'Unless we make shorting of stocks easy...': Nithin Kamath slams India’s 'long only' market

Zerodha co-founder Nithin Kamath has flagged India's lack of short-selling infrastructure as a critical flaw distorting the country’s stock market pricing mechanisms.

In a LinkedIn post, Kamath warned that India’s equity markets suffer from a "structurally long-only" bias due to the difficulty of borrowing stocks to short. “Borrowing stock to short is really hard and is an offline process,” Kamath noted, adding that this creates major obstacles for traders and funds looking to profit from falling stocks.

Kamath pointed out that while derivatives like futures and options offer limited avenues for short selling, they cover only 224 stocks and come with high rollover costs due to monthly expiries. “Only the first month contract is liquid,” he wrote, stressing that this prevents efficient price discovery across most of the market.

The result, he argued, is a system skewed toward inflated valuations and underdeveloped short-selling expertise. “Because of this long-only bias, there’s probably very little short-selling talent as well,” he said, suggesting that even institutional players are hindered by infrastructure gaps.

Kamath likened short sellers to “janitors,” saying they play a vital role in “cleaning up all the garbage in the markets and making them more efficient.” Despite their poor public image, he asserted, they are essential for market balance.

India’s Securities Lending and Borrowing (SLB) mechanism remains largely offline, adding friction to an already cumbersome process. 

“Most brokers don’t offer an online option,” Kamath wrote, acknowledging that even Zerodha requires clients to call in for SLB transactions. He revealed that the company aims to roll out an online SLB platform by year-end to simplify access.

Kamath’s comments come amid growing calls for regulatory reform to modernize market infrastructure and promote transparency in Indian equities.