Half of India's MTF book in smallcaps; liquidity risks flagged

Zerodha founder Nithin Kamath has raised concerns about the concentration of small and microcap stocks in India's margin trading facility (MTF) book, which accounts for roughly half of the total exposure.

Kamath highlighted the liquidity risks posed by this heavy concentration, particularly during market downturns when smaller stocks typically face sharper selling pressure and wider bid-ask spreads.

The warning underscores potential vulnerabilities in India's retail trading ecosystem, where margin trading has grown significantly in recent years. During periods of market stress, forced liquidations in illiquid smallcap stocks could amplify losses and trigger cascading selloffs.