Margin funding at new high despite tepid market show

The domestic stock market turned in modest returns in 2025, but risk-taking through the use of the margin funding facility touched new highs during the year. The benchmark indices—BSE Sensex and Nifty 50—ended the year with gains of 9% and 10.5%, respectively. At the same time, the margin trading facility (MTF) — a short-term loan facility extended by brokers to investors for shortfalls during trading – saw a year-on-year rise of 44% in December to hit Rs 1.17 lakh crore, its highest ever. 

The rising appetite for leveraged equity exposure among Indian investors has been on the rise, with doubling of MTF volumes in two years. The volume was at Rs 57,018 crore in January 2024.

“Margin positions are rising because investors aren’t signalling fear—despite volatility, they still believe there’s money to be made, so they are holding and even averaging down rather than exiting,” said a CEO of a domestic brokerage. He added, “Even with a flat market, traders are keeping leverage intact. It shows confidence that short-term pain won’t derail the medium-term opportunity.”

What did Dhiraj Relli say?

Agreeing with this view, Dhiraj Relli, MD & CEO, HDFC Securities, said, “HNIs, experienced investors and high-risk customers are utilising the opportunities to increase their returns by leveraging (MTF).” He noted that high volatility in specific counters and short-term spurts are key drivers. “We have time and price corrections in the broader markets, though headline indices are at near all-time high levels. The better-than-expected earnings growth in Q2 and even stronger earnings growth in FY27 are creating leverage options,” Relli added.

“MTF’s rise is being fuelled by its appeal as a regulated, transparent, and relatively safer leverage option compared to futures and options,” said Shripal Shah, MD & CEO, Kotak Securities. He pointed out that investors are increasingly considering MTF over personal or other loans when seeking leverage in the stock market.

What does MTF offer?

QIts simplicity—paying part of the stock value upfront while brokers finance the rest—has made it attractive to opportunity-driven, cost-conscious investors, including experienced traders, HNIs, and tech-savvy market participants. Importantly, MTF extends leverage to stocks beyond those covered under F&O, widening the scope of participation. ICICI Securities (18%) and Kotak Securities (15%) together dominate the segment, controlling nearly one-third of the market.

However, Suresh Shukla, Chief Business Officer at SBI Securities, is sceptical about MTF touching an all-time high. He said, “The headline number alone doesn’t tell the full story. If you look closely, the last two to three months haven’t seen the same momentum. The rally hasn’t been a breakaway one, and broadly, people aren’t making money. Positions are stuck, and until markets move decisively or investors rotate out of older trades, the MTF book won’t see meaningful action.”

While Rs one lakh crore looks like a big number, in the context of India’s market size, it’s not very significant. Retail cash turnover alone is Rs 80,000 crore to Rs one lakh crore every single day, and the country has nearly five crore active clients. Compared to the open interest in derivatives, the MTF book is minuscule. “It looks large only because many brokers who never touched margin funding earlier have entered the space in the last couple of years,” said Shukla, noting that apart from traditional brokerages, new-age discount brokers have also joined the fray and are developing sizeable MTF books.

“In a bull market, once investors make money in a couple of stocks, the instinct is to amplify returns through leverage. That’s exactly what we saw in the last four years of the rally. The trend slowed only because the last year hasn’t been a runaway market. If the market resumes its upward trajectory, MTF demand will pick up again,” Shukla added.

MTF is a direct function of market sentiment. When markets trend up, investors naturally take more leverage. “MTF is redefining how Indian investors participate in equity markets by enabling them to amplify buying power—and with penetration at just 0.25% of India’s market capitalisation (versus 1.8% in the US and approximately 2.3% in China)—the potential for expansion remains immense, said Shah of Kotak Securities.

Fifteen years ago, margin funding was a different world—brokers could decide margins at their discretion. Today, every stock’s margin is prescribed by the exchanges and SEBI. The risk framework has been completely overhauled, and safety buffers are significantly higher. That’s why experts don’t see MTF as a cause for concern.

“High margin volumes reflect a simple sentiment that investors don’t see a negative turn ahead. If they did, they would be cutting exposure, not carrying positions at record levels,” said a CEO of a domestic brokerage. With penetration levels still far below global benchmarks, MTF is expected to expand rapidly, deepening equity participation and reshaping how Indian investors approach leverage in the years ahead.