Bernstein prefers MCX over BSE as commodity derivatives gain momentum

The brokerage has rated MCX 'Outperform' with a Rs 3,830 target, while assigning BSE an 'Underperform' rating with a ₹2,820 target

Bernstein, in a report, initiated coverage on India’s two major listed exchanges with a preference for Multi Commodity Exchange of India (MCX) over BSE. It believes that equity derivatives are entering a phase of moderation while commodity derivatives are at an earlier stage of their participation cycle.

 

The brokerage has assigned an ‘outperform’ rating to MCX with a target price of ~3,830, implying 15 per cent upside. It has given BSE an ‘underperform’ rating with a target of ~2,820, implying 18 per cent downside.

 

Bernstein expects equity options volumes to cool down with a growth of only 5 per cent year-on-year (Y-o-Y) in FY27, compared with 31 per cent growth in the first quarter. This is because lower volatility, tighter leverage norms for proprietary trading desks and impact of the closing auction session (CAS) weigh on activity. 

 

The brokerage expects the temporary CAS-related disruption to ease by October, but sees further pressure from tighter leverage norms through the second half of FY27.

 

For BSE, it expects market-share gains to continue through FY27 but peak by the fourth quarter. 

 

“FY28-29 growth will normalise to mid-teens as market volumes moderate and market share may peak out. We are around 9 per cent behind the Street on Q2FY27 volumes, and nearly 2-4 per cent behind on FY27-29 earnings. Growth normalising off a cliff and impending earnings cuts will likely pressure BSE’s valuations. We value BSE at around 32x FY28 EPS,” notes the report.  

 

MCX, meanwhile, is benefiting from rising participation in commodity derivatives. 

 

Contracts traded rose 4.3 times Y-o-Y in options and 2.1 times in futures, according to Bernstein.

 

The brokerage expects higher participation from retail equity traders, wider foreign portfolio investor/high-frequency trading participation and proposed harmonisation of margin requirements to sustain the momentum.

 

“We see exceptional growth momentum in contracts traded, and this can go on. Equity derivatives offer a long runway for cross-pollination (MCX is nearly 25 per cent by trader count, nearly 10 per cent by volumes). We believe this momentum will drive higher forecasts over the coming quarters. MCX also benefits from higher future gold prices (upside risk from global macro),” the report added.