Nithin Kamath Calls for Simplifying Short Selling in India

Zerodha CEO Nithin Kamath urges the simplification of short selling in India, highlighting market inefficiencies due to current restrictions. Kamath advocates for regulatory changes to improve price discovery and market efficiency. Zerodha plans to introduce an online platform to ease stock lending and borrowing, addressing existing challenges.

Nithin Kamath, Founder and CEO of the stock brokerage firm Zerodha, has made a compelling case for simplifying short selling in Indian stock markets. Speaking in a post on X, Kamath argued that the scarcity of short selling has led to potential market inefficiencies and impairments in price discovery.

A short-seller typically profits from a decrease in share prices. Kamath pointed out that India's markets have been predominantly long-only, largely due to the complex and offline process of borrowing stock for shorting. This structural bias, he noted, has resulted in limited short-selling expertise within the country.

Currently, investors primarily rely on futures and options to short stocks, but with only 224 F&O stocks available, many problematic stocks remain unshorted. Kamath emphasized that the expiration of these contracts each month incurs significant costs. Without regulatory changes, he warns, price distortions will persist. Zerodha aims to launch an online platform by year-end to facilitate easier stock lending and borrowing, potentially rectifying these issues.

(With inputs from agencies.)