Capital market stocks soar after RBI redirect on norms

Mumbai: Shares of capital market companies soared Wednesday after the banking regulator deferred by a quarter the implementation of new lender exposure norms that would have raised capital costs for brokers and reduced leverage for proprietary traders.

“The Reserve Bank of India has since received representations from banks, capital market intermediaries, and various industry associations seeking an extension of the effective date, and also flagging certain operational and interpretational issues for clarification,” the central bank said Monday. The Indian markets were shut on Tuesday.

The new directions on capital market exposure were originally to be effective from April 1.

These rules mandated that brokers provide 100% cash or cash equivalent collateral for borrowings from banks for intraday working capital or margin requirements as well as margin trading facility (MTF).

Shares of Billionbrains Garage Ventures (Groww), Motilal Oswal Financial Services, BSE and Angel One and Anand Rathi Share and Stock Brokers surged 6-8%. The Nifty 50 ended 1.6% higher at 22,679.40.

Roop Bhootra, whole-time director, Anand Rathi Share and Stock Brokers, said he sees some temporary relief in the market following RBI’s decision. Participants have already been hit with higher STT charges on futures and options trading April 1 onward.

“While this is only a timeline extension and not a relaxation of the regulations, we expect broking industry associations to engage with the regulator to reassess these provisions,” he said. Brokers had said implementation of these rules could hurt their revenues, which are already under pressure in the current market conditions.

“Along with a positive global and domestic sentiment, brokerage and exchange stocks saw gains on Wednesday following the postponement of RBI’s proposed rules,” said Vijay Singh Gour, analyst at Mirae Asset Sharekhan.

Gour said intraday funding and margin trading facilities remain key revenue drivers for brokers, alongside proprietary trading. “Requiring 100% collateral could increase costs, potentially leading to lower market volumes and, in turn, impacting profitability,” he said.

Currently, brokers can keep 50% funds with banks and receive up to twice the amount as bank guarantees (BGs) for prop trading.

“For now, the deferment provides some near-term respite, ensuring that broker revenues are unlikely to face a material impact due to this for at least another quarter,” said Bhootra. Gour believes these developments have largely been priced in and recent geopolitical tensions have already pressured these stocks, due to which any signs of de-escalation could trigger a further recovery.