Bernstein has initiated coverage on two major Indian exchanges with a preference over Multi Commodity Exchange of India (MCX) over the country’s oldest exchange BSE, as it expects growth in equity derivatives to moderate while commodity derivatives to enter a stronger phase of participation.
The brokerage has assigned an ‘outperform’ rating to MCX with a target price of ₹3,830, implying 15 per cent upside from its September 7 closing price of ₹3,330. It has given BSE an ‘underperform’ rating with a target of ₹2,820, implying 18 per cent downside from ₹3,446.
Multiple headwinds
Bernstein expects equity options volumes to grow only about 5 per cent on-the-year in FY27, compared with 31 per cent growth in the first quarter. Lower market volatility, tighter leverage norms for proprietary trading desks, the impact from the new closing auction session (CAS) and a high base from FY26 are expected to weigh on volumes.
It expects the temporary CAS-related disruption to ease by October, but sees further pressure from tighter leverage norms through the second half of FY27.
For BSE, the brokerage expects market share gains to continue through FY27 but peak by the end of the financial year. While BSE has increased its equity options market share from virtually zero to about 33 per cent over the past five years, Bernstein expects its revenue growth to increasingly track overall market growth from FY28.
“FY28-29 growth will normalise to mid-teens as market volumes moderate and market share may peak out. We are around 9 per cent behind the Street on Q2FY27 volumes, and nearly 2-4 per cent behind on FY27-29 earnings. Growth normalising off a cliff and impending earnings cuts will likely pressure BSE’s valuations. We value BSE at around 32x FY28 EPS,” the report said.
The brokerage is more optimistic about MCX as commodity derivatives remain much smaller than equity derivatives, leaving significant room for increased participation. Contracts traded on MCX rose four-fold year-on-year in July, while August volumes were up 2 per cent from July, with September trends also showing an increase.
Commodity momentum
More retail equity traders are expected to move into commodities as brokers seek to diversify their revenue streams. It is also factoring in potential benefits from wider foreign portfolio investor participation and proposed harmonisation of margin requirements. Commodity options contracts have already shown strong momentum, rising 4.3 times year-on-year, while futures contracts increased 2.1 times.
The brokerage is 10-12 per cent ahead of consensus on MCX’s FY27-28 earnings, while it is 2-4 per cent below consensus for BSE. It expects the earnings upgrade cycle for MCX and the normalisation of growth at BSE to increasingly differentiate the two stocks.