At 1.79 million, demat accounts opened in June fewest since Feb 2021

New dematerialised (demat) accounts opened in June were at 1.79 million — the lowest since February 2021. Equities dropping to their 13-month lows and small- and mid-cap stocks getting hammered have taken the edge off euphoria around stock-market investing among individual investors, observe industry players.

New demat account openings have been moderating after hitting 3.5 million in October 2021, when the benchmark indices made their lifetime highs. Since then, markets have made feeble attempts at recovery, but the trend has largely been downward on headwinds like monetary tightening, Russia-Ukraine war, and rising commodity prices, among others Trading volumes have slackened as well. The average daily turnover for the cash segment fell to its lowest levels since February 2020.

“The level of participation by retail investors is showing a pronounced slowdown,” says Vijay Chandok, managing director and chief executive officer, ICICI Securities.   

“In 2019-20, the industry added 5 million new demat accounts. In 2020-21, this figure trebled to 15 million and nearly doubled in 2021-22 to 30 million. This is the best growth period the industry has ever had. Since markets peaked in October 2021 and subsequently corrected, we see a slump in the pace of newcomers entering the market,” Chandok adds.

The total demat count now stands at 96.5 million, with 16 million new accounts getting added during the first half of 2022 — higher than 12.4 million added in the first half of 2021.

During the second half of 2022, a staggering 18.5 million new accounts got added, reveals the Securities and Exchange Board of India data. However, a major chunk of these accounts is no longer trading actively, with moribund initial public offering (IPO) markets and weakness in stock prices weighing down sentiment.

“The retail sentiment has been affected as the rises after the October 2021 sell-off have been short-lived and are getting sold into, mainly by overseas investors. The small- and mid-cap space is where most retail investors have exposure to. Retail investors are also enduring the pain of losses in most IPO allotments this year and the preceding one,” says Deepak Jasani, head-retail research, HDFC Securities.

In June, the Nifty Midcap 100 and the Nifty Smallcap 100 were down 25 per cent and 35 per cent, respectively, from their record highs. These indices have seen recovery since but are still sharply lower from the peak.

Brokers say such volatile conditions are discouraging investors. The demat account opening tally and trading volumes might moderate further unless the market sees strong revival, add experts.

“Retail investors are by nature bullish. Unless markets have an upward trajectory, retail participation could reduce. Retail volumes are down nearly 25-30 per cent in individual stocks. This year will be a tough one, and volatility will be at its zenith. There will be tightening of balance sheets and capital expenditure could slow down again,” says E Prasanth Prabhakaran, MD and CEO, YES Securities.