Why There Is A Surge In Demat Accounts

The total number of demat accounts in the country stood at 171.1 million as of August 31.

India's total dematerialised (demat) accounts -- used for holding shares and other securities electronically -- rose by over 4 million in August to cross the 170 million mark, led by a surge in initial public offerings (IPOs).

This marks an average addition of 4 million accounts monthly since 2024.

According to data from the National Securities Depository (NSDL) and Central Depository Services (CDSL), the total number of demat accounts in the country stood at 171.1 million as of August 31.

The demat tally was boosted by record IPOs in August. Last month, 10 companies raised around Rs 17,000 crore (Rs 170 billion) via IPOs -- the best in terms of the quantum of funds raised since May 2022 when the LIC issue hit the market.

August saw large issues like Ola Electric (issue size Rs 6,145 crore/Rs 61.45 billion) and Firstcry owner Brainbees (Rs 4,194 crore/Rs 41.94 billion ).

In this calendar year, more than 50 companies have raised Rs 53,419 crore until August 31.

IPOs have also given robust returns to investors, the BSE IPO index, a gauge tracking newly listed stocks, has risen 33.5 per cent so far this year.

A recent study by the Securities and Exchange Board of India (Sebi) showed a significant number of investors are opening demat accounts primarily to participate in IPOs.

Almost half of the total demat accounts that applied for IPOs from April 2021 to December 2023 were opened in the post-pandemic period, according to the study.

Investors also open fresh demat accounts for family members to increase their chances of securing IPO allotments.

Almost 32 million demat accounts have been added in the first eight months of this year.

Despite market turbulence and headwinds, including a hike in capital market taxes and concerns that the US is headed for a recession, the Indian stock market continues to attract new investors.

Market experts view the steady pace of demat additions as a positive sign for market stability.

The incremental flows from these new investors will help offset any potential outflows from overseas funds or existing investors, and help keep volatility under check, they said.

The trend also suggests growing channelisation of household savings into equities.

According to a Sebi working paper, domestic household investments in equities stood at Rs 128 trillion in FY24, up from Rs 84 trillion in FY23.

Digitisation and increased awareness about equity investing have made it easier to open accounts, contributing to the surge in demat accounts.

The gains in mid and smallcap segments, combined with a robust IPO market, have enhanced the appeal of equities for new investors.

The Nifty Midcap 100 has risen 28.7 per cent, and the Nifty Small Cap 100 is up 29 per cent.

"We have seen a good inflow of new demat accounts opened in the last few years. It is a reflection of market sentiment," said Satish Menon, executive director, Geojit Financial Services.

"Positive sentiments in the market attract new clients. The mid and smallcap segments returns are attractive, but even largecaps are doing well. The benchmark indices are near all-time highs," Menon added.

The advent of new investors will hinge on the market's trajectory.

"It can be sustained in the short term if activity in the IPO market continues and the good performance of mid and smallcap continues," said Prakash Gagdani, CEO of Torus Financial Market.

"And if investors continue to get superior returns from equities compared to other asset classes," Gagdani added.

"The likelihood of not sustaining is higher because markets cannot rise every month," said Gagdani.

"The corporate earnings growth was not great, at least in the last quarter, and if the tepidness is sustained, it will hurt the markets."

Feature Presentation: Ashish Narsale/Rediff.com