MCX expects options to be launched by this year-end, with trading to begin in 4QFY17. The securities and exchange board of India (Sebi) is unlikely to provide approval for the entire basket of commodities, but may start with one or two commodities and gradually bring more into the fold.
The launch of options may have a hockey-stick effect on volumes – some cannibalisation of futures volumes to start with. However, it will drive growth of the overall market over the medium-to-long term.
While MCX may need to set aside R3b worth of cash in its clearing corporation subsidiary, it does not need any significant incremental investment toward infrastructure of the same.
MCX also floated a circular last evening notifying the hike in transaction charges effective October 1, 2016 to the extent of 24-25%. We factor the same in our estimates, and our earnings are revised up by 12% for FY17E and 17% for FY18E. This appears lower given the operating leverage, mainly because we have also moderated our expectations on volume ramp-up from options .
With the SEBI’s reforms underway, our base case assumes a return to pre-commodities transaction tax (CTT) average daily turnover of R500 billion by end-FY18. This compares with current ADT of R250 billion. Our revised price target is R1,400, which discounts forward earnings by 30x. Buy.
