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 has initiated coverage on India’s two major listed exchanges with a preference for Multi Commodity Exchange of India (MCX) over BSE, arguing 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, while giving BSE an ‘Underperform’ rating with a target of ₹2,820, implying 18 per cent downside.

 

Bernstein expects equity options volumes to cool, growing only 5 per cent year-on-year in FY27 compared with 31 per cent growth in the first quarter, as lower volatility, tighter leverage norms for proprietary trading desks and the 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.

BSE market-share gains may peak by Q4

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

 

“FY28/29 growth will normalize to mid-teens as market volumes moderate & market share shifts 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 normalizing off a cliff & impending earnings cuts will likely pressure BSE’s valuations. We value BSE at around 32x FY28 EPS,” the report noted.

 

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

 

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

 

The brokerage expects greater participation by retail equity traders, wider foreign portfolio investor and 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 offers a long runway for cross-pollination (MCX is nearly 25 per cent by trader count, nearly 10% by volumes). We believe this momentum will drive higher forecasts over coming quarters. MCX also benefits from higher future gold prices (upside risk from global macro),” the report added.