I personally feel that there is nothing substantially negative happening in MCX to warrant the sharp correction. At the same time, we must view the correction in the context of following
– Market has corrected significantly in last 2 months
– on FY 16 normalized earning of 120-150 odd crores, company is trading at 25-30 times earnings even after correction.
– FMC-SEBI merger has been consummated but the positive impact of same has yet to reflect in policy changes (Bank/FII participation, options in commodity etc)
– Commodity prices have been very volatile and is on sharp downward trajectory. As you must be knowing, MCX charges transaction fee on value of the contract and not on volume. Thus, higher volumes traded on the exchanges are countered by lower price of the commodity and hence the value traded on the exchange has remained largely constant (not reflecting higher volumes)
Thus, I feel that the long term investment hypothesis remains valid. At the same time when and how some of the catalysts/tailwinds will play out is hard to predict. However, business remains strong as ever in my opinion. As I had said earlier, I am looking at MCX from a 10 year story perspective and my conviction levels has increased in it post FMC-SEBI merger.In my view, it is an event which will have far reaching positive impact for MCX in the long run. In fact, around 750-800 odd levels, it looks very interesting to further add up.
Disclosure: 10% holding with average price of 450
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