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Zerodha co-founder warns margin trading funding could amplify Indian crashes
Nithin Kamath says Zerodha’s MTF book is about ₹9,000 crore, with at least half in non F&O stocks that may get stuck in lower circuit moves during stress.
Zerodha co-founder Nithin Kamath flagged margin trading funding, or MTF, as the biggest risk for Indian equities, warning that a sharp correction could trigger forced selling, similar to dynamics seen in South Korea’s market.
In a post on X, Kamath said India’s regulatory framework has helped curb excessive leverage, but he called the rapid growth of MTF over the past few years his “biggest nightmare” as a broker. He added that the risk is not only the exposure size, but also the portfolio composition, particularly holdings outside the futures and options segment.
Kamath said Zerodha currently has an MTF book of around ₹9,000 crore, with at least half invested in non F&O stocks. He warned that many of these names can hit lower circuits repeatedly in market stress, which can prevent investors and brokers from exiting positions.
He also described a leverage feedback cycle, where collateral values rise during rallies and borrowing expands, while a reversal can quickly snowball into larger selloffs through margin calls and position liquidations. Kamath said the subsequent unwinding of leveraged exchange traded fund positions can add further selling pressure until markets stabilize.