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

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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.

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.