SGX down 7.4% after India’s Nifty move

This article is more than 12 months old

The Singapore Exchange (SGX) stock took a hit yesterday amid doubts about the future of the market operator's Indian equity index-linked derivatives.

Analysts kept their ratings on SGX unchanged, preferring to watch how events unfold.

The SGX stock lost 58 cents to close $7.31 yesterday - down 7.4 per cent. Some 19.5 million shares changed hands.

This came on the back of India's announcement that its national stock exchanges will stop providing data feeds to foreign rivals, and eventually halt the trading of offshore derivatives tied to India's benchmark indices such as the Nifty 50, as part of a move to prevent trading volumes from moving overseas.

The SGX, which offers the popular SGX Nifty 50 index futures, was busy soothing market participants over the weekend. It said on Sunday the market for its entire India suite of products would operate as per normal yesterday.

At the minimum, it will be business as usual till August, the SGX said. Under its agreement with India's National Stock Exchange, there is a six-month notice period for termination.

Analysts at RHB Research, DBS Bank and OCBC Bank kept their ratings unchanged on SGX's stock, despite acknowledging that the Indian development was a negative.

OCBC maintained its "hold" rating, with a 12-month target price of $8.48 against its fair value estimate of $8.16.

OCBC analyst Carmen Lee said yesterday the termination of Nifty licensing could result in a "knee-jerk reaction on SGX's shares", along with downgrades that could dampen SGX's share price in the near term.

RHB Research kept its "buy" rating with a target price of $9, noting that SGX Nifty Index futures accounted for about 12 per cent of the exchange's total derivatives volumes during the latest quarter. It estimated that a 10 per cent decline in the derivatives average daily volume would lower the stock's fair value to $8.36, while a 20 per cent decline would drag fair value down to $7.71.

DBS analyst Lim Sue Lin, who has a $8.90 target price and a "buy" rating on SGX, said the share price could be under pressure in the near term, pending the resolution of the situation.

However, "SGX's stock price should still be supported by its stable and sustainable dividend yield of 4 per cent and its continued efforts to drive market liquidity and new product initiatives, which should bear fruit in the coming years, including the recently announced trading link with Bursa Malaysia".