Investors: Investors bet on a resilient market, with margin funds

Mumbai: Notwithstanding the sharp swings in the stock market in recent weeks, individual investors are not shying away from borrowing and betting on shares, especially mid-caps – some of the worst hit in the recent sell-off. The total quantum of margin funding – a short-term loan to investors for buying shares they cannot afford otherwise – surged to ₹59,300 crore on March 20 as against ₹58,400 crore as of February 29.

NHPC, Yes Bank, Zee Entertainment, IDFC First Bank, SAIL, Poonawalla Finance, Indiabulls Housing, Bandhan Bank, Rail Vikas Nigam, NMDC and Ircon International are among the stocks that these investors have bought using margin funding, according to stock exchange data compiled by ET.

Bets through margin funding in many of these stocks range from ₹400 crore to ₹760 crore, according to stock exchange data.

Margin funding mostly happens during bullish phases in the market as investors are confident their bets will make enough money to make profits in excess of the financing costs. Share trading through margin funding usually declines in uncertain market conditions as the likelihood of losses is higher. Brokers are also conservative while extending loans for this purpose in such times.

This time, however, there is less hesitation to bet on mid-cap stocks through margin funding. The BSE mid-cap and small-cap indices have lost 2% and 6%, respectively, since March 1. Many of the mid-cap stocks have fallen up to 40% in this period.

Brokers said resilience in margin funding despite recent declines is a sign of confidence among investors that several of these mid-caps and small-caps will rebound after the recent correction. Some think such investors are being complacent.”The common perception of higher returns from mid-caps compared to large caps have largely attributed investors in gravitating towards small and mid-cap stocks,” said Aasif Hirani, managing director of Tradebulls Securities. “Fear of missing out (FOMO) can be one of the reasons where one can see many of the mid-cap stocks posting fresh all-time high and so that cultivates in greed mindset where investors chase the price irrespective of fundamentals.”Indiabulls Housing, which saw a 12% decline since March 1, witnessed an increase in margin funding from ₹492 crore to ₹513 crore during this period.

In a small-cap company like HFCL, which has seen a 17% decline in its stock price since the beginning of the month, there was an increase in margin funding from ₹206 crore to ₹219 crore.

Among large-cap stocks, retail investors have taken positions worth ₹846 crore through margin funding in Jio Financial, while Tata Motors witnessed a significant increase from ₹537 crore as of February 29 to ₹775 crore as of March 20. IRFC has margin funding of ₹680 crore, while IDFC First Bank and SAIL have nearly ₹540 crore each.

Margin funding for trading in Zee Entertainment stood at ₹ 590 crores as of March 20, slightly down from ₹653 crore earlier this month. The stock has dipped by nearly 13% since the beginning of the month.