MCX: Can CTT reverse the gold rush? - Ambit

The imposition of the Commodities Transaction Tax (CTT) from 1 July 2013 substantially hit demand (down 50%) in non-farm commodities on MCX. In combination with the recent curbs on margin funding for gold imports, this is likely to significantly moderate the demand for gold, thereby suppressing investment demand and financially hurting MCX's business model in two ways: (1) constricting speculative demand and commodity prices which impacts the value traded on both price and volume, and (2) scaring away arbitrage volumes to alternate asset classes, reducing market depth. This is the manifestation of the long-term risks in MCX's business model which we had highlighted during its IPO (in March 2012) and in subsequent research as well.

The CTT could have a positive effect on the current account deficit and demand for US dollars, which could thereby support the INR.

Source : Equity Bulls

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