India plans to nearly double stocks eligible for borrowing to ease short selling

India’s market regulator is taking a serious look at making it easier to bet against stocks. The Securities and Exchange Board of India (SEBI) has announced a comprehensive review of its short-selling and securities lending and borrowing (SLB) rules, with the goal of nearly doubling the number of stocks available for borrowing.

What SEBI is actually doing

SEBI Chairman Tuhin Kanta Pandey laid out the review during the ET Now Market Summit on June 12, 2026. The core idea is straightforward: expand the universe of borrowable securities well beyond the roughly 224 futures and options-eligible stocks that currently dominate the lending pool.

The proposed changes would open up most stocks to covered short selling for both retail and institutional investors. Naked short selling, where you sell shares you haven’t actually borrowed, remains firmly off the table. India’s mandatory delivery obligations aren’t going anywhere.

This review builds on discussions that started in 2025 about loosening restrictions on short selling for stocks beyond the F&O segment. The only exclusions would be stocks in the trade-to-trade category, which are already subject to tighter settlement rules.

Here’s the thing about the existing SLB mechanisms: they’ve been largely offline and chronically underutilized. The infrastructure existed on paper, but the friction was enough to discourage most participants from bothering.

Why this matters for markets

Zerodha co-founder Nithin Kamath has been among the prominent voices arguing that restrictions on short selling actually distort pricing, not protect it. When you can only go long on a stock, prices tend to reflect optimism more than reality, meaning overvalued stocks stay overvalued longer than they should.

By expanding the borrowable stock universe, SEBI is essentially trying to strengthen the connection between cash and derivatives markets.

The crypto connection

SEBI’s SLB review sits alongside other modernization efforts, including discussions around tokenization of corporate bonds and bond index derivatives. While these are separate workstreams from the equity short-selling framework, they share a common thread: India’s regulators are actively trying to reduce friction and bring market infrastructure closer to global standards.

The timeline for implementation remains uncertain, as SEBI has announced a review rather than final rules.

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