Sebi nod for MCX will lead to new trading products: Jagannadham Thunuguntla, SMC Capital

In a chat with ET Now, Jagannadham Thunuguntla, Equity Head at SMC Capital, shared his views on Sebi approving the MCX.



ET Now: Your first take on this particular news and what it really means for shareholders of MCX as well as Financial Technologies?

Jagannadham Thunuguntla: One, it is a very, very significant development. For a country which is known for two stock exchanges, finding one more altogether is not a small event. Moreover, new competition can give a new level to the whole system -- be it brokers or investors. It may help reduce transaction costs as well.

BSE and NSE are already in tough competition and MCX SX, with all its innovative and aggressive management skills, can come out with new products. All in all, a very significant development. Also, products like interest rate futures which could not take off earlier may find a new house for their development.

For shareholders, it is a very significant development. Anyone with a medium- to long-term view can easily stay invested. If they already have positions, they can add more. It should be a significant development. Moreover, when Financial Technologies will eventually reduce its stake below 5 percent, it has to offload some holding and so as a company, it will gain more and more cash. That can help it grow in other segments of the business. Overall, it is a very significant development for the Indian capital market.

ET Now: A third exchange for a trader means better services, low spreads and low brokerage. But for a shareholder of Financial Technologies and MCX, this is more neutral news because the shareholding will fall to just 5 percent in the next 18 months and this entire upmove will not be captured.

Jagannadham Thunuguntla: That is true but they came into the big game of equity and that itself is very positive news because earlier there was a big legal overhang. There were uncertainty risk, etc., and that got cleared and it is mildly positive news to that extent. As far as offloading is concerned, I do not think even the MCX group will complain much because it has always maintained that it wants to be an umbrella service for all its products.

Moreover, we have to remember the management already has the skill set and experience of handling large-scale exchanges, meaning they do not need much additional hard work in putting together everything. They are already a part and parcel of the game.

ET Now: Give me a reason why traders should shift to MCX?

Jagannadham Thunuguntla: Shifting to Financial Technologies is an obvious choice and shifting to MCX is more of a sentimental reason. When the MCX IPO was launched, there was a school of thought that it may have been slightly expensive. Now considering the new avenues, the questions about valuation may get addressed to an extent. So some investors who were staying away on valuation concerns will step into the game now.

ET Now: MCX rose 8.5 percent in the last five days, it is at Rs 1,156; Financial Technologies fell 1 percent in the last five days and yesterday it shut shop at Rs 753. Where do you expect a bigger pop today?

Jagannadham Thunuguntla: It should be held very healthy. What we have to remember is during the MCX IPO, Financial Technologies went all the way to Rs 950 and has cooled off from that point. After this news, the stock may move towards that Rs 950 level again and that dilution point is the only hiccup or the main challenge.