Nitin Kamath, co-founder of online brokerage firm Zerodha, said on Monday that this dark cloud (global recession) had a silver lining for India in the form of “leverage” in the capital markets. In times like these, leverage usually extends the downside, Kamath wrote on Twitter.
“The ray of hope for India in the current global slowdown is that we may continue to outperform other markets on a relative basis due to the low level of leverage in our capital markets.” Kamato tweeted.
In a series of tweets, he explained how leverage is like a WMD (weapon of mass destruction) resulting in excesses both above and below.
The co-founder of Zerodha said, “When markets fall, long leveraged positions are required to bring in additional margin, failing which one will be forced to exit the position, resulting in the market falling further. falls too.”
He said, “Thanks to regulatory changes, the leverage offered by brokers is now limited to margin funding only and very low levels. Higher margin requirements across the board have also reduced risk. Even NBFCs/ Lending against securities offered by banks is also at a historically low level.”
“Even in F&O, the majority of trading has moved to options, which despite being riskier for a trader does not bring the risk of forced liquidation in the overall markets as in futures,” he added. .
“BTW, it is impossible to detect leverage of FIIs outside India, which could lead to liquidation here,” he wrote on Twitter.
Kamath has earlier expressed his concern over the sharp fall in the share prices of big tech firms such as Apple, Microsoft, Google parent Alphabet and other tech-heavy firms across the world, calling the market momentum “crazy” and almost dot- Like say. Com boom.
On Monday, Dalal Street plunged into a red sea, reflecting a slowdown in global equities, as investors prepared for a sharp hike in rates by the Federal Reserve after US consumer inflation hit a four-decade high.
Unabated foreign fund outflows and the rupee crossing the 78 mark against the US dollar for the first time, further reducing risk appetite.
Extending its losses for the second straight session, the 30-share BSE Sensex ended 1,456.74 points or 2.68 per cent lower at 52,846.70.
The broader NSE Nifty ended 427.40 points or 2.64 per cent lower at 15,774.40.
Huge drop in investor wealth 6.64 lakh crore in Monday’s session, the market capitalization of all the firms listed on BSE fell 2,45,19,673.44 crores.
Bajaj Finserv was the top laggard in the Sensex pack, falling 7.02 per cent, followed by Bajaj Finance, IndusInd Bank, Tech Mahindra, ICICI Bank, TCS, NTPC, Infosys and SBI.
Among Sensex constituents, Nestle India was the only gainer with a gain of 0.46 per cent.