Nithin Kamath, founder of India's largest brokerage Zerodha, has voiced his concerns regarding the recently implemented Call Auction Session (CAS), stating that while the concept itself isn't inherently flawed, its rollout has starkly highlighted the structural limitations of the Indian stock market. Kamath shared his insights on X (formerly Twitter), emphasizing that the timing of CAS coincides unfortunately with new Reserve Bank of India (RBI) norms limiting banks' capital-market exposure.
The Call Auction Session and Its Intent
Most major global markets incorporate some form of a closing auction. The CAS aims to bring together institutional orders, particularly from passive funds and benchmark-tracking investors, to discover a single closing price. This mechanism intends to improve price discovery and facilitate the execution of large orders without causing abrupt price movements, rather than relying on an average traded price from the final 30 minutes.
Kamath Flags Structural Limitations of Indian Markets
Despite the good intentions behind CAS, Kamath argues that the price dislocations observed since its implementation underscore specific problems within the Indian market ecosystem. He noted that out of over 13 crore registered investors in India, only about 20-30 lakh actively trade on any given day, indicating a relatively shallow market.
Lack of Deep, Two-Sided Liquidity
Kamath pointed out that India lacks a sufficiently large and committed ecosystem providing two-sided liquidity across various segments, including the cash market, futures, ETFs, and closing auctions. In mature markets, arbitrageurs typically step in to reconcile price divergences between these instruments and exchanges, a capability that is significantly limited in India.
Challenges in Expressing a Short View
A major structural issue, according to Kamath, is the difficulty in expressing a short view in the cash market. While a securities lending and borrowing (SLB) mechanism exists, it is neither deep nor user-friendly enough. He contends that unless borrowing stocks and shorting them becomes easier, the market will inherently experience structural upward pressure.
Disparity in Futures vs. Options Trading Costs
Kamath also highlighted the cost differential between trading options and futures contracts. Following an increase in Securities Transaction Tax (STT) on futures in April 2026, trading futures has become more expensive than options, even though options have a higher STT rate on premiums. This disparity, coupled with exchange charges, spreads, and impact costs, makes futures arbitrage less attractive, leading traders to prefer options for similar directional views.
Ultimately, Kamath believes that while tweaks to CAS might be necessary, the deeper issue of a shallow Indian market requires a comprehensive ecosystem that encourages diverse participants with varying time horizons to engage easily. Without addressing these fundamental limitations, market distortions will persist.