Nithin Kamath explains why Indian markets are less volatile than US' for first time

Online broking firm Zerodha's co-founder Nithin Kamath took to social media to throw some light on the volatility of Indian stock exchanges, especially when compared to markets in the United States. 

Taking to Twitter, Kamath, who often uses his media handle to explain and enlighten investors on various stock market movements and related topics, today highlighted that this is probably the first time that the India markets are less volatile than the US markets. 

Explaining the same, he added, "I think this is mainly due to much lesser leverage, both for intraday and margin funding for delivery in the system."

Kamath, in hindsight, also added that investing using borrowed money reduces the odds of profitability significantly because of interest and margin requirements. The risk of leverage is forced liquidation of stock holdings when there is peak volatility, panic, and at the worst possible prices. 

"One big reason for our growth over the last few years is that most investors made profits. We consciously don't provide leverage to invest. So on Thursday, when markets were down 5%, no one was forced to sell. In fact, it was our biggest day in terms of stocks bought," he further stated.

Besides that, Kamath also cautioned retail investors on taking the BNPL route. "Brokerage firms trying to monetize retail customers using Buy Now Pay Later type of products for investments is a worrying trend. It isn't good for the customer and if the customer doesn't do well with their money, it isn't good for the brokerage firm and the markets overall," he emphasised. 

Meanwhile, the Indian equities markets benchmark Sensex closed 389 points higher in volatile trading on Monday, led by strong buying support in Tata Steel and Reliance Industries amid the ongoing Russia-Ukraine conflict. The 30 stock S&P BSE Sensex closed 388.76 points or 0.70 per cent higher at 56,247.28 points against its previous session's close at 55,858.52 points. Sensex and Nifty will be closed on Tuesday on account of Mahashivratri festival.

Moreover, Kamath had earlier also pointed out via his tweets that brokerage rates in India will go up in future. 

"I think, if anything, brokerage rates will go up in the future," he said. In US, brokers can earn in ways that the Securities and Exchange Commission of India (SEBI) doesn't allow, and rightly so," Kamath had earlier stated in a series of tweets.

 
US brokers are allowed to sell customer orders to high-frequency trading firms. Besides, unlike India, stocks are held in the name of the brokers in the US, which they can lend to earn, he had added.