New Delhi [India], July 31 : Nithin Kamath, Founder and CEO of stock brokerage firm Zerodha rubbished on Thursday suggestions that India's options trading was overleveraged vis-a-vis the US.
Debates around India's growing options trading volumes have sparked concerns over market leverage.
"It's ridiculous to see people comparing options trading volumes in India and the US and claiming that we're overleveraged. For starters, the comparison itself is flawed. People often look at the number of contracts traded, not the premiums or the actual value involved," Kamath put forth his view on X.
Comparing India's derivatives activity with that of the United States based solely on the number of contracts traded may present a misleading picture, he, in a way, indicated.
"If anything, India is significantly less leveraged than the US, even taking into account the fact that our markets are 15-20 years behind theirs," he supplemented.
He noted that India's market leverage remains relatively modest compared to global standards.
For instance, he pointed out that the margin funding market in the USsimilar to India's Margin Trading Facility (MTF)recently surpassed USD 1 trillion. In contrast, India's MTF market remains below USD 10 billion, just 1% of the US figure.
Additionally, short selling in the US is a well-developed segment, with outstanding short interest estimated at USD 1 trillion.
In India, the stock lending and borrowing (SLB) mechanism, which enables short selling, is still in a nascent stage with minimal participation, he said.
"US stocks shorted are estimated to be another USD 1 trillion, while in India, the stock lending and borrowing market remains practically insignificant," Kamath said in the X post.
"If you compare our leverage as a country to that of the US, we're a mere drop in the ocean. Gambling runs deep in American culture. From the stock market to sports, casinos, events, lotteries, prediction markets, and crypto, you can bet on anything," he continued.
He concluded that the "constant narrative" that India's options trading market somehow "dangerously overleveraged", just because of the number of options contracts traded, "feels... well, misguided."
Recently, in another X post, Nithin Kamath advocated for simplifying short selling of stocks, arguing that the 'lack' of short selling in Indian markets is causing potential market distortions.
In the post on X, Kamath had asserted that price discovery will be impaired unless India makes shorting of stocks easy in the Indian markets.
Short selling of stocks is allowed in India, but with certain restrictions. Outright short selling is not permitted in the Indian securities market.
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