Less leverage has helped Indian markets outperform global markets

13 Jun 2022

The silver lining for India in the current global meltdown is that we may continue to do better than other markets on a relative basis because of the low levels of leverage in our capital markets. Leverage in times like these usually accentuates the fall.

Leverage is like WMD (Weapon of mass destruction), resulting in excesses both on the way up and down. When markets fall, long leveraged positions are required to bring additional margins, failing which positions are forced to exit resulting in the markets falling even more.

Thanks to regulatory changes, leverage offered by brokers is now restricted only to margin funding & at very low levels. Higher margin requirements across the board have also reduced the risk. Even loans against securities offered by NBFC/Banks are at historically low levels.

Even in F&O, most business has moved to options, which while being risky for a trader doesn’t bring in as much risk of forced liquidations to the overall markets as futures. Btw, impossible to figure out the leverage FIIs have outside India that may lead to liquidations here.

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