Borrowed time: Investors bullish on near-term upside increase leveraged bets on Tata Motors, SBI, HAL, Jio Financial

Margin trading, which allows investors to borrow funds to buy or sell securities without paying the full amount upfront, has rebounded to levels last seen during the previous market peak in September, driven by improved sentiment among retail investors and high net-worth individuals.

The National Stock Exchange of India’s Margin Trading Facility book stood at ₹81,217 crore as of 6 June, almost at the level of ₹81,728 crore on 26 September. The amount had declined to ₹68,004 crore on 7 April, when the Nifty 50 index declined 3.24% in a single day on the back of fears of a global trade war.

Shares of Tata Motors, Jio Financial Services, Hindustan Aeronautics, State Bank of India, and Mazagaon Docks were the most popular among retail investors and HNIs through the MTF route, the NSE data showed. The amount financed for Tata Motors as of 6 June was ₹1,282 crore, while it was ₹1,119 crore for Jio Financial Services and ₹1,055 crore for Hindustan Aeronautics.

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Experts said that the increase in the MTF book shows that investors are taking a positive near-term view of the markets. The recent Reserve Bank of India 50 basis point repo rate cut will also allow brokers, who provide this facility to clients, more room to pass on the benefits to investors. By maintaining their spreads and offering lower rates, brokers are expected to attract greater participation in margin trading.

Tariffs, border tension

Nirav Karkera, head of research at wealth tech platform Fisdom, said that a combination of domestic and global headwinds had earlier weighed on investor sentiment. Globally, risks were mounting with the prolonged Russia-Ukraine conflict and tariff-related uncertainties, he said, adding that on the domestic front, border tensions added to the anxiety.

“Domestic inflation wasn’t easing, there was no clarity on the interest rate trajectory, and corporate earnings were dismal," said Karkera. “There was little reason for optimism in the markets, and more than enough for investors to go light on leveraged positions through MTF."

Karkera also said that MTF is highly sensitive to interest rates.

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“When the borrowing rates come down after the 50-basis points rate cut—it could further boost interest in MTF. While a cut in the repo rate doesn't immediately reduce MTF rates, it does lower the cost of funds for brokers, who may then refinance at lower rates," he said.

On 6 June, the RBI’s six-member Monetary Policy Committee slashed the repo rate to 5.5%, its third consecutive cut since February.

Positive sentiment

Others said the MTF book is a gauge of market sentiment. Feroze Azeez, joint chief executive officer at Anand Rathi Wealth Ltd, said the MTF book should be seen more as a barometer of broader market sentiment than a reliable indicator of market direction. Azeez said that after months of volatility, investors have started becoming a lot more mature.

“The buy-on-dip strategy has become popular, and with easier access to leverage, more investors are using MTF to build positions, which also shows positive conviction in the market," said Azeez. He added that people are taking a view that the markets will continue to do well, at least in the near term.

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The market's decline after September 2024 also coincided with a shift in the futures and options expiry structure, which led to a decline in derivative volumes, according to Trivesh D, chief operating officer at trading platform Tradejini.

However, as the market began recovering in February, there was a resurgence in both F&O and cash market volumes. This uptick in trading activity improved price discovery, further driving investor participation in margin trading, he added.