Could India witness a Korea-style market meltdown? Nithin Kamath explains the biggest risk
South Korea's sharp stock market selloff has prompted Zerodha founder Nithin Kamath to warn that India's growing margin-funded investing ecosystem could face similar risks during a severe market correction.
- Jul 29, 2026,
- Updated Jul 29, 2026 6:52 PM IST
South Korea's sharp stock market selloff has sparked a debate on the risks of leverage-driven investing, with Zerodha founder and CEO Nithin Kamath warning that India should take note before a similar cycle unfolds closer home.
While the Korean market correction was triggered by disappointing earnings from semiconductor giant SK Hynix, Kamath believes the bigger lesson lies in how leverage can amplify both rallies and crashes. According to him, India's rapidly growing Margin Trading Facility (MTF) market has yet to face a true stress test.
What triggered the selloff in South Korea?
South Korea's benchmark Kospi index plunged 6% on Wednesday after falling more than 8% during intraday trade, marking its steepest decline in months. The selloff came after SK Hynix reported quarterly earnings that, despite a nearly sixfold jump in profit from a year earlier, failed to meet lofty market expectations.
The disappointment triggered heavy selling in semiconductor stocks, with SK Hynix tumbling 9.4% and Samsung Electronics losing 4.8%. The weakness spread across Asian technology stocks, reflecting concerns that AI-driven chip companies had become richly valued after a prolonged rally.
However, Kamath argues that the sharp fall was not driven by earnings alone. Instead, excessive leverage magnified the decline.
MUST READ: Black Tuesday for KOSPI: South Korea's stock market crashes 11%; Samsung, SK Hynix lead rout
How leverage can turn a correction into a crash
Calling it his "biggest nightmare as a broker," Kamath said the rapid expansion of margin-funded investing poses the biggest risk Zerodha has taken since it was founded in 2010.
The brokerage currently has an MTF book of around ₹9,000 crore, with nearly half of that exposure in non-F&O stocks.
According to Kamath, markets become vulnerable when a sustained rally encourages investors to borrow more against rising collateral values. As stock prices increase, investors gain additional borrowing capacity, allowing them to purchase even more shares. The process creates a cycle in which leverage keeps building during a bull market.
The problem begins when prices reverse.
As collateral values decline, brokers issue margin calls, requiring investors to either bring in more funds or reduce their positions. If investors fail to do so, brokers sell pledged securities, increasing supply in an already falling market.
Kamath said leveraged ETFs and derivatives can worsen the situation, creating a self-reinforcing cycle of forced selling until markets eventually stabilise.
MUST READ: Why India's stock market is the 'inverse AI trade', according to Jefferies; here's what it means
Could the same happen in India?
Kamath believes India has not yet experienced a market correction severe enough to test the resilience of its growing MTF ecosystem.
"MTF became popular only in the last three to four years, and we really haven't seen a sharp market crash similar to the KOSPI since COVID," he noted.
While margin-funded positions remain relatively small compared with India's overall market capitalization, Kamath warned that a sharp correction could trigger disproportionate selling in small- and mid-cap stocks.
A key concern is that nearly half of Zerodha's MTF exposure is in non-F&O stocks. Unlike futures and options contracts, many of these stocks can hit consecutive lower circuits during periods of panic, leaving investors and brokers with no opportunity to exit positions. With brokers now offering MTF across nearly 1,500 stocks, a broad market decline could result in widespread forced unwinding.
DID YOU KNOW: India vs Taiwan: Why India's stock market is driven more by domestic demand
SEBI's guardrails offer some comfort
Despite his concerns, Kamath credited the Securities and Exchange Board of India (SEBI) for limiting excessive leverage in the Indian market.
Over the past few years, the regulator has tightened peak margin requirements, strengthened risk management norms and imposed stricter rules around margin funding. These measures, he said, have prevented the kind of unchecked leverage seen in some overseas markets.
The Korean market's sharp fall does not necessarily indicate that India faces an imminent meltdown. But Kamath's comments serve as a reminder that as leverage becomes more prevalent in the cash market, the next major correction may test India's margin trading ecosystem in ways it has never been tested before.
