatives and physically settled commodity contracts, subject to safeguards. 

Bernstein expects greater FPI participation in bullion and base-metal futures and options could deepen market liquidity. It has not, however, included any potential increase from this development in its volume forecasts. 

Changes to stress-testing requirements for commodity clearing houses could also lower settlement-guarantee fund requirements. Bernstein sees the possibility of this releasing capital, increasing float income and supporting higher dividend payouts. 

Bernstein Projects Higher FY27 Earnings 

Based on its expectations for trading activity, Bernstein estimates MCX’s revenue from operations at ₹30,098 crore in FY27, compared with ₹23,020 crore in FY26. 

Net profit is projected at ₹18,394 crore for FY27, against ₹13,314 crore in FY26. 

The brokerage values MCX at 45 times its estimated FY28 earnings. 

Its outlook is not without risks. A faster-than-expected decline in crude oil and gold volatility could affect trading volumes. Bernstein also identified weaker gold prices following global rate hikes and tighter regulations governing retail derivatives participation as potential risks. 

For MCX, the immediate story remains the sharp expansion in commodity derivatives activity. With August options contracts rising 4.3 times year-on-year and futures contracts more than doubling, the pace at which this participation sustains itself will remain central to the exchange’s growth outlook.