India's securities regulator has proposed allowing domestic portfolio management service providers to take short positions in equity derivatives for the first time, marking a significant shift in market structure.

The move would enable professional money managers to execute unhedged short bets, providing new tools for portfolio construction and risk management. Currently, such strategies remain restricted for domestic institutional investors, limiting their ability to express negative views on specific stocks or sectors.

This liberalization comes even as the regulator simultaneously tightens oversight of retail trading activity, reflecting a dual-track approach that empowers sophisticated participants while protecting less experienced market entrants. The proposal signals growing confidence in the maturity of India's derivatives infrastructure.

Market participants are evaluating the operational and compliance implications, with industry bodies expected to submit feedback during the consultation period before final rules are enacted.