 "At 2.9 mn, new demat account additions hit 18-month high in July")
The buoyancy in the market in July boosted new account openings at brokerages as 2.9 million new dematerialised accounts -- required for trading and holding shares electronically — were opened with two depositories -- CDSL and NSDL -- the highest since January 2022.
The total demat tally has now reached 123.5 million. The new additions in July were up 26 per cent month-on-month and were nearly 50 per cent higher than the previous 12-month average of 2 million.
In July, the Indian equity benchmarks hit new highs in multiple sessions. The Sensex gained 2.8 per and the Nifty50 2.9 per cent on the back of strong inflows from foreign portfolio investors (FPIs), encouraging June quarter earnings and hopes that the rate hike cycle is peaking. The Nifty Smallcap 100 index rose 8 per cent, while the Nifty Midcap 100 index advanced nearly 6 per cent in the seventh month of the year. FPIs bought shares worth Rs 33,994 crore, taking their five-month buying tally to Rs 1.6 trillion.
"The biggest contributor to demat additions is the rally in broader markets. There was a rally in the mid-cap, small-cap and micro-cap segment from the March lows. Many retail investors have seen new highs getting hit on their portfolio companies. In April, we had one of the lowest openings in a while, and now we have the highest. The only difference in the last three months is the rally in broader markets and marked improvement in sentiment," said Jimeet Modi, chief executive officer of Samco Securities.
A better IPO market and a relaunch of new derivatives contracts by the BSE, with reduced lot sizes and new expiry cycles, have contributed to luring new investors.
Another reason is initial public offerings (IPO), which are seen as an investor lodestone. In July 2023, four issues worth Rs 2,212 crore were launched
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“Historically, participation by new retail investors has been observed during the peak of a market rally," said Trivesh D, chief operating officer of Tradejini. “Having said that, the importance of the fundamental strength of the economy and the underlying companies continues to remain very positive and will consequently have a spillover effect on the new demat account openings.”
Modi said that the new account openings will stay in the range between 2.5 million and 3 million “unless there is a big correction in markets.”
He pointed out that many new account additions are existing investors opening new demat accounts to segregate trading and investment and not necessarily all of them are new investors.
"Sometimes investors keep a backup. And sometimes, for income tax purposes, people keep their investments in one account and trade in another account. "
The pace of demat additions is likely to be influenced by whether the market rally and the IPO momentum sustains. The latter holds more promise with nearly 10 companies lining up their IPOs to raise a cumulative Rs 8,000 crore in August.
Market players said that given the recent listing day gains, investor sentiment towards IPOs has turned favourable. Many are opening new accounts for their family members to better their chances of getting an IPO allotment.
The use of technology has made demat and trading account opening easier for investors. This is seen as one of the biggest underpinning factors for the three-fold jump in demat accounts since the Covid-19 pandemic. The demat account tally stood at just 40.9 million in March 2020.