Demat accounts take a knock on market volatility

Uncertainty in equity markets and a waning investor response have led to a slowdown in new demat accounts, a key gauge of retail investors’ sentiment towards the market. Sluggishness in the primary market has added to the woes as a large number of investors generally tap equity markets through IPOs.

The bull market in 2007 saw a rise in the number of new demat accounts, with a record number of public issues tapping capital markets.

According to the data from National Securities Depository (NSDL), the number of new demat accounts added between June 2007 and January 2008, when the market was nearing its peak, was 12.78 lakh. The numer is close to 1.5 lakh accounts every month. However, the number witnessed a severe fall after markets crashed from its peak in January. Only 2 lakh new accounts have been added between February and June this year.

Similarly, at Central Depository Services (CDSL), almost 10 lakh fresh accounts were registered from June 2007 to January 2008. But only 4 lakh accounts have been opened in February-June 2008, a period when inflation started heading up and markets declined further.

“We have frozen 3.8 lakh accounts due to an absence of PAN card and will be closing 1.5 lakh of them because some of them have nil balance and have not produced a PAN card,” said a senior CDSL executive.

From its peak at 21,000, the Sensex has plunged more than 40 per cent, eroding the market value of listed firms. In spite of the availability of stocks in the market at attractive valuation, investors are not willing to take any chances.

A global credit crunch and other domestic factors, including high inflation and increasing fiscal deficit on account of high oil prices, have made matters all the more worse. Considering that most of the first-timers venture into equities through public issues, there has been no major activity on this front after the Reliance Power offer.

Says Vinay Mehta, managing director, Almondz Global Securities, “New customers come only during a sustained bull run as they try to cash in on growth in markets. But periods of volatility such as these dissuade them. Surrogate investment accounts have also taken a hit because of rough weather in the markets”

Anil Saxena, group chief financial officer, Religare Enterprises, said, “In a bull market, we open close to 40,000 accounts a month, but this has come down to 15,000-20,000 accounts a month these days.”