Zerodha Founder and Chief Executive Officer (CEO) Nitin Kamath said on Thursday that the Indian stock market is in a much better position than the US market. Kamat tweeted, “There was a time when it was cold in the US markets, we used to get fever.”
However, since 2010, zerodha The co-founder said the Indian market is “much better” than the US, in terms of volatility.
“Although the credit is usually given to more local partnerships, it is more closely related to SEBI regulations, which reduce leverage,” Kamath said.
The Zerodha CEO further added, “The above chart is not even a fair comparison, Nifty 50 is an index of the largest Indian companies and the S&P 500 consists of the 500 largest US companies in the US. Nifty should be a lot more volatile.”
Kamath thinks this was due to post-2008 crash regulatory changes.
“August 2011: Penalty for non-collection of end-of-day margin (SPAN) in F&O. Until then, brokers could allow clients to trade overnight, whatever the margin.”
“August 2014: Minimum 50% haircut for loan against collateral. Till then, promoters and HNIs could borrow up to 100%,” he adds.
“The change in LAS position in 2008 when the market collapsed created a snowball effect. NBFCs now have a higher margin of safety of 50%, which is enough to avoid liquidations on bad days”
“May 2018: Penalty for non-collection of exposure and other margin other than SPAN for last F&O positions of the day”
“Nov 2019: Penalty for non-realisation of VAR+ELM margin at the end of the day for shares. Until then, brokers could potentially fund margin to buy the stock.”
“July 2020: Peak Margin Penalty for allowing clients additional intraday leverage over SPAN + Exposure or VaR + ELM,” tweeted Zerodha CEO.
Kamath also said that while most of these developments hurt brokers’ revenue in the short term, it has reduced volatility. “This has significantly improved the chances of retail participants to do well,” he said.