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    Rally in gold & silver spells more good time for this stock

    Synopsis

    With the weakening global economic situation and strong liquidity, the demand for gold and silver is expected to remain strong according to analysts.

    Gold and silverShutterstock.com
    Average daily values(ADVs) for gold and silver for July increased 84% and 350% respectively from their April lows.
    The allure of precious metals, honestly, pales before the platform where they trade: That’s the story at least so far this year.

    So, MCX could well be a better bet than either gold or silver. Its stock has gained 70% in the past three months, compared with 16% and 63% advances, respectively, in gold and silver prices.

    And historical data suggest that with rise in the price of precious metals, trading in those metals picks up sharply—both in terms of value and volumes. With MCX being the largest commodity exchange, it is a direct beneficiary of this.

    With the weakening global economic situation and strong liquidity, the demand for gold and silver is expected to remain strong. As a result, the strong cyclical rally in MCX, driven by rising bullion prices, is likely to continue.

    Average daily traded value (ADTV) has recovered well from its April lows. For July, it was Rs 35,000 crore against Rs 15,700 crore in April. ADTVs for gold and silver for July increased 84% and 350%, respectively, from their April lows. However, they are still significantly lower than the ADTVs for FY12 and FY13, years which saw a strong rally in gold and silver prices.
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    ADTVs in July for silver and gold were Rs 9400 crore and Rs 12600 crore respectively. Compare this with ADTVs in the two precious metals in the whole of FY12. It was Rs 13,600 crore and Rs 18500 crore for gold and silver.

    Besides, contribution from crude oil, which is very low at present due to higher margin requirements from SEBI, is expected to increase. Crude oil ADTV in July was Rs 3000 crore, down from Rs 14600 crore in the March quarter. Higher volatility in crude prices led SEBI to increase the margin requirement but it is expected to normalize now.

    Exchange businesses usually witness a strong operating leverage as rise in revenues does not lead to any meaningful rise in costs. Analysts expect the exchange’s operating profit to grow at over 20% for the next three years. Currently, the stock is trading at 34 times its estimated FY22 earnings. High earnings growth, along with a strong balance sheet and a 90% dividend payout track record, will keep the interest in the stock high.




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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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