Explained: Why Bernstein prefers MCX over BSE as volumes plummet amid CAS chaos

International brokerage firm Bernstein has initiated coverage on BSE and MCX, taking a more favourable view on the commodity exchange while turning cautious on BSE as equity derivatives volumes moderate and the impact of the closing auction session becomes clearer.

Bernstein has initiated coverage on BSE with an Underperform rating and a target price of Rs 2,820, implying a downside potential of up to 17% from the stock’s last closing price of Rs 3,394. In contrast, the brokerage has assigned an Outperform rating to MCX with a target price of Rs 3,830, indicating 15% upside from current levels.

Bernstein on MCX

The brokerage sees strong momentum in commodity derivatives and believes the participation wave is still at an early stage. The brokerage noted that contracts traded on MCX have shown exceptional growth momentum, which it expects to continue and drive higher forecasts in the coming quarters. It is already 10% ahead of consensus on Q2FY27 volumes and FY27 earnings.

Commodity derivatives volumes grew fourfold year-on-year in July 2026 and rose 2% month-on-month in August, with September trends also moving higher, Bernstein said. It attributed the growth momentum to the relatively low penetration of commodity derivatives compared with equity derivatives, both by trader count and volumes.

Bernstein noted that commodity derivatives account for around 25% of equity derivatives’ active traders and about 10% of option volumes, leaving room for further participation. Retail brokers are also pushing awareness and participation in commodity derivatives as they look to diversify away from equity index options, build their next leg of growth and offer round-the-clock options trading, given the longer trading hours in commodities.

The brokerage is also positive on gold prices, although it has not factored potential upside into its forecasts. MCX futures segment revenues have direct linkages to gold and silver prices, with higher prices translating into higher turnover. Bernstein currently factors in a modest 2% quarterly rise in gold prices but believes there is room for a positive surprise. It expects global central banks to resume gold purchases and policymakers to remain incentivised to keep real yields low.

Bernstein also sees regulatory developments supporting commodity derivatives. It said the FPI consultation paper is positive for the segment and could open the door to FPI HFT participation in bullion futures and options. While the brokerage expects a volume uptick from this, it has not included the potential impact in its estimates.

Why is Bernstein bearish on BSE?
Bernstein believes the implementation of the closing auction session and its impact on equity index derivatives is now well understood, while current volume trends remain below the levels embedded in consensus estimates. The brokerage is 9% behind on Q2FY27 volumes and 3% behind on FY27 earnings, pointing to the possibility of near-term volume and earnings cuts.

The bigger concern for Bernstein is the normalisation of BSE’s growth and how that could affect valuations. BSE has benefited from strong market volumes and market share gains over FY23-FY26, with EPS delivering a 120% CAGR. However, the brokerage expects earnings growth to moderate from more than 270% in FY23 and 70-90% in FY25/FY26 to around 15% in FY28/FY29.

Bernstein said BSE’s market share gains are likely to peak out in FY27, with most of the gains accruing by Q4FY27. As market volume growth and share gains cool, the brokerage expects BSE’s growth to normalise to the mid-teens. It is around 9% behind consensus on Q2FY27 volumes and 2-4% behind on FY27-FY29 earnings.

The brokerage said exchanges have delivered handsome returns as the wave of retail participation has boosted earnings and valuations. However, given the speculative nature of this growth, Bernstein believes investors need to look beyond top-down factors and focus on a framework based on near-term volume trends, which will drive earnings revisions and valuations.

The development gains significance as stock exchanges acknowledged that the newly introduced Closing Auction Session (CAS) had resulted in lower trading volumes.

Last month, NSE’s total monthly equity derivative turnover stood at Rs 34.48 lakh crore, the lowest since November 2023. BSE’s August turnover stood at Rs 32.2 lakh crore, the lowest since June 2025.

Domestic brokerage firm ICICI Securities suggests that BSE’s premium ADTV stood at Rs 18,700 crore in August, down 26.5% from Rs 25,400 crore in July. For the second quarter, premium ADTV stood at Rs 22,000 crore, down 25.7% from Rs 29,700 crore in the first quarter.



BSE’s average daily option contracts traded stood at 98 million in August, down 34.5% from 150 million in July. BSE’s average daily option contracts traded in the second quarter stood at 124 million, down 20.2% from the Q1FY27 average of 156 million.

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Bernstein values MCX at around 45x FY28 EPS, while it values BSE at around 32x FY28 EPS. The brokerage said the divergence in growth and earnings revision cycles is driving its preference for MCX over BSE, with continued growth momentum and potential earnings upgrades likely to support MCX’s valuation.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)