Global brokerages upgrade Multi Commodity Exchange of India over foreign access rules
Major international banks have upgraded Multi Commodity Exchange of India on expectations of increased foreign participation, though domestic analysts warn that new leverage regulations threaten trading volumes and justify the stock's high valuation.
Two major international banks have upgraded Multi Commodity Exchange of India in anticipation of broader overseas participation. UBS Global Research and JPMorgan raised their price targets following a regulatory proposal that would permit foreign portfolio investors to trade physically settled non-agricultural commodity derivatives.
UBS lifted its target to ₹3,800 and increased its earnings-per-share projections for the next three fiscal years. The brokerage contends that the pending regulatory changes will fundamentally expand market depth and serve as a vital driver of medium-term expansion.
JPMorgan increased its target to ₹3,500, describing the move as the most significant expansion of the overseas investor base in Indian exchange-traded commodity derivatives since 2022. Meanwhile, Jefferies global head of equity strategy Chris Wood added the exchange to his MSCI India benchmarked portfolio with a 4% allocation.
This institutional optimism is mirrored by significant accumulation among domestic mutual funds. ICICI Pru Midcap Fund maintains a 4.33% position, while Trust MF Small Cap Fund, Motilal Oswal Small Cap Fund and HSBC Midcap Fund also hold shares.
Financial results for the first quarter showed revenue climbing 88% to ₹7 billion. The exchange achieved this growth through a 47% rise in futures average daily turnover to ₹10.5 trillion and a 266% surge in options notional average daily value.
Looking ahead, UBS projects average daily transaction-fee revenue will stabilize near ₹98 million over the next two fiscal years. The firm anticipates that operating leverage will push margins to 77% by the 2028 financial year.
Dolat Capital presents a bearish counterargument, initiating coverage with a sell rating and a ₹2,400 price target that indicates substantial downside risk. The firm contends that market pricing ignores impending regulatory obstacles for proprietary trading leverage.
Revised central bank rules require proprietary traders to replace bank guarantees with commercial paper funding. Dolat estimates this transition will elevate funding costs from 1% to 11%, potentially rendering specific trading strategies unviable and depressing overall turnover.
Consequently, the brokerage reduced its turnover estimates and issued revenue and profit forecasts well below market consensus. Although the stock trades at roughly 40 times one-year forward earnings, skeptics argue the valuation remains excessive relative to a projected 15% profit compound annual growth rate.
