Navigating Leaner Markets: A Strategic Roadmap for India’s
Capital Market Stakeholders
Introduction
The Indian stock market in 2025 is experiencing a cyclical
contraction in trading volumes across both cash and derivative segments. This
decline directly affects key market participants—traders, stockbrokers,
exchanges, depositories, and the government. While such downturns strain
traditional income streams, they also create a necessary inflection point for
innovation, diversification, and investor-centric transformation.
1. Traders: Adapting to Leaner Times
When trading volumes are lower, it generally means less
liquidity and potentially smaller, less frequent price movements. This
challenges traditional high-volume, quick-profit strategies.
Suggestions for Traders:
Adapt Trading Strategies:
Focus on Quality Over Quantity: Instead of placing many small, quick
trades, the emphasis should shift to meticulously researching and identifying a
few high-conviction opportunities. This means spending more time on pre-trade
analysis and less on in-trade execution speed.
Swing Trading/Positional Trading: This involves holding positions for
days or weeks to capture larger price swings that might be less frequent but
more substantial. It requires a different mindset than day trading – less
screen time, more patience, and a deeper understanding of macro-economic
factors and company-specific news that can drive medium-term trends. For
example, instead of trying to scalp 0.5% profit on an intraday move, a swing
trader might aim for a 5-10% move over several days.
Value Investing Principles: Even for active traders,
understanding value investing helps identify fundamentally strong companies
that are currently undervalued. In a low-volume environment, such companies
might not see quick price appreciation, but they offer a higher margin of safety
and potential for long-term growth. This can involve holding a core portfolio
of such stocks while still actively trading a smaller portion.
Derivatives for Hedging, Not Just
Speculation: When
directional moves are less clear, derivatives (like options and futures) become
invaluable tools for risk management. Traders can use them to hedge their
existing cash market portfolios against potential downturns, reducing overall
portfolio volatility. For instance, buying a put option on a stock they own can
protect against a sharp fall without having to sell the underlying shares.
Enhance Analytical Skills:
Deep Dive into Fundamental Analysis: This goes beyond just looking at P/E
ratios. It involves understanding a company's business model, competitive
landscape, management quality, balance sheet strength, cash flow generation,
and future growth prospects. This skill becomes crucial when market sentiment
isn't strong enough to move prices on technicals alone.
Advanced Technical Analysis: While basic technical indicators
might become less reliable in low-volume, choppy markets, advanced techniques
can still offer insights. This includes understanding divergences, studying
volume at different price levels (Volume Price Analysis), analysing
multi-timeframe charts, and identifying less obvious chart patterns. The key is
to confirm signals with multiple indicators and be cautious of false breakouts.
Risk Management:
Stricter Risk-Reward Ratios: If win rates might be lower, each
successful trade needs to generate proportionally higher returns to cover
losses from unsuccessful ones. Aim for at least a 1:2 or 1:3 risk-reward ratio
(e.g., risking ₹1 to make ₹2 or ₹3).
Smaller Position Sizes: This is a direct consequence of
increased risk. By reducing the capital allocated to each trade, the impact of
a losing trade on the overall capital is minimised. This allows traders to stay
in the game longer during tough periods.
Disciplined Stop-Loss: In illiquid markets, prices can gap
or move sharply. A pre-defined stop-loss (either mental or system-based) is
non-negotiable to prevent small losses from turning into catastrophic ones.
Reviewing and adjusting stop-losses based on market conditions is also
important.
Diversification: Putting all capital into equities,
especially in a challenging market, can be risky. Exploring other asset classes
like:
Debt Instruments: Bonds, government securities, or
debt mutual funds can offer more stable, albeit lower, returns and provide a
cushion during equity market downturns.
Gold/Silver: Precious metals often act as a safe
haven during economic uncertainty and can be a good diversifier.
Real Estate: For long-term wealth creation, real
estate can be an alternative, though it's less liquid.
Continuous Learning: Market dynamics are constantly
evolving. Traders must commit to ongoing education – reading financial news,
following economic indicators, understanding geopolitical events, and staying
updated on regulatory changes. Learning from experienced mentors or taking
advanced courses can also be beneficial.
2. Stock Brokers: Shifting from Transactional to
Relationship-Based Revenue
For stockbrokers, lower trading volumes mean a direct hit to
their primary revenue source: brokerage commissions. They need to pivot from
solely relying on transaction fees to building more sustainable, value-added
relationships with clients.
