- Wealth PMS (50L+)
HDFC Prudence fund has bought Rs. 9 cr. worth shares of MCX, the commodity exchange that is run by Financial Technologies who also run the NSEL exchange where there is a potential default situation.
HDFC Prudence Fund has over 5,700 cr. in management, 65% of which is in equities. A 9 crore rupee purchase is simply too little – just 0.25% of their (minimum) equity portfolio, and 0.16% of their total AUM. They would have to buy more to make it a meaningful position – possibly 3x more for it to become a 1% of their account.
This comes after MCX has fallen down to 295 from the IPO price of Rs. 1032 in March 2012, and from 720 a month back.
Time will tell if MCX is a good buy or otherwise. I’ll look at interest separately but on the face of things there is no large impact on MCX interest by the NSEL issue (maybe 10% or so).
The bigger risk is if NSEL payments don’t happen, or are further mired in controversy. Or if there is an investigation that indicts some people who eventually control MCX. I’ll leave the quality of management issue for you to think about.
Even without this risk, MCX’s profits grew just 4% last year and now has a P/E of Five. However, with CTT, both revenues and earnings are likely to have dropped, so that’s a factor that any investor must consider as well.
Disclosure: no positions.