Regulatory tailwinds to boost growth
The regulator is taking multiple steps to broaden India’s commodity derivatives market, and MCX is the single largest beneficiary. Two consultation papers — one proposing FPI participation in non-agricultural index derivatives and in non-cash-settled (deliverable) contracts, the other rationalizing the master-circular architecture — sit alongside a parallel easing of margin and SGF requirements. Together they address the three constraints that have capped the commodity segment: participant base, product breadth, and cost of capital (margins). In Q1FY27, options notional ADT rose 3.6x YoY to INR 9.9trn, options premium ADTV doubled (2.1x) to INR 90.9bn, futures ADT grew 47% YoY, and the traded client base doubled to 15.8lakh, with traded UCCs up ~65%/105% YoY in futures/options. Even after this run, commodity notional/premium is only ~3/13% of equities notional/premium. The headroom is structural, not cyclical, leaving room for volume expansion and product innovation.
MCX premium today is narrowly concentrated: crude oil and natural gas account for ~75% of options premium, while physically settled bullion contracts contributes only ~25%. Bullion has scaled meaningfully only over the past year, following the shift to monthly expiries and the introduction of mini contracts with smaller lot sizes—1/10th for gold and 1/5th for silver. FPIs account for just ~3% of MCX’s volumes vs ~16% at equity exchanges and are confined to only cash-settled contracts. Allowing FPIs into deliverable contracts will boost bullion and metals options volume. This along with Index options on bullion and metals can drive the next leg of growth — we see ~20-25% premium accretion. Additionally, reduction of margins on crude (currently at ~30%), gold (~10%) and silver (~10%) is an additional lever and can partially absorb the impact of banks guarantee-related changes. The impact due to reduction of bank-guarantee exposure for prop traders will be gradual (max impact 10-15%); however, we don’t see any major impact immediately. We keep estimate for FY28/29E unchanged and maintain BUY with a TP of INR 3,600, based on 45x June-28E core PAT (43x on Jun-28E EPS) plus net cash ex-SGF.
