Kamath acknowledged that market fluctuations are a natural part of the trading cycle but suggested that the current downturn could be prolonged, particularly following the peak the markets reached earlier in 2024.
“The markets are finally correcting. Given that markets swing between extremes, they can fall more just like they rose to the peak. I have no idea where the markets go from here, but I can tell you about the broking industry. We are seeing a massive drop in both the number of traders and volumes. Across brokers, there’s more than a 30% drop in activity,” Kamath posted on X (formerly Twitter).
Kamath further noted that combined with the true-to-market circular, the industry is experiencing degrowth for the first time in 15 years. He pointed out that this drying up of volumes illustrates how shallow the Indian markets still are.
“The activity is more or less concentrated among those 1-2 crore Indians. If this continues, the government will not even make ₹40,000 crore from STT in FY 25/26, at least 50% below the ₹80,000 crore estimate.”
“This drying up of volumes shows just how shallow the Indian markets still are,” Kamath explained. “The activity remains concentrated within a small group of investors, predominantly around 1-2 crore Indians. Despite the growing size of the market, participation remains limited.”
The reduction in trading volumes has broader implications, especially for government revenues from the STT. Kamath warned that if the current trend of declining market activity continues, the government might fall short of its STT revenue target for the fiscal year 2025-26. The initial target for STT revenue was ₹80,000 crore, but with the ongoing market correction, the government may only collect less than ₹40,000 crore, resulting in a shortfall of at least 50%.
Meanwhile, Indian equity markets ended with steep cuts on Friday, February 28, marking a painful start to the March F&O series. The session saw a loss of ₹9 lakh crore in the overall market capitalisation of listed companies on the Bombay Stock Exchange (BSE).
The Nifty ended with a decline of over 400 points, while the Sensex fell by over 1,400 points. The mid-cap and small-cap indices experienced their worst month since March 2020, with declines of 11% and 13%, respectively, in February. The Nifty Smallcap index is now down 25% from its December 2024 peak.
Foreign Institutional Investors (FIIs) pulled out ₹11,639 crore from Indian equities on Friday, accounting for more than half of the total sell-off recorded for the week. The total foreign outflows for the week amounted to ₹22,011.38 crore, with FIIs selling shares on all four trading days.
While the foreign investor sell-off initially began due to concerns over stretched valuations and slowing economic growth, then intensified due to a sharp sell-off in the US markets and heightened concerns over potential trade tariffs from US President Donald Trump targeting Mexico and Canada.
