India's smallcap sell-off is coinciding with a reversal in one of the market's biggest sources of borrowed buying power: the margin trading facility (MTF) book. After hitting a record of around Rs 1.6 lakh crore in September, outstanding MTF positions declined to about Rs 1.54 lakh crore by October 22, raising concerns that the unwinding of leveraged positions could intensify selling pressure in smaller stocks.
Nearly 46% of the MTF book is estimated to be concentrated in smallcaps, translating into roughly Rs 72,000 crore of exposure to the segment. With prices falling and liquidity thinning in several counters, the reduction in leveraged positions could add to the pressure on stocks that have already seen sharp corrections.
