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Futures volumes remain tepid; growth in options volumes continues to impress

The key question for MCX is its ability to recover lost volumes post the impact of the higher-margin trading norm and establish business traction in new products. Basis H1FY22 ADTV and Oct’21 trend, we factor-in futures/options (notional) ADTV of Rs300bn/80bn for FY22E and Rs400bn/200bn for FY23E. We continue to reiterate that ADTV recovery need not necessarily be linear and MCX remains one of the better plays on commodity price volatility. While any significant traction in optionalities (table 4) remains distant, increase in options volumes can become a strong investment thesis. Maintain ADD with a target price of Rs1,965.

* Nov’21 futures’ ADTV* is trending at Rs247bn, down 16% MoM. This sharp decline in ADTV was due to dip in natural gas’ ADTV by 44.5% MoM (85% in volume terms, 15% in price) to Rs38bn. Crude ADTV also fell 12% MoM entirely due to lower volumes. Base metals too remain weak with 22-40% slump for ALNZ** and 8.5% for copper MoM. Bullion provided support to overall futures volumes with gold / silver ADTV rising 11% / 4% MoM (table 1). On weekly basis, ADTV has improved from Rs217bn in the week ended (W.E) 5th Nov’21 to Rs250bn each in W.E 12th November and 19th November. For the current week (data upto 24th Nov’21), ADTV has been Rs275bn.

* Crude futures’ ADTV remains at ~Rs40bn vs average of Rs130bn pre-covid. This remains a key problem for MCX. While the negative price fiasco and high margins impacted the volumes in FY21, shift to options could be playing out in FY22 for this segment.

* Are volumes shifting to options? Gold gaining traction after crude. We have seen good traction in options segment despite transaction charges levied by the Company from Oct’21 onwards. MCX options’ ADTV in Nov’21 is Rs105bn, up 23% MoM driven by 137% MoM increase in gold ADTV to Rs15.2bn. Crude continues to maintain a dominant share of (80-90%) in overall options ADTV and its ADTV rose 13% MoM. Expecting options’ ADTV to continue its momentum, we estimate MCX to generate Rs200mn from options turnover in FY22 and Rs700mn in FY23 (first full year of charging).

 Options can generate significant revenues if growth is maintained. Options ADTV have increased from Rs20bn in May’21 to Rs105bn in Nov’21. At this rate, if volumes reach Rs600bn (2x futures volume), the revenue pool from this segment itself would become Rs2bn (assuming rates remain same). In NSE, equity options (notional basis) have >40x higher volumes than futures.

* ADTV estimate breakup: H1FY22/Oct-21 futures’ ADTV has been Rs272bn/300bn. We factor-in Rs327bn / 300bn / 400bn for H2FY22E / FY22E / FY23E, respectively. H1FY22 and Oct’21 options’ ADTV has been Rs40bn and Rs85.5bn respectively. We factor-in Rs119bn/80bn/200bn options for H2FY22/FY22/FY23E, respectively.

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