Nithin Kamath Refutes Claims of Overleveraged Options Trading in India

Nithin Kamath, the Founder and CEO of Zerodha, dismissed concerns on Thursday regarding the assertion that India's options trading market is excessively leveraged in comparison to the United States. Discussions surrounding the increasing volume of options trading in India have sparked worries about market leverage.

Kamath argued against these claims, stating on the social media platform X that comparisons to the US are inherently flawed, as they often overlook critical factors like premiums and the actual value involved. He suggested examining derivative activities shouldn't rely merely on contract numbers.

Furthermore, Kamath pointed out that India's market remains far less leveraged than the US, despite the Indian market being 15-20 years behind in development. As an illustration, he compared the USD 1 trillion margin funding market in the US to India's market, which is substantially lower. Kamath also emphasized the nascent state of India's stock lending and borrowing mechanism, contrasting it with the developed short selling segment in the US.

Kamath highlighted cultural differences in attitudes towards gambling and risk-taking between the two countries, arguing that the perception of India's options trading as 'dangerously overleveraged' is misguided. He advocated for simplifying short selling, suggesting that current restrictions hinder market dynamics and effective price discovery in India.