India’s traditional brokers are banking on a business they dominate to claw back the ground they ceded to digital rivals over the past decade: lending clients money for leveraged trading.
Called the margin trading facility (MTF) in market parlance, it allows investors to buy shares by paying only a part of the total value upfront, with the broker funding the rest at an interest cost.
MTF book surged 42.9% in the year through January 2026 to ₹1.20 lakh crore even as the markets turned volatile, according to a February Care Edge report.
The top two in the category are bank-backed brokers: ICICI Securities Ltd and Kotak Securities Ltd. The initial two put together make up 31.7% of the total MTF market share as of December, according to ICICI Bank and Kotak Mahindra Bank’s investor presentation.
“In MTF, bank-based brokerages have a larger share when compared to the discount brokers. We lost on derivatives as discount brokers took that opportunity. On the MTF side, we took the opportunity,” said Dhiraj Relli, managing director and chief executive officer at HDFC Securities Ltd.
Legacy brokers see long-term headroom in the category.
At about ₹1.2 trillion (around $13.2 billion), MTF accounts for about 0.25% of the Indian equity market’s $5 trillion market capitalization, according to Ashish Nanda, chief business digital officer at Kotak Securities. “Compared to China and the US, which are in the range of 1.5% to 3% when it comes to the leverage book, we are significantly smaller. MTF book in my view will continue to grow.”
Discount brokers leap ahead on derivatives
The focus on MFT comes as discount brokers have taken over the market on the back of derivative trading. Groww, the country’s largest broker, has a market share of 28% in the overall broking segment and a total active client base of 12.5 million as of January, followed by Zerodha and Angel One at 15.45% and 15.2% respectively, according to data by the National Stock Exchange (NSE).
By comparison, HDFC Securities has 1.43 million clients and a 3.22% market share as of January, a marginal uptick from 2.8% in March 2023, according to NSE data. Kotak Securities at 3.1% and ICICI Securities at 4.6% have largely remained stagnant.
Digital brokers cornered a dominant share of the derivatives market by charging flat fees in high-frequency trading segments. A boom in derivatives volumes helped them earn enough revenue to keep fees at zero for long-term products like cash equities and mutual funds.
This was supported by the earlier practice of stock exchanges rewarding brokers for generating high trading volumes on their platform. The regulator discontinued this in 2024 to ensure equal and fair access for all market participants.
Under the traditional model, brokerage is calculated as a percentage of trade value. For instance, if an investor buys shares worth ₹1,00,000 and the brokerage is 0.30%, the fee is ₹300 on the buy side and another ₹300 on the sell side. As trade value rises, so does the fee. In contrast, discount brokers typically charge a flat fee per order, say ₹20 per side, whether the trade value is ₹1,00,000 or ₹5,00,000.
The model disrupted the traditional percentage-based brokerage that bank-owned firms charged. Many first-time investors joined the digital platforms, driving scale even as active traders benefited from low trading costs.
“The difference has primarily been around digital leverage and operating structure,” said Amit Majumdar, group chief strategy officer at Angel One. “When you build a digital platform, the cost is taken only once, and the operating leverage allows you to provide flat brokerage because whether it is one customer or 100 customers, the cost of the platform does not go up.”
Many traditional brokers were running profitable branch-led models with high fixed costs, according to Majumdar. “Moving fully to digital would have required disrupting their existing business, which is not an easy call to take.”
Eyeing MTF edge
Bank-backed brokers say that MTF plays directly to their balance sheet strength. The biggest edge, they say, is the cost of capital. A lower borrowing cost allows them to lend to clients at more competitive rates, making the product more attractive.
“The biggest thing in MTF is the cost at which the customer borrows. The lower the cost of borrowing, the better the returns. So, if you borrow cheaper, your chances of making a return are higher,” said Nanda of Kotak Securities.
Interest rates on MTF typically range from 2% and 18% across brokers. Kotak offers 9.69%, according to Nanda, and, in some cases, compounds interest monthly rather than daily, reducing the burden on clients.
“I believe most bank-based brokers offer better rates on MTFs, and that is why they continue to grow faster than the rest of the market (in this category). This is surely a reason for the higher market share,” he said.
Digital brokers argue that leverage alone will not reshape rankings overnight.
“Access to capital by itself does not automatically translate into retail market share gains. MTF is not a standalone growth lever,” said Majumdar of Angel One. For mass retail investors, he said, platform experience, transparent pricing and reliability matter more than the availability of leverage.
Yet, Roop Bhootra, whole-time director at Anand Rathi Share and Stock Brokers Ltd., believes a standalone MTF offering, even with a lower yield, may not be highly effective.
“Clients can only generate returns (after paying MTF interest) if they invest in quality stocks,” Bhootra said. “Perhaps a combination of quality research and a competitive MTF interest rate would create more value for clients.”