Can We Ignore A “Deep Moat” Stock Backed By Rakesh Jhunjhunwala, Radhakishan Damani, Prof. Shivanand Mankekar, Kenneth Andrade & Prashant Jain?

When you gaze at the list of shareholders of MCX, the beleaguered commodity stock exchange, you will be stunned to see that almost all the savvy investors are sitting pretty in it with a sizable holding.

Rakesh Jhunjhunwala, the Badshah of Dalal Street, as usual, rules the roost with a holding of 20,10,000 shares. Radhakishan Damani, the investing legend, holds 6,82,247 shares. Prof. Shivanand Mankekar, the genius stock picker, is a recent entrant with 6,50,000 shares. The other big-ticket investors in MCX are Kenneth Andrade’s IDFC Mutual Fund and Prashant Jain’s HDFC Mutual Fund.

To understand the nitty-gritty of MCX, we have to turn to the expert analysis by Ankur Shah of ‘value investing India report’. It may be recalled that at the height of the NSEL scam & crises, when MCX was available at a throwaway price, Ankur Shah had argued that MCX should be bought on the logic that MCX had only suffered a “reputation loss” but had no “financial or legal liability’.

Now, in his latest article, Ankur argues that though MCX is no longer “undervalued”, it still merits a buy on the basis that it has an “excellent business” with an “84.9% market share in India’s commodities futures markets”. He also points out that MCX has a “moat” and that unseating it from its market leading position will be difficult.

Rakesh Jhunjhunwala also provided clear cut advice in his Diwali interview. He equated MCX to what CRISIL was in 1999. He called MCX “unique” and in an “unassailable” position. His words are worth quoting:

“If I want to have an investment in India’s financials, MCX is best because unique. It is a play on the trading and the hedging and the liquidity and the growth of Indian markets. To establish a near monopoly with 85-90 percent market share in commodities, I think it is unassailable position.”

Ravi Dharamshi of ValueQuest echoed the same logic in his latest interview. He said “Exchanges are wonderful businesses” because they enjoy 50% plus margins, have limited capital cost and are highly scalable. He equated buying MCX to buying the National Stock Exchange (NSE) in the early 90s when it was still in a development phase. He explained that there is huge scope available for MCX (such as opening of commodity markets to financial institutions or FIIs and introducing products beyond one month or options) and that it is now in the hands of a very good promoter.

The fact that Prof. Shivanand Mankekar has recently bought a huge chunk of 6,50,000 shares is another indication that MCX has a bright future ahead of it.

However, a dissenting opinion is provided by Prof. Sanjay Bakshi in his piece “Why I Still Don’t Like MCX” (pdf). The essence of the Prof’s argument is that MCX’s business is that of a “casino” or “gambling” and that it is “not good for civilization”.

From what I can make out, Prof. Bakshi’s allergy to MCX stems from sentiment, emotion & ethics. Perhaps, he has had a bad early-life experience that has put him off gambling and casinos. It is not a “hard nosed” “business approach” that is putting him off MCX.

So, in these circumstances, now the ball is in our court to decide what to do about MCX.