Recommendation from Finance Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.[EasyDNNnews:PaidContentStart]

Multi Commodity Exchange of India Ltd : MONETISING INDIA’S COMMODITY FINANCIALISATION

HERE IS WHY
✓ Near Monopoly Platform
✓ Robust Product Pipeline
✓ Asset Light, Cash Rich Model

India’s commodity markets are entering a structural growth phase supported by rising participation from institutional investors, expanding retail involvement and progressive regulatory reforms. As India’s economy scales up the role of commodities in price discovery, hedging and portfolio diversification is increasing. Against this backdrop Multi Commodity Exchange of India Limited (MCX) the country’s largest commodity derivatives exchange, stands out as a unique and high quality play on India’s growing financialisation of commodities.

Incorporated in 2002 and operational since 2003 MCX operates under SEBI’s regulatory framework and provides a nationwide electronic platform for trading in commodity derivatives. MCX enjoys near monopolistic positioning in non agricultural commodity derivatives, commanding approximately 99 per cent market share in bullion, energy, and base metals futures. MCX was the first Indian exchange to introduce commodity options and has continued to innovate with products such as BULLDEX index options, mini contracts and monthly option expiries. MCX delivered a strong operational quarter in Q2 FY26, driven by a sharp rise in trading volumes and improved product mix. Average Daily Turnover (ADT) for the quarter rose to ₹4.11 lakh crore, up 87 per cent YOY. Bullion continued to dominate trading activity, accounting for over 76 per cent of total turnover, while energy contributed around 18 per cent. The rapid scaling of options, particularly bullion options, underscores a structural shift towards higher margin, premium based products.

MCX reported total income of ₹400.79 crore in Q2 FY26, registering a 29 per cent YOY growth. EBITDA for the quarter came in at ₹270.19 crore, reflecting a 32 per cent YOY increase. PAT increased 29 per cent YOY to ₹197.47 crore. For the first time in FY25, the company’s net sales crossed the ₹1,000 crore milestone, reaching ₹1,113 crore, while profit also surpassed ₹500 crore to stand at ₹560 crore. A key growth driver for MCX is broadening market participation. Total traded clients increased to 7.9 lakh in Q2 FY26, up from 6.8 lakh a year ago, led by rising retail participation in options. On the institutional side, regulatory changes now allow Mutual Funds, PMS, and FPIs to participate in exchange traded commodity derivatives, significantly expanding the addressable market. Membership growth remains healthy, with 17 new members added during the year and a strong pipeline of large retail brokers transitioning into commodity trading. SEBI’s approval for Direct Market Access (DMA) to FPIs and allowing Banks to act as Professional Clearing Members (PCM) further lowers entry barriers for institutional participants.

MCX has a robust product pipeline under regulatory review, including additional commodity options, new index derivatives, and potential weekly expiry contracts. The exchange is also consolidating delivery centres in base metals to improve physical market participation and efficiency. MCX maintains a debt free balance sheet with free cash flows of ₹854 crore, cash equivalents of ₹1,667 crore and a strong Settlement Guarantee Fund corpus of over ₹1,033 crore. High return ratios (ROCE approximately 43 per cent, ROE approximately 34 per cent) reflect the inherent operating leverage in the exchange business.

While the stock trades at a premium valuation this is supported by strong earnings visibility, near monopoly positioning and a long runway of volume led growth driven by financialisation and product expansion. Over the last three years, MCX has delivered strong revenue and profit growth of 44.8 per cent and 51.6 per cent respectively. Hence, we recommend a BUY.

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