market volatility: Margin trading fund shrinks as investors turn cautious

The combined margin trading fund (MTF) book on the NSE and BSE has shrunk by ₹15,000 crore since January 1 and ₹5,000 crore in the past week. MTF is a system allowing investors to borrow to buy shares they cannot afford and it stood at ₹71,500 crore on Friday.

Margin funding was around ₹86,500 crore at the end of December and ₹75,909 crore at the end of February.

According to market participants, some brokers resorted to forced selling after steep stock declines earlier this month. The sharp drop in MTF reflects growing investor caution amid ongoing market volatility.

“Elevated stock valuations, the US tariff stance, subdued earnings, and a tactical shift of FIIs toward China have contributed to a more conservative approach to leveraged positions” said Arun Chaudhry, director and chief business officer, m.Stock by Mirae Asset Capital Markets.

Agencies

In margin funding, investors buy stocks by paying up only part of the total value. Brokers fund the rest of the purchase by charging an interest rate. For instance, if an investor buys a share worth ₹100 under the MTF facility, she would need to bring in only 20% of the transaction value or ₹20, while the remaining 80% or ₹80 is covered by brokers. MTF is also collateralised by pledging investors’ existing shares.The Nifty has declined 11% since October 1 while the Nifty Midcap 150 and Nifty 250 have plunged 16% and 20%, respectively. The market has been in a downtrend since October, and many positions in MTF are currently facing challenges as the negative trend persists, according to market participants.

“Uncertainty surrounding Trump’s tariff decisions and the slowdown in the domestic economy has led investors to expect limited relief from a market rally in the near term. As a result, they are decreasing their exposure in MTF, as the burden of interest costs feels substantial in this environment,” said Rajesh Palviya, head, technicals and derivatives, Axis Securities.