On Wednesday, shares of Multi Commodity Exchange of India (MCX) surged by as much as 5%, reaching an intraday peak of ₹8,034.65 on BSE. This spike on Wednesday followed comments from SEBI Chairman Tuhin Kanta Pandey about additional steps to enhance the depth of the country’s commodity markets and to attract institutional investors.
What SEBI had to say
Pandey also noted that the market regulator is working with governments to allow banks and pension funds to take part in trading on commodities. At the moment, a plurality of market participation in commodities is restricted to traders and some institutions, but the expansion of larger participants such as banks and pension funds should help to enhance liquidity and mitigate instability.
He also mentioned that SEBI is considering a plea to take approval for Foreign Portfolio Investors (FPIs) participation in non-cash settled, non-agro derivatives contracts. If included, it will open up the markets further to global investors and will make the markets deeper and competitive.
Moreover, Pandey discussed the creation of a working group on agricultural and non-agricultural commodities. The goal of this group will be to identify challenges, eliminate bottlenecks, and encourage higher trading volumes across commodity market segments.
Underlying significance-
These actions could provide a strong structural push to exchanges like MCX. The entrance of banks, pension funds, and FPIs will likely result in a commodity market with higher participation, increased liquidity and greater investor confidence. For MCX, India’s largest commodities derivatives exchange, this may mean greater trading volumes and a better long-term growth position.
The remarks by the SEBI Head prompted a strong rebound in investor sentiment and a correspondingly sharp increase in MCX’s share price during the session.
MCX stock performance
MCX has proven to be one of the strongest stocks in the market so far. It has seen a solid 41.66% appreciation over the last year, which shows increasing investor confidence. On a year-to-date (YTD) basis, it has appreciated 27.44%, and in the last six months alone has appreciated 61.54%.
In the near term, however, things have been a little less rosy. The stock has only risen 1.08% in the past three months and 1.71% in the last month as investors have started to take profits after the sharp rally earlier in the year.
Future Outlook
With the proposed SEBI reforms, observers of the market anticipate a greater role for institutional investors in the commodities space. If the reforms do take place, certainly, MCX stands to gain the most as the higher participation level and liquidity would likely result in increased trading activity and revenues over the years to come.
