Describing leverage as a weapon of mass destruction (WMD), which drives excess both up and down, Kamath said leverage at times like these usually accentuates the fall. “When markets fall, leveraged long positions are needed to provide additional margins, otherwise positions are forced out, causing markets to fall even deeper,” Kamath said on Twitter.
âThanks to regulatory changes, the leverage offered by brokers is now limited to margin funding and at very low levels,â he said. Adding that higher margin requirements across the board have also reduced risk and even securities lending offered by NBFCs/banks is at historic lows, he added.
The silver lining for India in the current global meltdown is that we can continue to outperform other marketsâ¦ https://t.co/Key20n4c0C
â Nithin Kamath (@Nithin0dha) 1655118388000
Even in F&O, he said most companies have shifted to options, which, while risky for a trader, don’t carry as much risk of forced liquidations for the entire market as futures.
However, Kamath added that it was impossible to determine the leverage of FIIs outside India that could lead to liquidations here.
Today’s selloff depleted Indian equity investors by Rs 6 lakh crore as the main Nifty50 index plunged to the lowest since May 19 to close below 15,800 levels.
The broader market also mirrored the benchmark with Nifty Mid and smallcap indexes down 3-4% each. Reflecting the uncertainty in the minds of traders and investors, the India VIX fear gauge index jumped 14% to 22.37 levels.
IT stocks were among the hardest hit, with the Indian rupee hitting a record low of 78.28 amid volatile crude oil prices.
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)