Margin loans used for trading in Indian equities fell to its lowest level since June, as traders pared leveraged bets amid a prolonged downturn in the nation’s $3.8 trillion stock market.

Outstanding margin loans have declined 14% this year through end-February to $8.2 billion, according to data from the National Stock Exchange of India Ltd. compiled by Bloomberg.

The contraction in speculative liquidity risks amplifying volatility at a time when foreign funds have pulled nearly $15 billion from local stocks in 2025. The reduction is in contrast to markets like Hong Kong, where a frenzy around new share sales has seen retail investors take $353 billion in margin loans.

“The correction, especially in mid- and small-caps, has vitiated the environment and partly contributed to the decline in the margin trading facility,” said Shripal Shah, chief executive officer at Mumbai-based Kotak Securities Ltd.

The selloff has cooled appetite for leveraged trading in other pockets of India’s market, with retail trader participation in equity derivatives in January dropping to the lowest since August 2023, according to the NSE.

This marks a reversal from 2024, when positions funded by margin loans surged 67% to ₹82,800 crore by end-December, driven by increased access through brokers including Zerodha Ltd. The facility, which offers up to four times leverage, has become popular as a cost-effective way for traders to amplify their bets amid a crackdown by the market regulator on options trading.

“Margin trading facility is a bull market product — one that has lot of takers when prices are rising one-way because profits get amplified,” said Dhiraj Relli, chief executive officer at HDFC Securities Ltd. “When prices fall sharply, one could just as easily lose the entire capital.”

The margin loan book is unlikely to see a pick up unless the stock prices stage a meaningful recovery, he said.