Indian Economy News

At 2.9 million, new demat account additions hit 18-month high in July

The market's buoyancy in July spurred new account openings at brokerages, with 2.9 million new dematerialised accounts (needed for trading and keeping shares electronically) registered with two depositories, CDSL and NSDL, the most since January 2022.

The total number of demat accounts presently stands at 123.5 million. In July, new additions increased by 26% month on month and were roughly 50% more than the previous 12-month average of 2 million.

In July, the Indian equity benchmarks set new highs in many sessions. The Sensex climbed 2.8% and the Nifty50 gained 2.9% because of robust inflows from foreign portfolio investors (FPIs), excellent June quarter profits, and anticipation that the rate hiking cycle has peaked. In the seventh month of the year, the Nifty Smallcap 100 index gained 8%, while the Nifty Midcap 100 index gained roughly 6%. FPIs purchased shares totalling US$ 4.11 billion (Rs. 33,994 crore), bringing their five-month purchase total to US$ 19.35 billion (Rs. 1.6 trillion).

Chief Executive Officer of Samco Securities, Mr. Jimeet Modi said that "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". According to Mr. Jimeet Modi, new account openings will remain between 2.5 million and 3 million "unless there is a significant market correction." He emphasised that many new account additions are current investors who register new demat accounts to separate trading and investing and that not all of them are necessarily new investors.

New investors have been drawn in part by a more favourable IPO market and the BSE's introduction of new derivatives contracts with smaller lot sizes and new expiration cycles. Another reason is that initial public offerings (IPOs) are seen as a goldmine for investors. Four issues of US$ 267.52 million (Rs. 2,212 crore) were released in July 2023. And, for tax considerations, some people store their money in one account while trading in another.

The pace of demat additions is expected to be determined by whether the market boom and IPO momentum continue. The latter has greater potential, with roughly ten businesses planning IPOs to raise a total of US$ 967.54 million (Rs. 8,000 crore) in August.

According to market participants, investor sentiment towards IPOs has improved as a result of recent listing day gains. Many people are registering new accounts for their family members in order to increase their chances of acquiring an IPO allotment. The use of technology has simplified the opening of demat and trading accounts for investors. This is viewed as one of the primary reasons for the threefold increase in demat accounts after the Covid-19 epidemic. In March 2020, the total number of demat accounts was just 40.9 million.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.