So if we value just the business, then the valuations are exhorbitant.
How is tax computed. Why is it so less relatively compared to last year.
If MCX enters equity derivative space, I don’t believe they can gain any significant share. Example is mcx-sx. Derivative markets are driven by liquidity. Why would any one leave highly liquid NSE and trade at MCX ?
But I believe NSE may grab share from MCX if both are allowed option trading in commodities (assuming NSE gets approval in near future). Currently, at MCX mostly derivative trading happens bcz of real buyers of oil/gold for hedging. There is very little speculation involved. Same is the case with the NCDEX dominance over MCX in agri space. But, derivatives (F&O) is a different ball game. It runs on liquidity. The commodity derivative market in India is very naive. You don’t lose much by moving from MCX to NSE (as both are new in commodity options). Hence, I feel it is difficult to predict who leads even though I am positively biased towards MCX. Of course, depending upon when MCX and NSE gets option trading approvals and the duration MCX enjoy monopoly in option trading, things may differ. I believe as commodity market is not so big for multiple exchanges to compete, SEBI may venture first with MCX.
Q4 FY17 results were not up to expectation.
Motilal Oswal.pdf (259.4 KB)
However, it has started its uptrend as the positive triggers are very much present.
Motilal Oswal Update.pdf (223.4 KB)
Motilal Oswal CEO Meet.pdf (265.2 KB)
The report on “verification of investments/divestment decisions during FY2015-16” is purported to have pointed out that exit loads were paid on mutual fund investments following premature redemption and several investment decisions were taken without approval of the investment committee.
As per the update on BSE - MCX is targeting to launch trading in Gold Option Contracts with Gold (1 Kg) Futures as underlying on 17th October, 2017.
Conference Call highlights for Q2 FY18
Q2 was the best quarter since Mrugank took over the reins (almost 6 quarters) in terms of regulatory developments.on products, participation and reach.
Participation: SEBI allowed AIFs to trade on exchanges, and gave indication of allowing more institutional participation in near to medium term (with MF slated to be the next institutional group which will be allowed). MCX is expecting that by end of the years, one more class of institutional participants to trade on exchanges.
Products: SEBI cleared the decks for launch of gold options contract on the exchanges. MCX will launch trading on gold options (1Kg) on 17th October, on auspicious day of Dhanteras, in presence on Finance minister in a grand ceremony. We are very excited for the launch of this product and it is a momentous occasion for MCX and commodity markets in India as we have waited for this for last 13 years
Reach: Apart from product and participation, another key success factor for any exchange is reach in terms of number of terminals/brokers/distributors. This quarter, we have very positive development on this front too. RBI, after years of deliberation, has allowed bank subsidiaries to distribute commodity market products. This opens up an avenue for us to significantly expand our reach.
Fees for Options: For the first quarter, we will not be charging any fees for trading in options. We have decided to do so as it is a new product for Indian market and hence, we allow participant to trade without worrying about fees and get hold of its features. Also, as we launch Options, we aim to broad base our participants. Typically, these new participants have not traded on exchange and hence we want them to encourage them to come on exchanges and taste the waters. We will then at appropriate time, decide the fee structure for the Options
More options launch: MCX has in all 9 contracts, which will be eligible for launch of options based on the criteria prescribed by SEBI. However, we expect SEBI to monitor how the launch of first option products go and then give go ahead of launch of more options. We expect 3-6 months before we have created a full basket of Options products across all our eligible contracts We expect to launch few more options contract by end of this year
Financial impact of Options: In medium term (2-3 years) we expect Options to contribute around 20-25% of overall revenue. Moreover, as there is no incremental additional cost for Options as a product, most of the additional revenue shall flow down to bottom line.
Volume Growth: As we had said in the past, our volumes have been rebased post demonetization and we have yet to reach the pre-demonetization levels, especially in the bullion segment. Bullion segment has been the largest contributor in our volume mix and the industry has seen major disruptions in past 12 months i.e. Demonetizaion, GST and PMLA guidelines. Thus, the volume comeback has been slow. However, we expect that over next few months, we will be able to recover all the volume lost in bullion segment. This is based on Mrugank’s recent interaction with participants in Thrissur.
