Investors make a beeline to Dalal Street

CDSL, NSDL grab 7.52 lakh new investor accounts in first five mnths.

In the wake of sustained northward direction of the market over the last few months, more and more people are jumping on the equities bandwagon, and those existing investors also have been increasing their exposure to the market, according to leading market players.

In line with this perception, the first five months of the calendar year has seen a total accretion of 7.52 lakh new investor accounts by the country's two depositories, taking the total number of investor accounts to above 75 lakh, according t0 the data available with the depositories.

Investors have opened 5.05 lakh new accounts with the National Securities Depository Ltd (NSDL) during January-May 2005, taking its total investors count to 64.74 lakh, while the Central Depository Services (India) Ltd (CDSL) has added 2.47 lakh new clients to its list, taking the total client base to 11.10 lakh.

During the period starting January 2004 till May 2005, the number of depository accounts rose by nearly 25 lakh accounts (or about 49 per cent). The accounts rose from 50.91 lakh at end-December 2003 to 75.84 lakh at end-May 2005.

Analysis of NSDL data shows that the growth was on the higher side during January-May 2004 with over 7.68 lakh new investors coming into its fold compared with only 5.05 lakh during the same period in the current calendar.

This shows that the growth in new investor accounts is slowing with the expansion of base. Leading brokerages such as Anand Rathi Securities and Motilal Oswal have confirmed that the current surge is the result of the Sensex scaling newer peaks.

Anand Rathi of Anand Rathi Securities says, "It is natural for broking firms to enlist bigger client support and draw more deals from the existing customers when the market sentiment continues to be positive. Lower interest rates are also adding to this trend."

But the market players are not so sanguine about the market attracting retail investors during the current calendar year so far.

"Looking forward, the market is likely to expand further, with more and more securities firms setting up investor service centres in untapped towns," Rathi added.

Motilal Oswal of the leading research firm Motilal Oswal Securities says that most of the new investors in equities are entering the market through initial public offerings (IPOs).

Direct investments flowing to the secondary market are few and far between. He also concurs with Rathi on the point that existing investors are increasing their transactions.

On the other hand, Deena Mehta of Asit C Mehta Investment Intermediates, was categorical in her view on expansion of investor base. She says, "the new account accretion by brokers cannot be termed as new investors as there is a lot of client-switching taking place. Thus, it is difficult to say that the retail penetration has become strong by any means."

Mehta cites two reasons for the bleak prospect of retail penetration on a larger scale, despite availability of investable surplus with people.

One, lack of reach of banking network and technology in smaller towns and rural areas, and the other, too much of documentation required for entering the markets of late, the formal nature which Indians generally abhor.

A new investor has to fill in three agreements and has to make a host of personal disclosures with brokers and depositories to start trading nowadays.

"Retail penetration cannot meet with success till the broking community makes efforts to educate investors about the fundamentals of investment, risky nature of equity investment and expanding the cake of investing community, rather than fighting for the same client base," Mehta said.