Retail and wealthy investors are gradually moving away from derivatives trading and turning to broker-funded stock purchases, as higher costs and tighter regulations make derivatives less attractive.
The shift is evident in the rapid growth of margin trading facilities (MTFs), in which brokers lend clients money to buy stocks. To be sure, the sharp growth comes on a low base. The industry-wide MTF book on the National Stock Exchange (NSE) has surged 52% from a year ago to ₹1.51 trillion as of September-end, even as trading activity in index and stock futures has slowed sharply.
Shares traded on the NSE accounted for 95% of the industry-wide MTF book, with those on BSE accounting for the rest, per exchange data.
Brokerages such as Angel One, Groww and HDFC Securities say more clients are choosing leveraged cash-market positions, which offer a simpler alternative to futures contracts and avoid the hassle of mandatory expiry-day rollovers.
The lending rate is an annualized 9-12% and up to 14% in certain cases, brokers said, while cost of funds to brokers through commercial paper issuance for up to a year is 7-7.5%. This enables brokers to earn a neat spread.