Base metal contribution: The positive news on volume front is that inspite of slower revival in bullion segment, we have grown ADV by 17% due to robust growth in base metal volumes. Overall share of base metal in total volumes increased from 30-34% to 39-40%. We were agile enough to capitalize on base metal rally by reaching out to various participants including producers and end users. QoQ volume growth also reflects strength of our portfolio, which is robust enough to withstand the difficult times in one particular segment.
New entrant and competition: The pace at which SEBI is moving, we expect the Universal exchange guidelines to finalize in near term and expect new players entering the commodity segment sometime in FY 19. However, as we have mentioned, as new competition presents threat to us, it also opens up opportunities for us to enter into new segment which are aligned with what we are doing in commodity market. At the moment, we think that currency derivative segment is aligned with what we are doing. We do not want to enter into equity segment.
New competition posing as risk: We have been preparing ourselves for new competition for some time. We have focused on technology, reach and building relationship with various participants and we are very confident about maintaining our market share. Having said that, we do expect predatory pricing from competition to takeaway liquidity from our exchanges, however, we do not see pricing to be much lower than 20-30% of existing prices considering the cost structure and charges that needs to be paid back to the government. In order to protect our turf, we may too lower our prices for a while, however, given our market leadership, we may not need to exactly match them.
Also, it is important to understand that taking away liquidity from our market is not easy as it is in equity markets. In equity markets the underlying products/participants are uniform and hence it is easy to take away liquidity. While inherently, in commodity markets both underlying products and participants are heterogeneous and your require to establish broad participant base to establish a vibrant contract. So, for example, you need to have relationship with end users, producers, hedgers and speculators in order to have a successful commodity contract. Typically, the first three set of participants are sticky and hence it is difficult to move them away from one exchange to the other. We have cultivated this relationship over many years and have created products to suit their needs and continue to tweak it to make them relevant. Hence, competition is not as big a risk as it is perceived to be
We expect, at least 8-10 AIF to participate in next few months. There is already one AIF that has started trading on exchnage.
We understand that exchange business model is attractive because of underlying operating leverage.
We are confident that with our scale, we are well positioned to benefit from it. We have ensured that our cost structure is competitive and fixed cost are stable.
We have seen dip in yields from our investment which is the reason for reduction in other income
Capital allocation: As we have maintained in the past, we would want to conserve current cash for 2-3 years till we know how competition plays out and which new areas we will enter in. Apart from the reserve requirements of the clearing corporation, we may need substantial capex on technology side which is a function of which new product we plan to enter. However, we will largely distribute additional cash generated. In FY 17, we distributed 97% of net profit as dividend.
Disclosure: Invested with significant allocation. These notes are based on my understanding/interpretation of the management commentary and may not be accurate representation of the management’s views/comments
I was going through an old research report by Motilal publish a couple of years back, the EPS projectons are nowhere close to what it is today. http://ftp.motilaloswal.com/emailer/Research/MCX-20150819-MOSL-IC-PG024.pdf
@desaidhwanil can you summarise your key takeaways ?
Disc: Not tracking much but have a small investment
Average Daily Value (ADV) on the exchanges has not grown and hence the numbers have been tepid all through last couple of years. In fact, couple of months before demonetization, the volumes picked up on exchange, but post demon and GST, bullion segment volumes have been down. There were multiple headwinds for bullion segment which was one of the largest contributors to revenue. Even though, pick up in volumes compensated for the loss of volume in bullion, there still remained deficit.
Moreover, as it happens most of the time in India, regulatory actions expected (launch of options, participation of Institutions on exchange and new contract/product approvals) have taken more time than people expected.
On the other hand, despite all headwinds, market share in all segments have remained upwards of 95%+ through out. Uncertainty about stability of top management is no longer there with current MD in place for more than a year now and doing a good job.
