MCX shares hit record high after SEBI approval to launch electricity derivatives — Here is how IEX benefits

Shares of Multi Commodity Exchange of India (MCX) Ltd. have surged as much as 7% on Monday, June 9, to a record high after the exchange services provider received approval from the Securities and Exchange Board of India (SEBI) for the launch of electricity derivative contracts.

In response, shares of Indian Energy Exchange Ltd. also gained up to 5%, as it is the largest player in the country's spot market.

IEX has an agreement with MCX for its underlying prices. MCX had earlier mentioned it will share up to 10% of transaction fees on revenues.

While, the Central Electricity Regulatory Commission (CERC) regulates physical delivery, SEBI regulates electricity derivatives.

Last month, SEBI granted Stock Exchange (NSE) an in-principle approval to launch electricity derivatives. NSE is likely to enter into an agreement with IEX.

Last week, brokerage firm JM Financial initiated coverage on IEX with a "buy" rating and a price target of ₹231 per share, implying a potential upside of nearly 14.3% from its previous closing price of ₹202.13 apiece.

JM Financial said that the short-term power market, which is 7% of the total generation, is growing at 18% in comparison to demand growth of 5%-6%.

Its growth is driven by increasing share of variable renewable energy, and new market instruments such as virtual power purchase agreements (PPAs), JM Financial said.

The brokerage added that IEX, with 84% market share, has consistently adapted to market dynamics by consistently introducing new products.

It believes that the risk-reward is not in favour of market coupling, the current overhang.

Shares of IEX gained 6.56% to hit an intraday high of ₹215.4 apiece. The stock has gained over 17% this year, so far. MCX shares gained nearly 7.5% to hit an all-time high of ₹7,971 per share. The stock has gained 38.9% in the past month.

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