Cash market volumes, margin trading book shrink as traders turn cautious

Fragile sentiment, regulatory changes behind 45% cash volume drop, 16% margin hit: Analysts

Weak market sentiment has driven a steady decline in cash market volumes and margin trading books over the past nine months. Cash market volumes have plummeted by 45 per cent from their peak in June 2024, while the margin book — used by traders to leverage stock purchases — has shrunk by 16 per cent since its high in September 2024.

 

Analysts attribute the downturn to a mix of fragile sentiment and regulatory changes, which have also curbed options premium volumes.

 

Experts warn that a shrinking margin book and reduced leverage could raise concerns over market liquidity and investor participation.

 

Even as stock prices have recovered this month, average daily cash market turnover is down by 3 per cent month-on-month, marking a third straight month of decline.

 

“In the first two weeks of March, cash volumes continued to slide for NSE, dropping 5.7 per cent to an average daily trading volume, while BSE volumes held steady,” said a report by ICICI Securities.

 

The report also noted a pre-regulatory decline in options premiums, alongside fewer new dematerialised accounts and a drop in active traders. 

 

Margin trading facility (MTF) volumes, which allow traders to borrow from brokers to buy securities, have also dipped by over 3 per cent this month compared to February.

 

MTF enables investors to pay a fraction of a stock’s value upfront, with brokers funding the rest at an interest cost. However, market uncertainty has dampened traders’ appetite for this leverage.

 

“The shrinking margin book reflects a shift in risk appetite,” said Rahul Ghose, chief executive officer of Hedged.in. “During market declines, traders unwind margin positions — either due to higher margin calls or to limit risks voluntarily.”

 

He added that such phases could foster more sustainable, fundamentals-driven participation once stability returns.

 

While traditional brokers rely on robust MTF loan books, discount brokers like Groww and Zerodha only introduced the facility last year to offset regulatory pressure on derivatives revenue.

 

Yet, high interest rates have kept retail investors cautious, limiting uptake.

 

“MTF helps investors average down during dips, but the borrowing cost has deterred participation among discount brokerage clients,” an industry source observed.

 

“Since October, profit booking and smart money exits have fuelled bearish sentiment,” said Kunal Kamble, senior technical research analyst at Bonanza Group. “Market corrections have led to losses, reducing traders’ willingness to re-enter aggressively and hitting overall liquidity.”

 

He added that regulatory curbs, like limiting weekly index expiries, have further squeezed MTF volumes — affecting brokerage revenues tied to expiry-driven margin activity.

 

Analysts remain optimistic that volumes could rebound once market confidence stabilises further.