Turkey’s Small-Cap Crisis: Could It Happen in India?

General
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Turkey’s recent sell-off wasn’t simply a case of the economy suddenly collapsing. The BIST 100 has fallen roughly 10% to 11% across the sessions shown, with today’s decline reaching about 6% and triggering a market wide circuit breaker.

The problem started inside parts of the fund-management industry.

Some funds had built very large positions in small, thinly traded stocks. When investors started asking for their money back, the funds struggled to sell those stocks quickly enough to meet redemptions.

That created a vicious cycle:

Investors withdraw money → funds need cash → funds sell stocks → prices fall → liquidity disappears → more selling.

Tera Portföy alone reported that two funds with around ₺366 billion ($7.5 billion) in assets had failed to meet some redemption requests. The Turkish regulator subsequently ordered the liquidation of 130 funds, while authorities increased central-bank repo funding to ₺300 billion to ease liquidity pressure.

Now comes the interesting part for India.

India has a rapidly growing MTF market. The MTF book was around ₹1.42 lakh crore in August 2026, and market participants have warned that heavy leverage in mid- and small-caps could amplify a correction through margin calls and forced selling.

Imagine a scenario where a large amount of MTF exposure is concentrated in small-cap stocks with limited liquidity.

Then:

Small caps fall → margin calls → brokers sell → prices fall further → more margin calls → even less liquidity.

That could potentially turn an ordinary correction into a much bigger liquidity event.

The question is:
If Indian small caps suddenly fall 30–40% and there aren’t enough buyers to absorb leveraged positions, how far can the domino effect spread?

Could it remain limited to small caps? Or could forced selling eventually affect mid-caps, brokers, NBFCs and broader market sentiment?

Turkey is a reminder that leverage + concentration + illiquidity can become dangerous very quickly. With situation we are in right now looks like this day isnt far ahead, probably countdown has already begun :grimacing: :grimacing:

Source

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We have had a pretty solid rally over the last 5-6 years, and MTF has grown a lot along with it. The book is now around ₹1.55 lakh crore, so there’s definitely a lot more leverage sitting out there. (source)

What worries me is that a good chunk of this is in non-F&O, small and midcap names. If we ever get a COVID-type fall, a 20-30% correction could look very different once brokers start unwinding leveraged positions.

That’s the part I’m curious about. what’s the Plan B if liquidity dries up and forced selling starts feeding into more margin calls?

Would really like to know how India handles something like that…

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NO, there is no crisis possible in smallcaps.

I was very bearish on smallcaps two weeks back (posted here multiple times) and even I said max 8-10% fall will happen. 30% fall or crash is IMPOSSIBLE.

Also stop comparing our Nifty with FARZI indices like BIST and MERVAL. Its like seeing ADANIENT fall by 80% and saying RELIANCE will fall 80% or not.

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During COVID, Indian small caps experienced a decline of nearly 40% within just a few weeks. The point here isn’t to predict another 30% crash, but rather to understand the potential impact of liquidity constraints and forced selling.

India could obviously face a very different trigger and transmission mechanism. The question I’m trying to explore/understand is whether small-cap liquidity would be able to absorb a major wave of selling, particularly given the extent of MTF exposure.

My understanding is that more than 50% of MTF exposure is concentrated in small caps. I’m simply trying to compare these factors and understand how the market might behave if there were a significant wave of forced selling not to predict a specific correction or crash.

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Runaway inflation but still… look at those juicy returns! :drooling_face:

If I’m to believe an LLM, it even generated profits for investors after all that inflation. :exploding_head:

Index Nominal growth Local inflation Real growth Real CAGR
NIFTY 50 20.7× 4.29× 4.82× 6.5% p.a.
BIST 100 119.3× 86.6× 1.38× 1.3% p.a.
MERVAL 7,322× 676× 10.83× 10.0% p.a.
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Bro i am checking them since like 2022 :joy: Its beyond madness.

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New dream: get 300% returns in an year. :sob:

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I dont understand what you mean by this? Do you want to predict it will fall 60% or 80%?

As investor, I keep things simple. History shows us there is 8-10 years between any major crashes.

Other than this, I also follow technical analysis and chart patterns. Based on that, I dont see any big crash coming soon.

These reasons like MTF, Fed, Trump, War will keep coming in between, we cannot take everything too seriously.

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Ah yes, the market follows an 8–10 year schedule. Who needs risk management/triggers when we have history and chart patterns? Absolutely :joy: MTF, Fed, Trump and war are all ‘just noise,’

8–10 year :sweat_smile:

Let me know when we are at the bottom :saluting_face:

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I had this personal research/discussion thingi going with my friend circle, and a few people I know have built fairly big MTF positions across 2-3 brokers.

So I was just thinking, if this is happening within the circle I know, what about the wider retail crowd who may not fully understand how or when to use MTF?

If the correction continues, at some point people may start cutting these leveraged positions, and that forced selling could add more pressure to the downside.

And yeah, obviously we can’t take every geopolitical or economic event too seriously, but you never really know which event could act as a catalyst and trigger a bigger move.

MTF looks great when the market is going up, but when things reverse, the leverage works both ways. Just curious if I’m looking at this the right way…

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I think you’re underestimating leverage. If COMEX want a silver crash, they engineer it by reducing leverage. Charts follow.