When Will My Portfolio Stop Bleeding? The Market Indicator Everyone's Missing

While the Nifty approaches record highs, small and mid-cap stocks are still under pressure, leaving many retail investors facing significant portfolio losses. The question on everyone's mind is: When will this downturn end?

To find an answer, investors need to look beyond the usual price charts and consider a fundamental shift in trading behavior: the increasing use of Margin Trading Facilities (MTF).

New regulations introduced by SEBI last year increased the margin requirements for Futures and Options (F&O) trading. This made leveraged strategies more expensive and pushed investors to seek alternative ways to maintain their market exposure, leading them to MTF. Consequently, brokerage firms rapidly expanded their MTF portfolios. Within a year, industry-wide MTF exposure grew from ₹80,000 crore to nearly ₹1,18,000 crore, signaling a significant increase in leverage and a change in risk appetite.

MTF allows investors to purchase stocks by paying only a portion of the total cost, with the broker financing the remainder. This boosts their buying power but requires strict margin maintenance. Investors provide an initial margin, and the broker covers the remaining cost of the investment.

The key to understanding the current market lies not just in the growth of MTF, but in how it behaves during times of market stress. Over the past five years, major market corrections have consistently been accompanied by a noticeable decrease in MTF positions. When investors reduce their leveraged positions, it triggers forced selling, which can intensify market declines.