Equity Margin Funding Crosses ₹1.2 Lakh Crore Amid Market Recovery

Margin funding activity in the equity market recovered in April after witnessing pressure in March, pointing to a return of leveraged trading as investor confidence improved.

The average margin trading funding (MTF) book across the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) rose to ₹1.14 lakh crore in April after slipping more than 5% in March to ₹1.13 lakh crore. It had also stayed above ₹1.2 lakh crore on average in May, according to exchange data.

The recovery came at a time when equity markets staged a strong comeback. The Nifty gained 7.5% in April after dropping more than 11% in March, marking its best monthly rise since December 2023. Broader markets performed even better. The Nifty Midcap 150 Index climbed 13.2%, while the Smallcap 250 Index jumped 17.1% after both indices had seen sharp declines in the previous month.

Why Did Margin Funding Activity Increase?

Market participants said traders who had reduced exposure during March’s volatility returned to the market in April as sentiment improved and risk appetite increased again.

The sharp rebound in mid-cap and small-cap stocks played a major role in bringing back leveraged bets. Investors who had stayed cautious during the correction phase began rebuilding positions as prices recovered quickly across broader markets.

A calmer market environment also supported fresh buying activity. Many traders exited early as volatility spiked, but confidence returned once the market stabilised and found a temporary bottom.

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Are Traders Moving Away From F&O?

Another factor supporting the rise in margin funding is the tighter regulatory environment in the derivatives segment.

Market experts said margins in the futures and options segment have become significantly higher, making margin funding comparatively more attractive for traders looking to take equity exposure with lower upfront capital.

Under the MTF route, investors can buy shares by paying only a part of the total trade value, while brokers finance the remaining amount. Interest rates on such funding typically range between 9% and 15% annually.

Leverage in margin trading generally ranges between three and four times the initial margin, with shares pledged as collateral.

Moreover, enhanced surveillance on volatility and margin levels has improved the risk management system, and hence there are fewer risks of speculation, while giving room for investors to take advantage of the economic recovery.

Source:

The Economic Times