Nithin Kamath, the Founder and CEO of Zerodha, recently dismissed claims that India’s options trading volumes indicate overleverage compared to the US. His comments come amid growing concerns about market leverage due to the rapid rise in derivatives activity in India.
Kamath took to X to clarify his stance, calling comparisons between Indian and US options trading volumes flawed. He emphasized that people often focus on the number of contracts traded rather than the actual premiums or values involved. This, he argued, paints a misleading picture.
If anything, Kamath believes India is significantly less leveraged than the US, even though Indian markets are 15-20 years behind. He pointed out that the margin funding market in the US recently crossed USD 1 trillion, while India’s Margin Trading Facility (MTF) remains under USD 10 billion. That’s just 1% of the US figure.
Another key difference lies in short selling. In the US, short selling is a well-established practice, with outstanding short interest estimated at USD 1 trillion. In contrast, India’s stock lending and borrowing (SLB) market, which facilitates short selling, is still in its early stages with minimal activity.
Kamath highlighted that while USD 1 trillion worth of stocks are shorted in the US, India’s SLB market is practically insignificant. He went on to describe the US as a market where gambling runs deep, spanning stocks, sports, casinos, lotteries, and even crypto. Comparing India’s leverage to that of the US, he called it a drop in the ocean.
The narrative that India’s options trading is dangerously overleveraged purely based on contract volumes, according to Kamath, is misguided. He argued that the actual risks are far lower than what headlines suggest.
In a separate post, Kamath also advocated for simplifying short selling in India. He believes the current restrictions impair price discovery, leading to potential market distortions. While short selling is allowed in India, outright short selling remains prohibited.
The debate around leverage and derivatives activity in India continues, with Kamath’s insights offering a fresh perspective. Whether regulatory changes will follow remains to be seen.