Why Zerodha's Nithin Kamath wants short selling made easy in India
advertisementIn simple words, short selling means you borrow a stock, sell it when you think the price will drop, and later buy it back at a lower price to return it. In many developed markets, this is normal. But in India, Kamath says it's still a big headache.
He further explains, 'Unless we make shorting of stocks easy in the Indian markets, price discovery will be impaired.'Right now, India's market is what experts call 'long-only'. That means most people only buy shares hoping they will go up, very few bet on prices falling. Kamath says this has made the whole system a bit unbalanced. 'India has been a structurally long-only market with almost no shorting activity, because borrowing stock to short is really hard and is an offline process,' he added.If someone wants to short a stock today, they mostly do it through futures or options. But there's a catch, there are only 224 stocks in India that have futures and options. So if a bad company is not on that list, no one can short it easily. Plus, these contracts expire every month, which means traders have to pay extra to roll them over if they want to keep the bet going, said Kamath.'Because of this long-only bias, there's probably very little short-selling talent as well, even if large funds want to start shorting,' he added.According to him, short sellers are actually good for the market. While many people think they are the villains who bet against companies, Kamath says they do an important job by pointing out what's wrong. 'Short sellers, although they have a bad reputation, are massively underrated. Think of them as janitors; they clean up all the garbage in the markets and make them more efficient,' he explains.Simply put, Kamath hopes that by making short selling simpler and online, India can clean up its markets just like those hidden janitors he spoke about, the short sellers who keep things in check.- Ends
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