No sign of slowing in demat account surge as markets attract new investors

Over three million accounts added for fifth straight month

The number of dematerialised (demat) accounts required to hold shares and other securities in electronic format rose by 3.1 million in April, bringing the total tally to a fresh record of 154.5 million. Since December last year, the new additions have consistently remained above the 3 trillion mark, a sign that the stock markets continue to attract new investors despite a spike in volatility.

The March 2024 quarter was the best quarter for depository firms Central Depositories Services India Ltd (CDSL) and National Securities Depository Ltd. (NSDL) in terms of demat account additions and the pace is showing little signs of ebbing.

 

“About 10 million plus demat accounts were opened in the fourth quarter of FY24, which is the highest in any quarter since our inception. These kinds of achievements are a testament to the growing trust in the Indian capital markets,” said Nehal Vora, MD & CEO, CDSL, the biggest depository in terms of a number of accounts handled.

Market players said the pace of demat additions was an encouraging sign for the stability of the markets as the new investors will help bring incremental flows. They added that the trend also showed more and more households' savings are getting channelised into equities. The ease of opening accounts due to digitisation and more awareness about equity investing is also cited as the reasons for the surge in demat accounts.

The broader market gains in April, after a slump in the previous two months, could have helped attract a new set of investors. In April, the Nifty Midcap 100 gained 5.8 per cent, the best return since December 2023, while the Nifty Smallcap 100 rose 11.4 per cent, its best gain since November 2023. New investors flocking to the market prefer mid and smallcap stocks given the allure of high returns. Analysts said there was value in certain small and midcap stocks following a sharp drop in valuations.

"The small and midcap stocks gave excellent returns over the last 12 months, and investors who could not participate in the post-pandemic bull run entered markets. Moreover, when you already have 150 million plus demat accounts and the previous quarter was good, there is some spillover effect. It helps to spread word of mouth,'' said Prakash Gagdani, CEO of Torus Financial Market.

Gagdani added that people who had not opened accounts earlier or those who invested through mutual funds were often lured to direct investing as market returns are robust.

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"A small set also came to trade in derivatives," he said.

IPOs, seen as new investors' lodestone, were robust in April. The Rs 4,275 crore issue of Bharti Hexacom, which came in April, was subscribed 30 times. Also, the Rs 18,000 crore FPO by Vodafone Idea attracted close to a million retail applications. Given the lure of listing gains, investor sentiment toward IPOs has become more favourable. Many existing investors are opening new accounts for their family members to enhance their chances of securing an IPO allotment.

Going forward, the number of new additions is likely to plateau.

"The number should settle at 2 to 2.5 million per month. May and June could be volatile, and that's when you see more accounts. When there is volatility, price swings in stocks in the short term are very high. Higher returns with volatility are attractive for new investors, and there is an opportunity to trade more in derivatives,'' said Gagdani.

Some expect pressure on the markets after the election results in June.

"If the number of seats is lower, then there could be a correction. There is speculation that markets will correct closer to elections, and some investors are trying to pre-empt it. That's why we see profit bookings at every higher level lately. Moreover, even if there is regime continuity, there could be chances of making tough decisions that may look difficult in the short term, and markets will react,'' said Ambareesh Baliga, independent equity analyst.