Suggestions for Stock Brokers:
Diversify Revenue Streams:
Wealth Management and Advisory
Services: This is
perhaps the most crucial shift. Instead of just executing trades, brokers need
to become financial advisors. This includes offering services like:
- Financial Planning: Helping clients set and achieve long-term financial
goals (retirement, child's education, house purchase).
- Portfolio Management Services (PMS): Managing clients' portfolios
professionally for a fee based on Assets Under Management (AUM) rather
than per trade.
- Mutual Fund Distribution: Earning commissions from distributing various mutual
fund schemes (equity, debt, hybrid).
- Insurance & Other Products: Cross-selling insurance, fixed deposits, and
other financial products.
Research & Analytics: Developing proprietary, high-quality
research reports, market commentaries, and analytical tools (e.g., advanced
screeners, AI-powered insights) that clients might pay a premium for, or that
can be used to attract high-value clients.
Investment Banking Services (for
larger brokers):
Expanding into areas like initial public offerings (IPOs), follow-on public
offers (FPOs), qualified institutional placements (QIPs), mergers &
acquisitions (M&A) advisory, and debt syndication for corporate clients.
These are high-value, albeit infrequent, transactions.
Lending Against Securities (LAS): Providing loans to clients against
their stock holdings. This generates interest income and can also encourage
clients to hold their portfolios with the broker.
Technology & Efficiency:
Automate Operations: Investing in Robotic Process
Automation (RPA) and AI to automate repetitive back-office tasks like client
onboarding, account reconciliation, compliance checks, and report generation.
This significantly reduces operational costs and human error.
Advanced Trading Platforms: Offer state-of-the-art trading
platforms with intuitive interfaces, real-time data, advanced charting tools,
algorithmic trading capabilities, and integrated research. A superior platform
can be a key differentiator.
Client Engagement & Education:
Financial Literacy Programs: Conduct regular webinars, online
courses, and physical workshops on topics like "Introduction to Stock
Market," "Investing in Mutual Funds," "Retirement
Planning," and "Risk Management." Educated clients are more confident
and likely to invest more broadly.
Personalized Service: Assign dedicated relationship
managers to high-net-worth clients and active traders. Personalized attention,
pro-active advice, and quick resolution of queries build strong client loyalty.
Cost Rationalization:
Review Marketing Spends: Optimize marketing budgets by
focusing on digital channels, content marketing, and targeted campaigns that
yield higher ROI.
Optimize Branch Network: Re-evaluate the need for physical
branches versus digital presence. Some smaller, less profitable branches might
need to be consolidated or converted into pure advisory hubs.
Vendor Management: Renegotiate contracts with
technology providers, data vendors, and other service providers to ensure
competitive pricing.
Attract Long-Term Investors: Shift marketing and sales efforts
towards individuals looking for long-term wealth creation rather than just
speculative trading. These clients might trade less frequently but often have
higher AUM and are more receptive to advisory services.
3. Stock Exchanges: Innovating Beyond Transaction Fees
Stock exchanges are the backbone of the market, and a dip in
trading volumes directly impacts their core transaction fee revenue. They must
innovate their offerings and services.
Suggestions for Stock Exchanges:
Enhance Product Offerings:
New Asset Classes/Segments:
SME & Startup Listings: Actively promote and simplify the
listing process for Small and Medium Enterprises (SMEs) and startups. This
expands the universe of listed companies and potentially brings in future
trading volumes as these companies grow.
Green Bonds & Social Bonds: Facilitate the listing and trading
of sustainable finance instruments, tapping into growing environmental, social,
and governance (ESG) investing trends.
Carbon Credit Trading: Explore establishing a framework for
trading carbon credits, which could become a significant segment in the future.
Commodity Derivatives (further
innovation): Go
beyond basic commodities to more niche or refined commodity derivatives.
International Collaborations: Partner with leading global
exchanges for dual listings, cross-border trading initiatives, or technology
sharing. This can attract foreign capital and increase the global visibility of
Indian companies.
Technology & Data Services:
Advanced Data Analytics: Leverage their vast trove of trading
data to offer high-value data products and analytical services to institutional
investors, hedge funds, research houses, and even regulators. This could
include real-time market depth data, historical trading patterns, anonymized
participant behaviour data, and custom analytical reports.
Blockchain & DLT Adoption: Invest in research and development
for using Distributed Ledger Technology (DLT) for post-trade processes
(clearing and settlement). This can enhance efficiency, reduce settlement
cycles, lower counterparty risk, and potentially attract more institutional
participation by making the market more robust.
