Zerodha's Nithin Kamath Slams "Flawed" India-US Options Trading Comparison

NDTV

3 days ago

Zerodha co-founder and CEO Nithin Kamath has challenged the increasingly popular view that India's surge in options trading signals dangerous overleveraging in the country's financial markets. In a LinkedIn post, Mr Kamath said that such comparisons with the US were not only misleading but also failed to account for fundamental structural differences.
'It's ridiculous to see people comparing options trading volumes in India and the US and claiming that we're overleveraged,' Mr Kamath said in his post.
He pointed out that many market commentators focused just on 'the number of contracts traded, not the premiums or the actual value involved,' leading to a 'flawed' picture of risk and leverage. According to Mr Kamath, using contract volume as the sole benchmark ignores the size and depth of India's still-developing markets.
'India is significantly less leveraged than the US, even taking into account the fact that our markets are 15-20 years behind theirs,' he added.
To illustrate the gap, Mr Kamath drew attention to margin funding levels. He said that in the US, the margin funding market, similar to Margin Trading Facility (MTF) in India, recently surpassed $1 trillion.
In contrast, Mr Kamath said, India's margin funding remains below $10 billion, which is 'just 1%' of the US figure. 'Similarly, the stock shorting ecosystem is far more developed in the US, with an estimated $1 trillion worth of stocks shorted, while India's stock lending and borrowing market remains negligible,' Mr Kamath added.
Mr Kamath went further, making a cultural observation about financial risk-taking in the US.
'Calling the US a gambling society wouldn't be unfair,' he wrote, referencing an example. 'Just recently, there were bets totalling $210 million on whether Zelensky would wear a suit at the NATO summit,' Mr Kamath said.
This, he added, was part of a broader societal tendency in the US to treat everything from stocks and sports to political events and cryptocurrencies as betting opportunities.
'Gambling runs deep in American culture. From the stock market to sports, casinos, events, lotteries, prediction markets, and crypto, you can bet on anything,' Mr Kamath said.
In contrast, Indian markets remain relatively conservative when it comes to leverage. 'We're a mere drop in the ocean,' said Mr Kamath.
He added that he believed the narrative around India's growing options market is often exaggerated, especially when framed through a narrow lens.
'This constant narrative that we're somehow dangerously overleveraged, just because of the number of options contracts traded, feels… well, misguided,' he concluded.
Mr Kamath's post drew mixed reactions on LinkedIn.
A user criticised the weekly options market, saying it serves little purpose 'other than making an entire population gambling addicts.'
Another user said that India's 'vast and active illegal gambling ecosystem' is often ignored, and suggested that a 'more meaningful comparison would be to relate those figures with the total market capitalisation or GDP of each country.'
Some supported Mr Kamath's view, noting that 'volume without context is just distraction' and that India's markets are 'evolving, not exploding.'
Another user added that the 'leverage gap is far wider than most realise.'
One user said, 'Clear, informed comparisons can pave the way for better understanding.'
Overall, Mr Kamath's post has reignited the debate around leverage and speculation in Indian markets, urging for more informed comparisons with global peers.