Kamath said there might be tweaks required in how CAS itself works, but the larger issue of Indian markets being shallow is a complicated problem to solve. It requires building an ecosystem that encourages all kinds of traders and investors, with different time horizons, to participate easily, he said.
“When one instrument is more attractive than another, or when participants cannot express both bullish and bearish views easily, distortions are inevitable,” Kamath explained.
His comments came as the benchmark indices, Sensex and Nifty, moved in opposite directions over the past couple of sessions, leaving investors puzzled.
Kamath noted that India has over 13 crore registered investors, but only about 20–30 lakh traders trade actively on any given day. He said India does not have a large enough committed ecosystem providing two-sided liquidity across the cash market, futures, ETFs, and closing auctions.
He said closing auctions work well when there is deep liquidity and a large and diverse ecosystem of market participants, including market makers and arbitrageurs. Whenever prices diverge between the cash market, futures, ETFs, or different exchanges, participants step in and arbitrage the differences away.
This ability to arbitrage is much more limited in India, Kamath explained.
He said it is impossible to express a short view in the cash market. “We have a securities lending and borrowing mechanism, but it isn’t deep or easy enough to use. Unless borrowing stocks and shorting them becomes easy, there is bound to be structural upward pressure in the markets,” he said.
Then, Kamath said, there is the difference in the cost of trading an option versus a futures contract. In April 2026, STT on futures was increased to 0.05 per cent of the entire contract value, while STT on options is charged on the premium. So even though the STT rate on options is higher, trading futures is more expensive, he said.
