Global financial services firm UBS has revised its rating for Multi Commodity Exchange of India (MCX) shares to 'Buy', setting a new price target of Rs 3,800. This upgrade comes after a 15 percent correction from its May peak, with UBS highlighting the stock's current valuation at 40 times its 12-month forward price-to-earnings (PE) ratio, representing a more than 10 percent discount to its three-year average.
Key Drivers for the Upgrade
UBS's decision is underpinned by several factors pointing to MCX's potential for medium-term growth and resilience:
- Attractive Valuations: Following a recent market correction, MCX shares are now considered reasonably valued, trading at a discount compared to historical averages.
- Volume Resilience: The brokerage noted a stabilization in MCX's average daily transaction fee revenue, currently around Rs 9.9 crore in August month-to-date, slightly exceeding earlier expectations.
- Regulatory Tailwinds: A significant catalyst is SEBI's recent consultation paper, which proposes allowing Foreign Portfolio Investor (FPI) participation in physically settled non-agricultural commodity derivatives and non-agricultural index derivatives. UBS believes this move will structurally deepen the commodity market and serve as a crucial growth driver for MCX.
- Commodity Volatility: Persistent high volatility in key commodities, driven by an uncertain macroeconomic environment, is also expected to benefit MCX.
Revised Earnings Estimates
In line with its optimistic outlook, UBS has increased its earnings per share (EPS) estimates for MCX. The brokerage raised its EPS projections for FY27, FY28, and FY29 by 4 percent, 8 percent, and 9 percent, respectively. The new price target of Rs 3,800 is based on a 44 times September 2028 estimated PE, aligning closely with the company's three-year average.
Previous Stance and Current Shift
Notably, UBS had previously downgraded MCX shares due to concerns over softer volumes. However, the combination of stabilizing transaction fee revenue, more attractive valuations post-correction, and the promising regulatory changes has prompted this re-evaluation and subsequent upgrade to a 'Buy' rating.
The firm anticipates that the proposed FPI participation will not only deepen the market but also unlock significant re-rating potential for MCX as the commodity derivatives segment evolves.