 "Ladakh, Mizoram, Lakshadweep: Why are demat accounts rising in these cities")
The number of demat accounts has been steadily increasing in recent years as investors have shown unprecedented interest in the stock markets. Data indicates that investors from Tier-II and Tier-III cities have been at the forefront in the past few months.
According to the BSE, Ladakh has topped the chart in client growth among states and union territories, surpassing all others with a remarkable surge in clientele numbers both on a quarterly and yearly basis.
As on April 22, Ladakh saw a staggering yearly increase of 375.77 per cent in the number of clients. BSE’s total client base for Ladakh now stands at 1,551. This is followed by Mizoram with 76.19 per cent rise year-on-year (Y-o-Y) with 11,022 clients added, and Lakshadweep with 57.81 per cent Y-o-Y rise, having added 885 clients.
In terms of volume, Maharashtra topped the chart with over 3.2 crore clients registering on BSE.
So, what is driving this? Analysts attribute the increasing number of demat accounts in recent years to a preference for equity markets over other asset classes. The growing financialisation of savings, which entails a shift from the traditional preference for physical assets such as real estate, gold and bank fixed deposits to investment in financial assets, they added, has contributed to this growth.
In recent years, equity markets have become more democratised, says Nikhil Aggarwal, founder and CEO Grip Invest, with the new users coming from Tier-II and Tier-III cities and varied income groups.
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“These financial assets whether listed stocks or bonds, or even unlisted shares, require a demat account. The strong growth of the stock market combined with growing awareness, ease of investing and almost zero cost of opening a demat account through a fintech platform has been one of the key drivers for the surge in the demat tally across India,” Aggarwal said.
Rally in frontline indices
While frontline stock indices such as the S&P BSE Sensex and the Nifty 50 surged around 20 per cent each on calendar year 2023 (CY23), the returns from the mid (44 per cent) and smallcap (48 per cent) indices on the BSE have been phenomenal.
In comparison, gains from the traditional asset classes such as precious metals (gold and silver) and fixed deposits have been up to 20 per cent during this period.
Meanwhile, nearly 3.7 crore new demat accounts were opened in the financial year 2024 (FY24), which is an increase of 32 per cent over the previous fiscal and the largest for any fiscal year in absolute terms. There are now 15.13 crore demat accounts overall. In March 2023, the figure was 11.44 crore.
Jyoti Prakash Gadia, managing director at Resurgent India, a NCR-based investment bank, attributes the surge in demat accounts to a paradigm shift in the mindset and aspirations of the younger generation and the expanding middle class. Besides metropolitan and large cities, the demand is now being generated from Tier II and Tier-III cities with the availability of online investment options through the use of digital technology.
“Traditionally, Indians have been putting their surplus money in conventional avenues of bank deposits and gold only. With the development of the economy, the stock market has emerged as an attractive option, and this is the driving force for the opening of new demat accounts,” Gadia said.
Primary market boom
Another reason for the rise in demat tally has been the healthy primary market activity back home. 57 Indian corporates rose Rs 49,434 crore through main board IPOs in 2023, 17 per cent lower than the Rs 59,302 crore mobilised via 40 IPOs in 2022, data shows. However, excluding the mega LIC IPO which came out in 2022, IPO mobilisation increased by 28 per cent Y-o-Y.
Of the 57 IPOs, 41 IPOs received a mega response of more than 10 times (of which 16 IPOs more than 50 times) while 9 IPOs were oversubscribed by more than three times. The balance 7 IPOs were oversubscribed between 1 to 3 times, data from PRIME Database shows.
“There is a growing customer base for systematic investment plans (SIP). The market has seen an influx of new investors due to successful IPOs as well. A demat account gives one access to other products such as mutual funds etc,” said Palka Arora Chopra, director, Master Capital Services, a Delhi-based broking firm.