For most of us, having ₹3,000 crore in personal wealth is unimaginable, let alone the idea of losing that amount in less than a year. Jignesh Shah lost just that, but no one is feeling sorry for him. The aggressive and ambitious founder-promoter of Financial Technologies India (FTIL) is grappling with the fallout of a crisis that has engulfed one of the country’s biggest spot commodity exchanges, the National Spot Exchange (NSEL).
The debacle began when NSEL — a company promoted by FTIL — suspended trading of its short-term contracts and decided to club the entire outstanding and settle them together. The ₹5,600-crore payment crisis that has since gripped the exchange has had a cascading effect on the fortunes of the listed promoter entity, FTIL, and also of MCX, the other listed commodity exchange. The stock prices have crashed by 85% and 72%, respectively, since January 1, 2013 to ₹167 and ₹406. Shah owns 45% and 26%, respectively, in both the entities.
Incidentally, MCX also holds minority stake in a few exchanges, promoted by FTIL, such as MCX-SX (5% equity interest, 33% economic interest through warrants) and 5% equity stake in Dubai Gold and Commodities Exchange. While MCX-SX is the number two currency derivatives exchange in India, after NSE, its equity exchange operations is a distant third, after NSE and BSE.
The irony escapes no one, considering both the stocks were counted among the Street’s favourites. In fact, just before the crisis broke out, Kotak Institutional Equities had, in May, initiated coverage on the MCX stock with a fair value of ₹990 a share, citing the exchange’s growing heft in the commodities business. Similarly, early this year, Karvy Stock Broking had put out a target of ₹1,446 for FTIL for its comprehensive role in the financial markets. Madhumita Ghosh, senior vice-president, research, Unicon Securities, says, “The damage is of a varied kind. The brand name has already gone for a toss for MCX and I don’t see any positive development in the stock, in the near future.”
There is also the risk of FTIL losing control over both the exchanges in the event the Forward Markets Commission deems it fit to remove the management and Sebi takes similar action with respect to MCX-SX, which falls under its regulatory purview. However, some see a positive rub-off in case of a management change. Harendra Kumar, MD, institutional equities, Elara Capital, says, “Though the process will take some time, once that [ownership change] happens, MCX might bounce back.” But as things stand today, the future is far from bright for FTIL and MCX.
