Why are BSE, Angel One, Groww and other broking stocks falling? Anil Singhvi explains

Capital market-linked stocks were trading lower in early deals on February 16. BSE Limited fell 7.12 per cent to Rs 2,810, down Rs 215.30. Angel One Ltd declined 4.38 per cent to Rs 2,580, losing Rs 118.30. National Securities Depository Ltd slipped 0.39 per cent to Rs 950.70, down Rs 3.70. Billionbrains Garage Ventures Ltd dropped 4.01 per cent to Rs 165.99, falling Rs 6.93.

The weakness comes amid concerns over tighter funding norms for brokers following a recent circular by the Reserve Bank of India.

RBI Tightens Funding Norms for Brokers

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Market expert Anil Singhvi said the RBI’s weekend circular has introduced three major changes regarding bank funding to brokers. “The RBI has made three major changes through its weekend circular regarding bank funding to brokers. These funds are indirectly used for capital market activities,” he said.

He explained that banks provide funds to brokers to meet margin requirements at exchanges. Brokers arrange funds partly from clients and partly by borrowing from banks. The RBI has now tightened norms on how much banks can lend and for what purpose the funds can be used.

Intraday Limits and Margin Use Curbed

On the first change, Singhvi said, “Banks have clarified that intraday limits given to brokers can now be used only for pay-in or settlement obligations. They cannot be used for meeting margin requirements for trading.”

He said earlier that brokers could use bank-provided intraday limits to meet exchange margin requirements. Now, those funds can only be used for settlement-related obligations.

According to him, this means brokers will have to deploy more of their own capital to meet margin requirements, especially those handling large institutional or high-volume trades.

Higher Margin for Proprietary and MTF Trades

On the second change, Singhvi said, “For proprietary trades, brokers will now have to provide 100 per cent margin for bank guarantees. Earlier, part of it could be adjusted differently. Now 50 per cent must be in cash, and the remaining can be collateral.”

He said this will increase capital requirements for brokers running proprietary books.

The third impact relates to margin trading facilities (MTF). “Brokers running MTF books may also find it difficult to raise funds from banks due to the higher margin requirements,” he said.

Summing up the circular, Singhvi said, “In a nutshell, the RBI has tightened rules for bank funding to brokers. That is the core issue.”

Impact on Volumes, Liquidity and Smaller Brokers

Singhvi said the changes are likely to have a broader market impact. “There will be an impact on the market, on brokers and on volumes,” he said.

According to him, derivatives trading volumes are expected to decline. “F&O volumes will certainly come down. The maximum impact will be seen in the derivatives segment,” he said.

He added that smaller brokers may face more difficulty in arranging funds. “Large brokers may still find alternative arrangements. But for smaller brokers, funding could become challenging,” he said.

Singhvi further said brokers engaged in proprietary trading will need to maintain higher capital. Institutional brokers dealing with foreign investors and mutual funds will also see higher margin requirements.

He said the increase in margin requirements will raise the cost of capital. “If brokers pass on this higher cost to clients, trading costs will rise. That could reduce volumes and liquidity in the market,” he said.

He added that the impact may be more visible around weekly and monthly derivatives expiry days, when trading volumes are typically high.

“For viewers, the key takeaway is that this is a slightly difficult phase for brokers. That is why capital market-linked stocks may remain under some pressure,” Singhvi said.