Demat a/cs aplenty but mostly inactive

400,000 accounts added in first half; fewer than 6 million of 22 million account holders active

Despite record demat account additions in the new year, active investors are still a minority as around 75 per cent of existing accounts continue to be inactive, according to an analysis of data from the two stock exchanges and depositories.  

Close to 400,000 demat accounts have been added in the first half of the current calendar year, an average increase of over 2,260 accounts a day. The total number of demat accounts has risen to about 22 million as of June, according to depository data.

However, the number of active clients from the latest data on the National Stock Exchange website is 4.419 million. On the BSE, the number stands at 1.475 million. Based on these numbers, the number of active clients in the industry comes to 26.7 per cent of the demat accounts in the country. But industry officials say this is also inflated by duplication of accounts and the actual proportion of active clients is much lower, at 10-15 per cent.

“There would be some amount of duplication in the figures, since some people would have more than one demat account. So, the actual number of active individuals could be lower as a result,” said Satish Menon, executive director at Geojit BNP Paribas Financial Services.

This is a significant drop from 35-40 per cent activity levels seen at the industry’s peak in 2007-08.

Recent additions driven by the 20 per cent rise in equity markets could help increase activity, say some. “Investors have just started opening demat accounts after the recent rally. The number is expected to go up as the surge in the equity market continues,” said B Gopkumar, head of broking, Kotak Securities.

Trading activity in new accounts is also said to be muted as industry officials say while the surge in markets has brought back investor interest to the point of opening an account, very few are willing to invest money yet.

“Retail participation has not picked up because investors are not still comfortable with the volatility in the market. Once the trend is fixed and the market rally continues steadily for three-six months then we could see more definitive participation by retail investors,” said E Prasanth Prabhakaran, president, IIFL.

If one only goes by the exchange figures on active clients, equity market penetration works out to 0.48 per cent for the total population of over 1.2 billion.

But the industry is hopeful that the Budget could help restore some of the lost faith among investors.

"The key driver in reviving investor confidence will be the IPO market reforms, as the primary market issues like an IPO bring new investors into the market. Besides that, measures like changes to the Rajiv Gandhi Equity Savings Schemes or capital market reforms could also help boost investor-interest," said Gopkumar.

Correction

The BSE has stated that the report was incorrect in saying that the exchange has 1.475 million active members. That membership base is only for the top 75 brokers and the actual number is much higher. The error is regretted