The unwinding of margin trading facility (MTF) positions has added to the selling pressure in midcap and smallcap stocks, with the outstanding MTF book potentially falling to around ₹1.4 lakh crore from a record ₹1.58 lakh crore, according to Dhiraj Relli, Managing Director and CEO of HDFC Securities.
Relli said the MTF book had grown by around 70–80% over the past year, leaving investors and brokers with larger positions to unwind as markets corrected.
The latest exchange data discussed during the interview showed outstanding MTF positions at around ₹1.47 lakh crore as of October 21.
However, Relli clarified that his estimate of a decline to around ₹1.4 lakh crore was based on the correction in HDFC Securities’ own book and was not a confirmed industry-wide figure.
The recent sell-off has hit midcap and smallcap stocks particularly hard. These segments had been holding up relatively well even as largecap stocks struggled over the past couple of years, with midcap and smallcap indices touching record highs in August.
Relli pointed out that midcap and smallcap stocks generally have lower trading volumes than largecap shares. Institutional investors tend to concentrate much of their buying and selling in large-cap stocks, leaving HNIs and retail investors with a greater influence on price movements in the broader market.
He added, “This is more coming from the HNIs and retail, could be little bit to also some liquidation to participate in the primary market as well. Also some kind of a panic or a fear selling as well, because when markets are correcting, they may want to hold on to some cash, and in anticipation of more corrections in the market, probably some of the investors are increasing their cash positions as well.”
Some investors could also be freeing up funds to participate in the Jio Platforms IPO, which has received strong demand across investor categories.
The release of funds following the Jio Platforms IPO allotment could provide support to the secondary market next week. Since the issue has attracted substantial demand, allotments will be limited to the shares available, with much of the remaining application money expected to return to investors.
Relli said, “A large part of this money will come back to the markets”, potentially creating opportunities for investors to buy select midcap and smallcap stocks at more attractive valuations.
He added that the return of these funds could encourage bottom-up stock picking, particularly in stocks that have corrected and become more reasonably valued.
However, a recovery will depend on broader market conditions. Further geopolitical tensions or other major negative developments could weigh on sentiment and delay a return of buying interest.
For the entire discussion, watch the accompanying video
HDFC Securities CEO estimates MTF book could fall to ₹1.4 lakh crore amid market sell-off
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