ALSO READ: Sensex, Nifty climb over 1% each; investors add Rs 4 lakh crore in wealth
South Korea's sharp stock market selloff has sparked a debate on the risks of leverage-driven investing, with Zerodha founder and CEO Nithin Kamath warning that India should take note before a similar cycle unfolds closer home.
While the Korean market correction was triggered by disappointing earnings from semiconductor giant SK Hynix, Kamath believes the bigger lesson lies in how leverage can amplify both rallies and crashes. According to him, India's rapidly growing Margin Trading Facility (MTF) market has yet to face a true stress test.
What triggered the selloff in South Korea?
South Korea's benchmark Kospi index plunged 6% on Wednesday after falling more than 8% during intraday trade, marking its steepest decline in months. The selloff came after SK Hynix reported quarterly earnings that, despite a nearly sixfold jump in profit from a year earlier, failed to meet lofty market expectations.
The disappointment triggered heavy selling in semiconductor stocks, with SK Hynix tumbling 9.4% and Samsung Electronics losing 4.8%. The weakness spread across Asian technology stocks, reflecting concerns that AI-driven chip companies had become richly valued after a prolonged rally.
However, Kamath argues that the sharp fall was not driven by earnings alone. Instead, excessive leverage magnified the decline.
MUST READ: Black Tuesday for KOSPI: South Korea's stock market crashes 11%; Samsung, SK Hynix lead rout
How leverage can turn a correction into a crash
Calling it his "biggest nightmare as a broker," Kamath said the rapid expansion of margin-funded investing poses the biggest risk Zerodha has taken since it was founded in 2010.
The brokerage currently has an MTF book of around ₹9,000 crore, with nearly half of that exposure in non-F&O stocks.
According to Kamath, markets become vulnerable when a sustained rally encourages investors to borrow more against rising collateral values. As stock prices increase, investors gain additional borrowing capacity, allowing them to purchase even more shares. The process creates a cycle in which leverage keeps building during a bull market.
The problem begins when prices reverse.
As collateral values decline, brokers issue margin calls, requiring investors to either bring in more funds or reduce their positions. If investors fail to do so, brokers sell pledged securities, increasing supply in an already falling market.
Kamath said leveraged ETFs and derivatives can worsen the situation, creating a self-reinforcing cycle of forced selling until markets eventually stabilise.
MUST READ: Why India's stock market is the 'inverse AI trade', according to Jefferies; here's what it means
Could the same happen in India?
Kamath believes India has not yet experienced a market correction severe enough to test the resilience of its growing MTF ecosystem.
"MTF became popular only in the last three to four years, and we really haven't seen a sharp market crash similar to the KOSPI since COVID," he noted.
While margin-funded positions remain relatively small compared with India's overall market capitalization, Kamath warned that a sharp correction could trigger disproportionate selling in small- and mid-cap stocks.
A key concern is that nearly half of Zerodha's MTF exposure is in non-F&O stocks. Unlike futures and options contracts, many of these stocks can hit consecutive lower circuits during periods of panic, leaving investors and brokers with no opportunity to exit positions. With brokers now offering MTF across nearly 1,500 stocks, a broad market decline could result in widespread forced unwinding.
DID YOU KNOW: India vs Taiwan: Why India's stock market is driven more by domestic demand
SEBI's guardrails offer some comfort
Despite his concerns, Kamath credited the Securities and Exchange Board of India (SEBI) for limiting excessive leverage in the Indian market.
Over the past few years, the regulator has tightened peak margin requirements, strengthened risk management norms and imposed stricter rules around margin funding. These measures, he said, have prevented the kind of unchecked leverage seen in some overseas markets.
The Korean market's sharp fall does not necessarily indicate that India faces an imminent meltdown. But Kamath's comments serve as a reminder that as leverage becomes more prevalent in the cash market, the next major correction may test India's margin trading ecosystem in ways it has never been tested before.
ALSO READ: Sensex, Nifty climb over 1% each; investors add Rs 4 lakh crore in wealth