Cloud Computing & AI/ML: Utilize cloud infrastructure for
scalability and resilience, and deploy AI/ML for real-time market surveillance,
anomaly detection (for market manipulation), and personalized services for
members.
Cost Optimization:
Operational Efficiency: Continuously optimize their internal
operations using lean methodologies and automation to reduce fixed and variable
costs.
Cybersecurity Investments: While an expense, robust
cybersecurity is critical to maintaining trust and preventing costly breaches.
Regulatory & Policy Advocacy:
Collaboration with SEBI &
Government: Work
closely with the regulator (SEBI) and the Ministry of Finance to suggest policy
changes that can deepen capital markets, such as simplifying investment norms
for foreign investors, streamlining listing requirements, or providing tax
incentives for specific market activities.
Market Making Incentives: Propose incentives for market makers
to ensure liquidity in less frequently traded securities, even during
low-volume periods.
Market Development & Education:
Investor Awareness Programs: Partner with brokers, depositories,
and financial education bodies to run nationwide campaigns promoting financial
literacy and the benefits of long-term investing in capital markets.
Academic Collaborations: Engage with universities and
business schools to foster research in finance, provide market data for
academic studies, and groom future talent for the financial industry.
Diversify Beyond Core Trading Fees:
Index Licensing: Generate significant revenue by
licensing their proprietary indices (e.g., Nifty, Sensex) for use in mutual
funds, ETFs, and other financial products.
Technology Services: Offer their expertise in exchange
technology, surveillance, and data management to other smaller exchanges or
financial institutions globally.
4. Depositories
In an environment of declining trading volumes,
depositories—being the custodians of securities and facilitators of post-trade
settlements—must evolve from pure back-end infrastructure to proactive enablers
of investor confidence and market deepening.
Enhance Investor Services &
Engagement
Simplified Onboarding: Collaborate
with fintechs to enable seamless, fully digital account opening using Aadhaar,
DigiLocker, and e-signatures—especially in Tier 2/3 cities.
Investor Dashboards: Develop
personalized, intuitive dashboards that consolidate holdings, dividends,
corporate actions, tax statements, and performance analytics.
Proactive Communication: Send timely
alerts and education messages (e.g. rights issue deadlines, suspicious
transactions, portfolio summaries).
Product Innovation for Revenue
Diversification
Tokenization of Assets: Prepare
infrastructure to support tokenized securities (bonds, equities, REITs),
allowing fractional ownership and potentially new investor classes.
Demat of Non-Equity Products: Expand
beyond listed securities into dematerialization of unlisted corporate bonds,
insurance policies, sovereign gold bonds, and even education or carbon credits.
Retail Debt Market Integration:
Actively support government and corporate retail bond programs through
simplified custodial services.
Facilitate Long-Term Investment Behavior
Integrated SIP Framework: Offer a
central, depository-led Systematic Investment Plan (SIP) for direct equity
investors—auto-executed and held in demat.
Consolidated Digital Nomination:
Streamline nomination and succession planning tools so investors can assign
beneficiaries across all holdings in one go.
ESG Preferences Mapping: Allow
tagging of ESG investment preferences to holdings, aiding both investor choice
and market transparency.
Strengthen Infrastructure & Security
Advanced Cybersecurity: Invest in
zero-trust architecture, endpoint detection, and AI-driven threat surveillance
to safeguard investor data and digital assets.
RegTech Partnerships: Collaborate
with SEBI to automate regulatory compliance and flag anomalies across accounts
through real-time alerts.
Disaster Recovery & Uptime
Guarantees: Offer robust SLAs and 24x7 uptime to maintain market confidence
during volatile or low-liquidity periods.
Financial & Digital Literacy Expansion
- PAN-India
Campaigns: Lead awareness drives on “Why Hold in Demat?” covering costs,
tax benefits, and safety features—via digital media, vernacular content,
and partnerships with colleges.
- Gamified
Learning Modules: Introduce app-based quizzes, badges, and rewards for
young investors to learn about settlement cycles, rights issues, and
pledging.
- Village-Level
Investor Clinics: Use mobile vans or partnerships with CSCs (Common
Service Centres) to penetrate rural markets.
Collaborative Ecosystem Development
- Unified
Holding Statement (UHS): Work with RTAs, AMCs, and insurance companies to
provide a single monthly snapshot of all financial assets—demat and
non-demat.
