Margin trading warms up as derivatives fever cools

MTF book jumps 11% in May to record ₹1.27 trillion, while F&O activity stays flat

- Abhinaba Saha

Months after the Securities and Exchange Board of India (Sebi) moved to curb speculative trading in equity derivatives, India’s largest discount brokers have doubled down on margin trading to diversify revenue and shore up bottom lines.

The shift comes amid concerns that the surge in leveraged cash-market positions in margin trading facilities (MTFs) may worsen selling pressure during sharp market corrections. While Sebi did clamp down on speculation in derivatives, it has proposed measures to strengthen the rapidly growing MTF market.

India’s MTF book, which lets investors buy shares using broker-funded loans, hit a record ₹1.27 trillion in May, up 65% year-on-year and 11% over April, according to CareEdge Ratings. The growth contrasted with futures and options activity, where the average daily turnover was largely flat sequentially, as a higher securities transaction tax and Sebi curbs weighed on speculative trading.

Cash market average daily turnover, by comparison, rose almost 6% sequentially in May, as expectations of easing tensions in West Asia revived retail participation. The divergence points to a growing preference among retail investors for leveraged cash-market investing, aided by burgeoning broker-led funding channels.