MCX is up 18% since coronavirus lockdown— and there may be more juice left in the stock

"Over FY21-22, we expect strong revenue growth of 14-18% and stable EBITDA margin of 42-44%, notwithstanding the COVID-19 impact on 1QFY21 operations," a Motilal Oswal report on Multi-commodity exchange (MCX) said as the brokerage increased the earnings estimate by 5-7% for the next couple of years. Source: Business Wire
  • Multi-commodity Exchange (MCX) has seen a 44% increase in total value of contracts traded between Jan and March 2020.
  • The rise in volatility in global markets has led to the spike in trading volumes at MCX, especially in gold, silver, and crude oil.
  • A new brokerage report expects another 36% jump in MCX share price in the next one year.
The carnage in India's equity markets have spared very few stocks and investors. However, Multi-commodity exchange, which is the platform for electronic trading in commodities has seen an 18% spike in share price, in just seven trading sessions, between March 24 and April 2, after the country's Prime Minister Narendra Modi announced the 21-day lockdown to contain the spread of coronavirus. At the same time, the benchmark Sensex has remained largely flat.

There may be a lot more juice left in the stock. A recent report dated March 31, from broking firm Motilal Oswal, expects the stock to hit ₹1,400 a piece in the next one year. That would mean a 36% jump from the closing price on Thursday (April 2).

There may be a lot more juice left in the stock. A recent report dated March 31, from broking firm Motilal Oswal, expects the stock to hit ₹1,400 a piece in the next one year. That would mean a 36% jump from the closing price on Thursday (April 2).

As part of the lockdown, the trading hours at MCX were curtailed to 8 hours from 14 hours earlier. This led to a sharp decline in trading volumes. If ten trades were placed on a day between March 1 and 24, there have been only trades a day since March 25. Despite that, the value of total contracts traded on the exchange i.e. MCX is up 44% in January to March 2020 compared to a year ago.
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As global equity markets crashed, traders and investors sought safe havens in commodities like gold and silver. The volatility in the crude oil prices in the last few months, where the price crashed from near $70 a barrel at the start of the year to about $20 now, also led to an increase in purchase and sale of contracts by traders in the futures and options segment. And it helps that MCX is a near monopoly when it comes to commodities trading in India.

"Over FY21-22, we expect strong revenue growth of 14-18% and stable EBITDA margin of 42-44%, notwithstanding the COVID-19 impact on 1QFY21 operations," the report said as the brokerage increased the earnings estimate by 5-7% for the next couple of years.

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