So, it has been going through grinding time correction for some time, however the base business remains very resilient and the key hypothesis remains intact. However, what remains uncertain is the timeframe in which this hypothesis plays out. As I had mentioned in my initial thesis, I always put it into bucket of 10 times in 10 years- return expectation…,and knowing that returns will inherently be lumpy across the decade. I am biding my time…at this level.
DIsclosure: Invested with significant portfolio allocation at average price of 400+
Just wondering impact on MCX.
This space is now become very interesting. Let’s see how the competition plays out. But certainly the monopoly is dented by this order.
It looks too early. Exchange uniformity is imposed before MCX is established in options trading. It looks, it was the reason MCX was not increasing.
Disclosure - Invested.
3 points that formed the thesis of investing in MCX
- Indian economy is growing: hedging and commodity trading is only going to increase with time.
- Commodity trading is addictive: once you get the habit, you will do it repeatedly.
- Its a monopoly business:
Point no. 1 and 2 are relevant more because of point no. 3.
Now here the monopoly is under threat.
Argument against the stock: when the original thesis no longer holds true you may sell. In my personal opinion, NSE and BSE may be better than MCX because of the existing users.
Argument in favour of the stock: this crisis situation could be used to buy. Remember the thesis: buy when in trouble. Yes, its difficult to follow. Another thesis: high uncertainity, low risk.
Can more Vp members please contribute to this thread and let explain effect of this news on mcx in 2-3 year time frame ??
Aa lot of changes coming for mcx in short span of time , be it options allowed and now this one exchange for all trades .
Sebi meet: All bourses to offer stocks & commodities trading from Oct 2018
Sent from BS App
Can anyone clarify what the above news means.
If NSE and BSE will be allowed to trade commodities will MCX be allowed to trade stocks.
I know there is MCX-SX but participation has been subdued and if allowed on same platform wont it help MCX also.
In the next 3 years NSE will take away majority of the commodity volumes from MCX.
MCX has presence in equity through MCX-SX but volumes are only limited to currency futures and there is zero volume in shares there.
Common margin with NSE would allow you to trade in both equity f&o and commodity f&o.
BSE has almost nil equity f&o volumes compared to NSE. There’s a winner takes all effect, whoever has greater liquidity in equity segment also wins F&O activity because of hedging/arbitrage requirement.
Same margin which can be used in daytime can also be used in evening for commodities.
NSE will come out with lower trading fees to lure participants away from MCX and MCX will be forced to lower its fees. The advantage of access to deeper equity and equity f&o from same margin for commodity is just too strong.
In the exchange business, where there is liquidity that is where the market goes. Remember even mcx tried entering equities and failed. BSE tried entering F&O and failed. BSE initally got some traction but after marketing stopped, liquidity vanished. BSE try everyday to challenge the NSE but they are still not able to mount a serious threat to NSE.
If there is one exchange that can take the entire market, it is NSE. That is a worry. They can cut prices and hurt MCX. Charge minimal prices due to networking affect and volume affect. This may hurt MCX. One has to be prudent and either exit or buy in when valuations misprice the risk. I had just bought MCX recently and now I have to exit, but you must stay true to the process, if monopoly and moat is under serious threat then there is no point sticking around. I would rather wait for NSE to list and hold them forever.
Thanks, It will be useful if some one enlighten further
In our market, the volume comes from the retail segment only since institution, MFs/FII etc are not allowed yet. Also, the retail trader/investor trading via brokers & margins are maintained with them. In such case how NSE can take an advantage if they will.
NCDEX is promoted by NSE and what are reasons for not making an big entry or dent MCX on bullion & energy or where MCX is in leadership position.
If we look at global reference what are chances of universal exchange success, meaning monopoly position in all segments like equity, commodity, forex and other tradable instruments.
If the institution or FII are allowed before Oct’18, will MCX has early mover advantage?
Disc: invested around 600 levels.