Indian retail investors are carrying record leverage into the stock market just as cash market momentum begins to weaken, raising the stakes if volatility returns or the recent rally reverses. The average Margin Trading Facility (MTF) book surged 57.6% from a year earlier to an all-time high of Rs 1.36 lakh crore in June, according to CareEdge Ratings. It expanded another 7.1% from May after growing 11.1% in the previous month, reflecting sustained investor appetite for buying stocks through leveraged positions.
The rapid increase has turned MTF into a preferred financing avenue for equity trading and an increasingly important revenue driver for stockbrokers. But the expansion is unfolding against a less supportive trading backdrop.
Cash market average daily turnover declined 6.7% sequentially in June after rising for three consecutive months. CareEdge attributed the moderation to profit booking following the recent rally, a lack of fresh market triggers and cautious investor sentiment amid geopolitical and global macroeconomic uncertainty.
The divergence between record leveraged exposure alongside cooling cash market activity could become critical if markets decline. CareEdge did not quantify potential investor losses or model the impact of a correction, but warned that renewed geopolitical tensions in West Asia could increase volatility, weaken sentiment and weigh on near term trading activity.
Prolonged market uncertainty could also slow the pace of growth in the MTF book, the ratings firm said. The Rs 1.36 lakh crore exposure would therefore face its first major test if volatility intensifies after months of aggressive expansion.
The MTF book has grown consistently despite intermittent market fluctuations. It stood at Rs 1.27 lakh crore in May, Rs 1.14 lakh crore in April and Rs 1.13 lakh crore in March. In June 2025, the book was Rs 0.86 lakh crore and expanding at a significantly slower annual rate of 23.4%.
NSE dominates the segment, accounting for more than 96% of total MTF volumes. Its average MTF book increased 57.2% from a year earlier to Rs 1.31 lakh crore in June and rose by Rs 0.08 lakh crore sequentially.
BSE’s MTF book remained substantially smaller at Rs 0.05 lakh crore, although its annual growth of 66.6% outpaced NSE.
Broader trading activity remained strong compared with last year but showed signs of losing sequential momentum. Average daily turnover across the futures and options and equity segments climbed 42.2% year-on-year to about Rs 493 lakh crore in June, aided by a favourable base, improved liquidity and sustained investor participation.
Compared with May, however, turnover increased by only Rs 6 lakh crore and remained below its January peak. Higher Securities Transaction Tax (STT) rates raised the cost of derivatives trading, while easing volatility reduced speculative positioning and demand for aggressive hedging.
Cash market turnover was still 17% higher from a year earlier at Rs 1.42 lakh crore. CareEdge described the sequential decline as a temporary softening rather than a structural slowdown.
The regulatory environment is another variable. The Reserve Bank of India’s revised framework, which took effect in July, is expected to influence market liquidity and trading activity by increasing working-capital requirements for brokers as the industry adjusts to the new operating regime.
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CareEdge nevertheless expects domestic investor participation, growing adoption of MTF and the product’s rising importance to brokerage business models to support long-term expansion. The immediate risk is whether that structural growth can withstand a period of falling stock prices and renewed market uncertainty with leverage already at a record.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
