Margin trading funding soars in April as traders come back

The average margin trading funding (MTF) book across NSE and BSE rose to ₹1.14 lakh crore in April, after falling over 5% in March to ₹1.13 lakh crore, according to Care Ratings. In May, the size of the MTF book averaged above ₹1.2 lakh crore, according to exchange data.

Brokers said traders, who had exited positions in March amid tighter margin requirements and heightened volatility, returned in April, as the market, led by mid-caps and small-caps, bounced back.

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A sharp recovery in mid- and small-cap stocks also led to a resurgence in leveraged bets. “The severe corrections in mid- and small-caps in March were followed by a strong recovery in April and led to a recoup in leveraged bets,” said Devarsh Vakil, head of Prime Research, HDFC Securities.

The Nifty gained 7.5% in April, its strongest monthly rise since December 2023, after falling over 11% in March. Broader markets outperformed, with the Nifty Midcap 150 and Smallcap 250 indices rising 13.2% and 17.1%, respectively, after posting double-digit declines in the previous month.

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“The ceasefire in April alleviated investor anxiety and led both retail and institutional investors to take fresh positions as the markets are likely to have made a short-term bottom,” said Mehul Koradia, chief strategy officer and director, Mirae Asset Sharekhan.

“Most investors squared off positions in March when the war extended beyond 10 days, and the number of clients also came down in this period,” he said. Brokers said regulatory curbs in the derivatives segment may have also prompted traders to opt for margin funding. “The margin for derivatives is much higher in F&O compared to MTF, where the bets are much smaller and can be adjusted as well,” Vakil said. In margin trading, investors can buy shares by paying only a part of the total value, with brokers financing the remainder at interest rates typically ranging from 9% to 15% annually. Leverage is generally in the range of 3-4 times the initial margin, with investors pledging shares as collateral. “The risk framework has strengthened significantly with Sebi monitoring volatility in stocks and margin requirements closely, which minimises risk,” said Suresh Shukla, chief business officer, Motilal Oswal Financial Services.