MCX share jumps 4% as FPIs allowed to trade in commodity derivatives

Multi Commodity Exchange of India (MCX) share rose nearly 4% in intraday trade on Thursday after capital market regulator SEBI allowed foreign portfolio investors (FPIs) to participate in the exchange-traded commodity derivatives market (ETCDs), a move that is likely to improve liquidity and increase depth in the commodity space. MCX facilitates online trading of commodity derivatives contracts across varied segments including bullion, industrial metals, energy, and agricultural commodities, as also on indices constituted from these contracts.

The board of Securities and Exchange Board of India (SEBI), in a meeting held on Wednesday, approved a proposal to discontinue the Eligible Foreign Entity (EFE) route, which required actual exposure to Indian physical commodities. As a result, foreign investors can participate in the commodity derivatives market with or without actual exposure to Indian physical commodities via the FPI route.

Cheering the news, shares of MCX gained as much as 3.82% to hit an intraday high of ₹1,324.10 after opening higher at ₹1,319 on the BSE. Reversing early gains, the stock was trading at ₹1,270, down 0.4% at the time of reporting.

Technically, the stock moves in a bearish range, trading higher than 5-day moving averages, but lower than 20-day, 50-day, 100-day, and 200-day averages. The midcap share has gained nearly 2% in a week, while it has fallen 7% in a month. The stock has delivered a negative return of 21% in calendar year 2022 and 16% over one year period. It currently trades 11% higher than its 52-week low of ₹1,142.40 touched on May 16, 2022, while it hit a 52-week high of 2,134.90 on October 14, 2021.

In a meeting held on Wednesday, SEBI permitted FPIs to trade in all non-agricultural commodity derivatives and select non-agricultural benchmark indices. Initially, FPIs will be allowed only in cash-settled contracts. Institutional investors such as Category III AIFs, mutual funds, and portfolio management services (PMS) have already been allowed to participate in ETCDs.

"The participation of FPIs in the Exchange Traded Commodity Derivatives (ETCD) market is expected to enhance liquidity and market depth as well as promote efficient price discovery," says a Sebi statement.

Currently, foreign entities having actual exposure to Indian commodity markets are allowed to participate in the Indian commodity derivatives market. However, FPIs being financial investors with huge purchasing power were not permitted to participate in the ETCD segment.