A book holds Rs 100 crore of equities on Rs 25 crore of capital with a 15% maintenance margin. What fall triggers a margin call, and what daily volatility would make that a one-in-twenty-day event?

The call arrives at a portfolio value of about Rs 88.2 crore, a fall of 11.8%, and for that to be a one-in-twenty single day the book would need daily volatility of about 7.2%, far above anything a diversified book shows. Over twenty trading days the same fall needs only about 1.6% a day, which is ordinary. After a 15% fall Kalpavan would have to sell about Rs 18.3 crore of stock to restore the ratio.

Think of a flat bought with a Rs 75 lakh loan and Rs 25 lakh of savings. If the bank insists your stake stays at 15% of the flat's value, the stake and the requirement both move when the price moves, but not at the same speed: every rupee off the price comes out of your stake, while the requirement falls by only 15 paise. The call lands where equity, value minus 75, equals 15% of value: 85% of value equals 75, so value is 88.2 crore and the fall is 11.8%, not 15%. At that point Kalpavan's Rs 25 crore has become Rs 13.2 crore, a loss of 47% of its capital on an 11.8% market move, which is the leverage of four doing its work.

A one-in-twenty bad day is the 5% tail, which on a normal curve sits 1.645 standard deviations below zero. For an 11.8% fall to be that tail in one day, daily volatility must be 11.8% over 1.645, about 7.2% a day, which is around 113% annualised. A diversified large-cap book runs nearer 1.2% a day, and at that level an 11.8% single-day fall is a ten-sigma event on the normal curve, effectively never. So the honest answer to the risk desk's question is: not in a day. The call is a multi-day event, and the right question is over what horizon.

Stretch the horizon and the arithmetic changes shape. Over n days the standard deviation grows with the square root of n, so the volatility needed shrinks the same way. Over ten days the fall needs 2.26% a day; over twenty, 1.60% a day, which is a normal book in a nervous market. At 1.2% a day the chance of an 11.8% fall inside twenty trading days is about 1.4% on the normal curve, before fat tails, and real equity months fall that far more often than the normal curve admits. The desk should therefore watch the twenty-day number, and should treat a vol spike as the warning, because the same fall becomes a one-in-twenty month the moment daily volatility doubles.

Suppose the market falls 15%. The portfolio is worth Rs 85 crore, the loan is still Rs 75 crore, so equity is Rs 10 crore, 11.8% of value. To restore 15%, Kalpavan sells stock and repays the loan with the proceeds; equity does not change, but the value it is measured against shrinks. It must sell until Rs 10 crore is 15% of what remains, which means holding only Rs 66.7 crore and selling about Rs 18.3 crore, over a fifth of the book, into a market that has just fallen 15%. That forced sale, at the worst moment and often alongside every other levered holder, is what turns a market fall into a loss that cannot be recovered. The prudent response is to compute the trigger on day one and keep enough cash or unencumbered stock to meet a call without selling into it.

State the limits. The normal curve understates equity tails, so the twenty-day probability is a floor, not an estimate. The requirement is often raised by the broker in a crisis, which moves the trigger towards you as the market falls; at a 25% requirement the call would arrive at Rs 100 crore, which is today. Check the actual margin schedule, because this is one case where the framework is simple and the contract is not.