- Blockchain
Consortiums: Explore common ledgers with exchanges and brokers to automate
settlement, reduce T+1 friction, and pre-validate fund/securities
availability.
- API
Economy Participation: Provide open APIs for fintechs and advisors to
build services around demat data (with consent architecture).
Depositories sit at a powerful intersection of technology,
trust, and transparency. By expanding their role from custodians to connectors,
they can play a central role in rebuilding market confidence, deepening
participation, and sustaining capital market vibrancy—even in low-volume
climates.
5. Government: Fostering a Robust and Fair Market Ecosystem
The government's primary interest is a stable and growing
economy, which includes a vibrant capital market. While STT collection is a
concern, the long-term health of the market is paramount.
Evaluate STT Rates:
Review STT Structure: Conduct a comprehensive review of
the STT structure in consultation with market participants (exchanges, brokers,
investors). While STT provides easy-to-collect revenue, excessively high rates,
especially on derivatives, can potentially stifle liquidity and drive trading
to other jurisdictions or less regulated channels.
Dynamic STT or Differentiated Rates: Consider if a dynamic STT (adjusting
based on market conditions) or differentiated rates for various types of
transactions (e.g., lower for long-term delivery trades vs. higher for
intraday/futures) could be beneficial. The goal could be to encourage genuine
capital formation rather than just short-term speculation.
Policy Measures for Market Growth:
- Boost
Retail Participation:
Simplified KYC & Onboarding: Streamline the Know Your Customer
(KYC) process, perhaps integrating it more seamlessly with existing digital IDs
(like Aadhaar) to make it easier for new investors to enter the market.
Financial Literacy Push: Launch nationwide campaigns through
public broadcasters and educational institutions to improve financial literacy
among the general public, particularly in semi-urban and rural areas.
Tax Incentives for Long-Term
Investing: Explore
providing additional tax incentives for long-term equity investments (e.g.,
higher deductions under Section 80C, or longer holding periods for LTCG
benefits).
Attract Foreign Capital: Continue to liberalise foreign
investment norms (FPI and FDI) in Indian companies and financial markets.
Ensure a predictable and stable regulatory and tax environment to build
investor confidence.
Promote Corporate Listings: Simplify regulations for companies
to go public, particularly for promising startups and SMEs, while maintaining
investor protection standards. This expands the investable universe.
Broaden Tax Base:
Comprehensive Tax Reforms: Instead of relying heavily on
specific transaction taxes, the government could focus on overall tax reforms
that broaden the tax base across various sectors of the economy. A stronger
economy naturally leads to higher corporate profits and individual incomes,
which ultimately translates to higher direct and indirect tax collections.
Crackdown on Tax Evasion: Intensify efforts to curb tax
evasion across all forms of income to ensure a fairer and more robust tax
collection system.
Invest in Digital Infrastructure:
- Digital
Public Infrastructure: Continue to invest in India's digital public
infrastructure (like India Stack – Aadhaar, UPI, DigiLocker). This can be
leveraged to create more efficient and secure financial market
operations.
- Regulatory
Technology (RegTech) & SupTech (Supervisory Technology): Invest in advanced technology
for market surveillance, data analytics for risk assessment, and
efficient regulatory reporting to maintain market integrity and prevent
fraud.
Long-Term Economic Growth: The most fundamental solution to
sustained market volumes and STT collection is robust and inclusive economic
growth. The government must focus on:
Fiscal Prudence: Maintaining a stable macroeconomic
environment with controlled inflation and a healthy fiscal deficit.
Infrastructure Development: Investing in physical and digital
infrastructure to boost productivity and attract investment.
Ease of Doing Business: Continuously improving the business
environment to encourage entrepreneurship and job creation.
Skill Development: Investing in education and skill
development to create a productive workforce.
By taking a holistic approach, considering both short-term
revenue impacts and long-term market development, the government can help
foster a resilient and attractive capital market ecosystem.
Conclusion
Declining trading volumes should not be interpreted solely as
a threat to income or activity—it’s a stress test for the market’s structural
resilience and inclusivity. Each stakeholder must now lean into its strategic
strengths: traders into discipline and patience; brokers into advisory depth;
exchanges into product and data innovation; depositories into custodial
intelligence and connectivity; and the government into enabling a predictable,
investor-friendly environment. The next leap for Indian capital markets may not
be measured by volume spikes but by value creation, trust enhancement, and
broader participation.
