SEBI commodity rule change triggers MCX rally, brokerage upgrades
India's market regulator proposed expanding foreign investor access to physically settled commodity derivatives, prompting analysts to sharply raise profit forecasts for the Multi Commodity Exchange.
The Securities and Exchange Board of India (Sebi) issued a consultation paper on Tuesday proposing to allow Foreign Portfolio Investors (FPIs) to trade physically settled non-agricultural commodity derivatives. At present, overseas investors are strictly confined to cash-settled contracts, even in the case of index derivatives. Sebi wants to remove this barrier, noting that because index derivatives are always cash-settled anyway, there is no operational reason to restrict them based on the settlement method of the underlying contracts.
The proposal immediately lifted shares of the Multi Commodity Exchange (MCX), which gained 2% on the day. Wall Street brokerages responded by sharpening their bullish stances on the exchange operator. JPMorgan upgraded MCX to 'Overweight' from 'Neutral' and raised its target price to Rs 3,500 from Rs 2,560, implying a 21% upside from the previous close of Rs 2,895.
Jefferies, which maintains a 'Buy' rating with a Rs 3,600 target representing over 24% upside, quantified the potential revenue windfall. FPIs currently account for 5-6% of cash-settled commodity futures and options turnover. Expanding this participation to physically settled non-agricultural contracts could boost MCX's profits by 3%. Furthermore, developing the currently dormant commodity index options market could add another 10% to earnings if volumes reach 10% of monthly equity average daily turnover over three years.
Morgan Stanley highlighted that FPIs accounted for roughly 4% of total notional turnover in the last financial year and 2% in the first quarter of the current year, noting their footprint is naturally larger in the permitted cash-settled segments. Sebi framed the reform as a strategic move to mature the domestic market. "It would also facilitate greater integration of India's commodity derivatives market with international commodity markets and support the development of Indian commodity contracts as credible price discovery venues," the regulator said.
The regulatory tailwind adds to a remarkable run for the exchange operator. MCX shares have gained 13% in the past week and 6% over the past month, pushing the year-to-date advance to 33% in 2026. Over a one-year period, the stock is up 79%.
Looking further back, the exchange has delivered returns of 828% over three years and 868% over five years. MCX currently holds a market capitalisation exceeding Rs 73,968 crore.
