D-Street's margin-funded stock bets fall as smallcap rally falters

Leveraged bets on Indian stocks are heading for their first monthly drop since March, a sign retail traders are cutting risk as the rally in some of the market’s most speculative corners unravels.Borrowed positions stood at 1.56 trillion rupees ($16.5 billion) as of Oct. 19, according to IndiaMTF.com, down from a record 1.6 trillion rupees in September after six straight monthly gains.The pullback comes as India’s $4.9 trillion equity market faces renewed pressure from stubbornly high oil prices, with small- and mid-caps leading the decline after hitting records in early September.

The swift reversal has pushed NSE 500 Index — a gauge of the broader market — down almost 9% from its recent peak and nearing correction territory. That is hurting traders who borrowed to amplify returns and could force further unwinding if losses deepen.AgenciesSmall-cap shares make up 46% of total leverage book, with investors holding leveraged positions in over 700 stocks in the segment, IndiaMTF data show.

Online gaming firm Nazara Technologies Ltd., Tourism Finance Corp of India Ltd., and cruise operator Waterways Leisure Tourism Ltd. are among the names with large leveraged positions, the data show.The cooling of risk appetite is unfolding against a tough backdrop for Indian equities. Higher interest rates and oil prices have pressured the market and fueled foreign outflows. Global funds have pulled more than $32 billion from local shares this year, a record, putting the benchmark on course to snap a decade-long streak of annual gains.(You can now subscribe to our ETMarkets WhatsApp channel)