MTF book of domestic brokerages tops ₹1 trillion mark for first time

Margin trading facility (MTF) offered by domestic brokerages is booming, with the outstanding book crossing ₹1 trillion for the first time this month.

 

MTF allows investors to buy stocks by paying only a fraction of the value upfront. The balance is funded by the broker as a loan, typically at an interest rate of 10-15 per cent.

 

At the end of last week, the outstanding MTF position stood at just over ₹1 trillion — 2.3 times higher than a year ago. The surge looks even starker in a longer view: in March 2020, at the height of the pandemic crisis, the MTF book was under ₹3,200 crore. 

 

Both the National Stock Exchange and the BSE disclose MTF position data. The number reflects the value of outstanding shares purchased through MTF as of a given date.

 

The boom has opened up a lucrative revenue stream for brokers but also raised concerns about risk exposure.

 

“It is good to see the MTF offering maturing, but stockbrokers must remain mindful of their balance sheets when extending MTF. Investors are not the only ones exposed to leverage risk — brokers are too. If a client’s leveraged bet goes south and they cannot cover the losses, the broker is left holding the bag,” said Mohit Mehra, vice-president of primary markets and payments at Zerodha.

 

The warning comes at a time when equity market returns have stalled. Over the past year, the Nifty 50 and Nifty Midcap 100 have been largely flat, while the Nifty Smallcap 100 has fallen more than 6 per cent.

 

MTF allows investors to take leveraged bets on the market — a strategy that works well in an uptrend but turns risky when the market is on a slippery slope, industry players say.

 

“MTF can enable investors to make the most of opportunities with limited capital. However, leverage magnifies both profits and losses, so investors need to be aware and actively monitor their positions to act in time,” said Gaurav Seth, chief executive officer and managing director of 5paisa Capital.