stock market
Indian investors are borrowing more than ever to invest in the stock market. Due to this, the level of leverage (debt based investment) in the market is increasing rapidly, about which experts are expressing concern. He believes that if there is a big fall in the market, it can affect the entire financial system.
According to the latest data from CareEdge Ratings, India’s average margin trading facility (MTF) book grew by 65.4 per cent year-on-year to a record Rs 1.27 lakh crore by May 2026. It has also crossed the previous record level of January.
Market stable, but investment increased by borrowing
Interestingly, while investors are buying shares by borrowing, the overall trading volume in the market has remained almost stable. On the other hand, foreign institutional investors (FIIs) have withdrawn about Rs 2.8 lakh crore from the Indian stock market so far this year.
According to the report, the average daily turnover of the Futures and Options (F&O) and equity markets remained almost stable in May 2026. The cost of doing business has increased due to increased Securities Transaction Tax (STT) on derivatives trading, which has impacted trading activities.
How does MTF work?
Under MTF, an investor can buy shares of higher value by investing less capital. For example, if the broker gives a leverage of 3:1 then an investor can buy shares worth Rs 100 by investing Rs 25. The remaining Rs 75 is given by the broker as a loan. This may increase the profit, but the loss also increases manifold.
Where is the greatest danger?
The biggest concern of experts is that a large part of MTF is invested in such stocks which do not have sufficient liquidity. According to the report, about 50 per cent of the MTF book of the entire industry is in non-F&O stocks.
If there is a sharp decline in midcap or smallcap stocks, brokers will ask investors to deposit additional margin. If investors are unable to raise money, brokers will start selling their holdings. This may further accelerate the decline.
Risk may also increase for brokers
If shares continuously hit lower circuits and buyers are not found, the losses may fall directly on the brokers. Zerodha CEO Nithin Kamath has also expressed concern on this issue. He says that if there is a big fall in the market, brokers may have to suffer huge losses from MTF positions.
Keep an eye on new RBI rules in July
At present, the market has got some relief due to reduction in tension in West Asia, but the new regulatory rules of RBI to be implemented from July 2026 can play an important role in deciding the direction of the market.
Analysts believe that after the implementation of the new rules, there will be a real test of market liquidity, trading volume and the ability of investors to invest with the help of heavy leverage. In such a situation, fluctuations in the stock market may increase in the coming months.
