Nithin Kamath has been stress-eating. “I’ve put on five kilos,” admits Kamath, the CEO and co-founder of Zerodha, India’s largest stockbroker in terms of the sheer number of broking accounts.

It’s not hard to see why he’s so wound up. While the Covid-19 pandemic has brought the world to an unprecedented standstill, it has wreaked havoc on the trading space. On 20 April, for instance, the contract price of West Texas Intermediate (WTI) oil futures for May fell to -$37 a barrel.

“It was probably the craziest day of my 25 years of being in the capital markets. A contract trading at a negative value is unheard of,” Kamath exclaims. In fact, on Indian commodity exchanges, systems do not even allow for a commodity’s value to drop below zero.

When the market opened the next day, the Multi Commodity Exchange Clearing Corporation (MCXCCL), a wholly-owned arm of the Multi Commodity Exchange (MCX) of India, asked stockbrokers to settle the oil futures at Rs 1 to start with. Later on, it settled the contract price at -Rs 2,884 (-$38) per barrel.

Traders who went short on oil—betting it would fall—made a killing. Zerodha, on the other hand, took a hit of Rs 10 crore ($1.3 million). This is because the value of oil swung so wildly that the margins margins Margins Margins allow traders to deposit a small amount of money and take exposure to a large value transaction, thereby leveraging on the trade traders had fronted for these oil contracts were woefully inadequate to cover their losses, which the platform had to cough up instead. Brokers must now recover this from traders. If traders can’t make good on their debts, brokers can only block them from their platforms.

All told, Indian brokers lost Rs 330 crore ($43.5 million) due to the 20 April crash, according to Kamath.

As Covid-19 continues to disrupt the very notion of normalcy, these sort of incidents are becoming more frequent. On 9 March, a similar dip in the value of crude oil contracts saw brokers lose around Rs 100 crore.

And it isn’t just commodities either. India’s publicly listed companies have lost over $400 billion in market capitalisation since February. The Nifty, the benchmark stock index of the National Stock Exchange, is down 22.6% since 24 February and has fallen steadily since early March. The market saw circuit breakers circuit breakers Circuit breakers Circuit breakers are regulatory mechanisms put in place in stock markets to temporarily halt trading and curb panic-selling triggered twice in March alone. The last time this happened was during the global financial meltdown in 2008.

“All companies were impacted and saw their revenues shifting.

AUTHOR

Arundhati Ramanathan

Arundhati is Bengaluru-based. She is interested in how people use money in the digital age and how new economies will take shape based on that interaction. She has spent over 10 years reporting and writing on various subjects. Previous stints were at Mint, Outlook Business and Reuters.

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