Regaining lost glory

MCX, being the niche player it is, and operating in a space where there are no listed peers, has been a favorite of mine for some time now. I had mentioned it as a contrarian bet in Oct '13 when it had plunged to levels around 400. You can read about it here.

It had run into rough weather a few months ago and had dipped to abysmal levels. But mind you, this had nothing to do with its own performance, but that of its promoter company Financial Technologies (FT). Both of these shares had crashed to a fraction of what they were quoting few days back from when the NSEL scam broke out. Much water has flown under the bridge since then. Though the investigations have pointed fingers at FT and its headhoncho Jignesh Shah, there has been some sanity restored with the tainted members in MCX board being given the marching orders. MCX thus sports a clean board now with a decent standing. And FT and Jignesh Shah have been declared ‘not fit-and-proper’ to run MCX, which has since been challenged in court and the decision awaited. Whatever be the fate of FT and Jignesh Shah, it can certainly be said that for all practical purposes, MCX is now starting with a clean slate.

With all that has happened in the last few months, it would have indeed been surprising if it had been business-as-usual (BAU) at MCX. MCX reported a substantial decline in earnings for a second consecutive quarter. For the 3 months to December 2013, both topline and net earnings dipped as trading volumes fell by nearly 65% against the year-ago period. The dismal performance has been attributed to the application of commodity transaction tax (CTT) and the Rs. 5,600-crore scam at the group entity NSEL, which impacted the sentiments.

With the regulator FMC ordering MCX to throw out FT and Jignesh Shah as promoters, and their respective stakes to be reduced to not more than 2%, all that is set to change now. The stage is also set for a new promoter to take its reins. So it would be fair to expect that with all the clean-up having happened, MCX will now regain the premium it commanded not too far ago.

And people who reposed faith in MCX over the last few months and bought into it at 400-430 levels (or even lower at its 52-wk low of 238 in Aug ‘13) would have been laughing all the way to the bank. Since hitting those levels about 6 months ago, with all these developments happening, it has splendidly bounced back to levels of 550 currently, an absolute return of more than 25% in close to 6 months. And with its murky past behind it, a new management in place, and a new promoter likely to come in, it wouldn’t be too much to expect MCX to go some distance yet. So those who did not board it earlier still have a chance to do so now. And this opportunity may not last too long since the market is likely to discount the new-found potential as soon as the new promoter comes in.