India’s $5.2 trillion stock market is facing fresh headwinds after regulators moved to curb speculative activity, heightening investor concerns over subdued earnings growth and uneven foreign inflows, Bloomberg reported on Monday.
The Reserve Bank of India has tightened rules on bank lending to proprietary traders and stock brokers, a measure aimed at limiting leveraged trading. Earlier this month, the government raised taxes on equity derivatives, while the market regulator revised margin requirements for a popular single-stock derivatives contract.
The combined steps risk tempering trading volumes and risk appetite at a time when investors are grappling with modest corporate profit growth, pressure on software stocks and relatively elevated valuations, according to the report.
Exchange data show proprietary trading firms accounted for more than half of equity options turnover on the National Stock Exchange of India Ltd. last year, while their share in cash equities trading rose to a 21-year high of 30 per cent.
The authorities are “attempting to de-risk the system, so no undue excesses are built and even if there are accidents, there are no large ramifications,” said Jimeet Modi, chief executive of Mumbai-based Samco Group to Bloomberg. “There will be short-term impact but in the long-term, the blow-up risk goes down.”
Shares of market infrastructure companies declined on Monday.
BSE Ltd. fell as much as 9.9 per cent, Angel One Ltd. dropped 9.5 per cent, and MCX slid up to 7.4 per cent. But the NSE Nifty 50 Index was up 0.4 per cent as of 1:30 pm.
The National Stock Exchange may feel the impact more acutely as softer volumes could weigh on profitability just as it prepares for a long-awaited public listing. The bourse posted a 37 per cent decline in December-quarter profit, with revenue down 10 per cent year-on-year.
The tightening is “a prudent step toward reinforcing systemic stability,” said Ajay Kejriwal, executive director at Choice International Ltd, reported Bloomberg. “For the broader broking ecosystem, the impact remains largely contained.”
