Why did MCX shares crash 15% on budget day? Check the Reason

Synopsis: MCX shares fell 15% on Budget Day as gold dropped 11% in five days and silver 21%, while a stronger dollar and Fed speculation dented volumes and near-term earnings visibility.

With a market capitalisation of Rs. 56,933 cr, the shares of Multi Commodity Exchange of India Ltd are currently trading at Rs. 2,232 per share, declining 15% in today’s market session, making a low of Rs. 2,146.25, down from its previous close of Rs. 2,524.95.

This is India’s first listed, national-level, electronic exchange, and India’s leading commodity derivatives exchange which offers the benefits of fair price discovery and price risk management to the Indian commodity market ecosystem is now in the  spotlight after it fell by 15% in today’s market session.

Historic crash in gold and silver 

Silver Futures on MCX are currently trading at Rs. 2,68,510 per kg , down by 8% from its previous close of Rs. 2,91,925 per kg. It delivered a 190% return over the past year, gained 14% year-to-date, and surged 140% over the last six months. However, it has declined by 21% in the past five days.

Gold futures on MCX are currently trading at Rs. 1,42,500 per 10 grams, recovering from today’s low of Rs. 1,36,185, though still lower than the previous close. Over the past year, gold has delivered returns of 72%, gained 4% year-to-date, and rose 40% over the last six months. However, it has declined by 11% in the past five days.

Since gold and silver account for the bulk of MCX’s trading volumes and revenue, such sharp corrections raised fears of lower turnover and weaker near-term earnings, triggering aggressive selling in MCX shares.

Profit-booking and stronger dollar hit metals

Investors booked profits aggressively after a robust rally earlier in precious metals, leading to a significant drop in prices from a sudden speculative unwind, particularly in silver as prices are deemed way out of line with its fundamentals.

COMEX silver prices fell by 14%, to $99.77 an ounce and COMEX gold prices fell below the $5,000 mark, but still on track to be the highest monthly performance since 1999. A stronger US dollar put increased downward pressure on both non-yielding assets such as gold and silver, and also impacted the price of 24-carat gold in India.

Fed leadership speculation

Further volatility was created by continued speculation of who will be the next Fed Chair, particularly around Kevin Warsh, who, according to prediction platform Polymarket, jumped from 35% chance earlier today to a probability of 94% to be nominated as the next Fed Chair.

Warsh is regarded as having a hawkish view of inflation, which caused 10-year US Treasury yields to rise 4.6 basis points at today’s close to yield 4.27%, contributing further to downward price pressure on precious metals. According to Fed funds futures, there is currently an 84.6% chance that the Federal Reserve will leave interest rates unchanged at its next meeting.

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