Margin trading book at record high in Nov, but growth rate dips

Mumbai: The money borrowed by investors through the Margin Trading Funding (MTF) – a facility that allows investors to borrow funds to buy shares – hit an all-time high in November but the pace of growth slowed from the previous month, weighed down by the underperformance in mid- and small-cap stocks.

The total MTF book stood at ₹1.15 lakh crore in November, against nearly ₹1.12 lakh crore at the end of October. In September 2024 – when the bull run was at its peak-the MTF book was at around ₹85,400 crore.

The increase in the MTF book in November was 2.7% compared with October, the slowest pace since May. In September and October, funds borrowed through MTF jumped 6.3% and 9.8%, respectively.

“The lack of action in the small and midcap stocks over the past six months led to the tapering of growth in the MTF book, declining as the majority of the leveraged bets were in this space,” said R Kalyanaraman, MD, BlinkX.

Kalyanaraman said a lot of money got sucked into the primary markets as well through IPOs and QIPs.

In margin funding, investors can purchase stocks by paying only a fraction of the total value, with brokers financing the balance at an interest rate.

The declining pace of growth in the MTF book, along with the record high level in its value indicates that there is less churn in the portfolio of positional traders, said Suresh Shukla, chief business officer (CBO) at SBI Securities. “Typically, traders churn their portfolios faster and use leveraged bets from MTF for the same,” he said.

In November, Nifty and Nifty Mid-cap 150 gained 1.9% and 1.6%, respectively, while the Nifty Small-cap 250 index dropped 3.4% in the same period. The market uncertainty to the average daily turnover of equity market trades on NSE declined to ₹90,076 crore in December – the lowest since November 2023 – compared with ₹1,04,576 crore in November and ₹98,740 crore in October.

“The market has remained sideways as Nifty failed to break its previous highs decisively and the broader market underperformed,” said Tejas Khoday, co-founder & CEO of FYERS Brokerage. “Until Nifty breaks the previous lifetime high sustainably, the MTF book is not expected to grow much.”

The underperformance in the broader market led to slower growth in the MTF book, which eventually led to the NSE turnover at two-year lows, said Kalyanaraman.”If traders are not committing to MTF then they are also highly likely to reduce trading in F&O and cash turnover,” he said.

Brokers usually provide a leverage of three to four times the margin amount. Most brokers charge interest in the range of 9-15% annually for such funding. Investors also pledge shares from their demat accounts as collateral to avail margin funding.

Shukla said if the market falls further from current levels, then the MTF book is expected to witness declines too. “Market is not bad currently, but there is a possibility of a time-wise correction,” he said.