India's margin trading facility (MTF) book has reached ₹1.16 lakh crore, representing a sharp rise in margin trading activity across the country's capital markets. According to PPFAS Asset Management, while margin trading has become an increasingly important tool for investors seeking enhanced exposure, the accompanying risks, especially broker concentration, funding vulnerability and leverage amplification, are now firmly in focus. The MTF book remains heavily skewed towards large, bank-backed brokers, which together account for nearly 50% of the market. Individual brokers like Zerodha, Angel One, Motilal Oswal and Bajaj Securities each command around 5-6% market share, while the remainder is fragmented across smaller brokers with potentially weaker credit quality and funding access.
According to reports from The Hindu BusinessLine, proprietary players' revenue plunged about 25% in H2FY25 versus H1, recovering only modestly in H1FY26 as volumes stabilised. The average daily turnover (ADTO) across capital market segments declined about 25% in the second half of FY25, reflecting the impact of regulatory measures and weaker trading activity. Industry revenue fell around 6% year on year in the first half of FY26. As reported by Crisil, the pressure has been particularly severe for proprietary trading firms, with the regulatory measure of reducing weekly expiry products resulting in fewer arbitrage opportunities.
As reported by Crisil, diversified broking firms are better placed to withstand the impact of regulatory curbs and the Budget's proposed hike in securities transaction tax (STT) on derivatives than traditional brokers and proprietary traders. According to Crisil Director Malvika Bhotika, entities with diversified revenue streams have typically navigated market fluctuations adeptly, while entities where transaction broking fees or proprietary trading business constitutes the predominant share of revenues have faced decline in revenue during such periods. The rating agency analysed 25 broking firms across FY25 and the first half of FY26.
According to reports from The Hindu BusinessLine, the government's 2026-27 Budget proposed raising STT on futures to 0.05% from 0.02% and lifting STT on options, premium and exercise, to 0.15% (0.1%/0.125%). As reported by Crisil Associate Director Prashant Mane, the proposed hike in STT could have a higher impact on proprietary traders, including high-frequency traders and arbitrageurs, who account for 60% of the market volume. Market participants have warned that these changes would make derivatives trading costlier and could reduce liquidity and turnover.
As reported by The Hindu BusinessLine, the tax changes follow several SEBI interventions over the past 18 months aimed at curbing speculative activity and strengthening market stability. These interventions include removal of cross-margin benefits on expiry days, limits on weekly derivative products and upfront collection of option premiums. Crisil noted that SEBI's October 2024 circular and subsequent implementation timelines have already altered the trading landscape and reduced arbitrage windows. The regulatory framework governing margin trading allows brokers to fund positions through their own capital, borrowings from non-banking financial companies (NBFCs), or by issuing commercial papers, though banks face RBI restrictions on margin funding.
According to reports from The Hindu BusinessLine, many brokers have started reworking business models, by boosting fee and interest income, and expanding distribution and wealth businesses. As reported by Crisil, the ability to fully reshape revenue mixes will determine which players emerge stronger. The rating agency found that players with a higher share of non-broking income, such as distribution fees, wealth management, investment banking and interest from margin trading, have been relatively insulated from the drop in market activity. Recent market discussions have highlighted counterparty risks that brokers may face during sharp corrections or market crashes, where heightened volatility can strain funding lines, trigger margin calls, and force the squaring off of leveraged positions.
