Indian retail investors are increasingly utilizing margin loans to invest in blue-chip stocks that have been underperforming, hoping for a turnaround despite recent declines. This trend raises concerns among market experts, who warn of potential margin calls if these stocks continue to fall.
Margin Trading on the Rise
Stockbrokers in India offer a Margin Trading Facility (MTF), which enables investors to borrow funds to purchase shares. MTF allows investors to partly use their own capital and partly borrow from a broker to invest in stocks. Data from the National Stock Exchange (NSE) shows a surge in the total MTF book, reaching approximately ₹99,000 crore on October 1, 2025, a significant increase from ₹68,004 crore on April 7, 2025. For comparison, the Nifty 50 declined 3.4% during the same period because of escalations in the global trade war unleashed by US President Donald Trump. Over the past year, the benchmark index has declined 1.4%.
Popular Stocks and Their Performance
Four of the top five stocks in the MTF book by value—Jio Financial Services Ltd, Tata Consultancy Services Ltd, Tata Motors Ltd, and Reliance Industries Ltd—have experienced declines of 13%, 31%, 22%, and 3%, respectively, over the past year. Hindustan Aeronautics Ltd is an exception; its shares rose 1.32%.
Blue-Chip Stocks Explained
Blue-chip stocks are shares of well-established, financially sound companies with a history of consistent profits, strong market value, and regular dividend payments. These companies typically lead their industries and are known for solid financial performance, a strong brand presence, and investor trust. Examples in India include Reliance Industries, HDFC Bank, Infosys, and Tata Consultancy Services. Blue-chip stocks generally offer lower growth potential compared to high-growth companies but are considered safer investments due to their lower volatility.
Long-Term Growth Potential
While known for stability, blue-chip stocks also have the potential for long-term capital appreciation. These companies often grow over time, gradually increasing stock value. Additionally, blue-chip stocks are frequently multinational corporations with a global presence, offering investors portfolio diversification and exposure to various markets and economies.
Risks of Investing in Underperforming Stocks with Margin Loans
Market experts caution against using margin loans to invest in stocks that have been in the red for an extended period. Ankit Soni, Associate Vice President at Mirae Asset Sharekhan, suggests that the MTF book exposure to nonperforming stocks is unsustainable and that recent sell-offs could trigger margin calls.
FII Outflows and Market Outlook
Santosh Rao from the Economic Times acknowledged that Foreign Institutional Investors (FIIs) have been pulling funds amid global volatility, making India one of the worst performers in the MSCI Emerging Market Index recently. Rao notes that while India remains the fastest-growing economy, other markets currently offer better risk-reward due to inflation and relative valuations. Despite near-term headwinds, Rao remains optimistic about long-term inflows, believing that India's strong growth story will eventually attract global capital.
SIPs as a Safer Alternative
In contrast to lump-sum investments, Systematic Investment Plans (SIPs) have shown resilience, with investors realizing profits even as the Sensex and Nifty experienced declines. An analysis of large-cap funds indicates that while lump-sum investors may have incurred losses, SIP investors, employing rupee-cost averaging, have generally seen positive returns.
