New Delhi [India], July 14 : Nithin Kamath, Founder and CEO of stock brokerage firm Zerodha, on Monday advocated for simplifying short selling of stocks, arguing that the 'lack' of short selling in Indian markets is causing potential market distortions.
In a post on X, Kamath asserted that price discovery will be impaired unless India makes shorting of stocks easy in the Indian markets.
A short-seller in the securities market books gains from the subsequent reduction in the prices of shares.
"India has been a structurally long-only market with almost no shorting activity, because borrowing stock to short is really hard and is an offline process," Kamath's X post read.
He further argued that India lacked short-selling skills.
"Because of this long-only bias, there's probably very little short-selling talent as well, even if large funds want to start shorting," he added.
"The only real way to short stocks until now was to use futures, maybe options. But there are only 224 F&O stocks, which means you can't short the vast majority of the problematic stocks. Also, these contracts expire every month, and the cost of rolling over these contracts is significant (only the 1st month contract is liquid)," he supplemented.
Unless this changes, Kamath believes there will always be weird distortions in the prices of Indian markets. He also believes short sellers help clean up all the "garbage in the markets" and make them more efficient.
Zerodha will "hopefully" have an online platform by the end of the year, and stock lending and borrowing will become much simpler, his X post concluded.
Short selling of stocks is allowed in India, but with certain restrictions. Naked short selling is not permitted in the Indian securities market.
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