Hot stock: SGX down 7% on Nifty futures exit; brokers maintain ratings

ANALYSTS kept their ratings on Singapore Exchange (SGX) unchanged on Monday as the stock fell 7.1 per cent amid doubts about the future of the market operator's Indian equity index-linked derivatives.

SGX stock lost 56 Singapore cents to S$7.31 apiece as at 10.22am on Monday. Some 9.2 million shares changed hands, making it one of the most active counters on the Singapore bourse in early morning trade.

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 concerted move to prevent trading volumes from moving overseas.

SGX, which offers the popular SGX Nifty 50 index futures, was busy soothing market participants over the weekend. In a statement on Sunday, the SGX said that the market for its entire India suite of products will open and operate as per normal on Monday.

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

As at 11.03am, there were 2,800 contracts traded for the SGX Nifty 50 Index Futures February contract, and three for the March contract.

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

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

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

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

"The impact on FY18 financials is seen as limited, but would be felt more so from FY19 onwards," RHB said.

"SGX has indicated that it would work on new product developments to help offset this adverse impact. We are not adjusting our earnings, as we await more information from the company on new products," the broker said.

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

Separately, FIA, a trade association for global listed and cleared derivatives market, said that India's move "appears likely to disrupt trading on numerous exchanges around the world and alarm international investors".

"We believe that accessible markets are essential for the optimal growth and development of liquidity, and allow customers to hedge their risks and manage their exposures in the most efficient way possible."

FIA added: "We look forward to discussing this announcement with the Indian exchanges and working with our members to more fully understand the consequences for derivatives markets and their customers."