Margin Trade Funding (MTF), a leveraged product allowing investors to buy shares by paying a fraction of the value while brokers fund the rest at 8-16% interest, reached an all-time high of Rs 1.02 trillion in September 2025, up from Rs 0.85 trillion the previous year, according to a Care Ratings analysis of Sebi data. Regulated by the Securities and Exchange Board of India, MTF enables amplified market exposure but carries heightened risks, especially in volatile conditions. Despite this growth, the annualised expansion slowed sharply to 18.8% from 105.2% in September 2024, reflecting the impact of recent regulatory curbs aimed at curbing speculative excesses.
The National Stock Exchange (NSE), commanding over 95% market share due to superior liquidity compared to the Bombay Stock Exchange (BSE), drove most of the surge, with its average MTF book climbing 19% year-on-year to Rs 0.97 trillion—an absolute increase of Rs 0.18 trillion. This milestone underscores retail investors' persistent appetite for leverage amid buoyant equities, even as overall trading volumes moderated.
The expansion persisted despite an 18.8% drop in average daily turnover (ADT) to Rs 437 trillion in September, down from Rs 537 trillion last year, highlighting MTF's decoupling from broader market activity. Care Ratings associates Saurabh Bhalerao and Sudam Shingade attributed the steady 12-month upward trend—barring Q1 volatility—to favourable stock performance, enhanced broker lending capacity, and rising retail participation, which now accounts for over 40% of equity trades.
On the BSE, MTF grew more robustly by 35%, from Rs 3,000 crore to Rs 5,000 crore, though its smaller base limits overall influence. Combined across exchanges, MTF exposure rose 19%, signalling consolidation rather than exuberance. This moderation aligns with Sebi's July 2025 measures, including higher margins on expiry-day options and a 1.1% securities transaction tax hike on futures and options (F&O), designed to deter over-leveraging after 2024's retail frenzy pushed household debt risks.
Sector-specific dynamics reveal a maturing market adapting to oversight. The F&O segment, a hotspot for speculation, saw ADT dip 15.9% year-on-year to Rs 436.12 trillion, pressured by the new taxes and restrictions that have pruned high-frequency trades. Sequentially, however, volumes rebounded from June lows, buoyed by quarterly earnings, index rebalancing, and seasonal upticks. In contrast, the cash segment held steady at Rs 1.06 trillion ADT—a 7.2% annual decline versus 89.8% growth prior—sustained by balanced retail and foreign institutional investor flows.
NSE's dominance persists, processing 99% of F&O contracts, but BSE's niche gains in debt and currency derivatives offer diversification. Broader participation has swelled, with demat accounts surpassing 150 million, yet regulators monitor systemic risks, as unchecked MTF could amplify downturns like the 2020 crash.
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Looking ahead, the MTF trajectory points to a selective, resilient investor base navigating regulatory headwinds toward sustainable growth. While absolute levels signal confidence in India's $5 trillion equity market, the tempered pace suggests caution, with experts forecasting 15-20% annual expansion if inflation stays below 4% and monsoons support rural incomes. Sebi's focus on investor education and risk disclosures aims to protect newcomers, who comprise 70% of MTF users. As consolidation sets in, this phase could foster deeper market maturity, reducing volatility and enhancing long-term capital formation—vital for funding India's infrastructure ambitions amid global uncertainties.
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