Demat additions lukewarm despite market's extended run in November

About 1.8 million new accounts added, 20% below monthly average for calendar 2022

About 1.8 million new accounts — needed for holding shares in an electronic format — were opened with two depositories, Central Depository Services (CDSL) and National Securities Depository, taking the total tally past 106 million in November.

The new additions were slightly more than 1.77 million added in the preceding month, but over 20 per cent lower than the 2.3 million monthly average for calendar 2022. 

This goes to show that investors are not flocking to stocks as they did last year, notwithstanding the extended run in the markets as benchmark indices and key stocks climbed to record highs.

The benchmark Nifty gained 4 per cent in November, extending its two-month run to 10 per cent.

Foreign portfolio investors (FPIs), who were net-sellers in the previous two months, turned buyers in November, pumping in close to $5 billion. This gave a 17 per cent month-on-month lift to the average daily trading volume, but was mostly driven by FPI activity and block deals.

The number of initial public offerings (IPOs), seen as an investor lodestone, hit a 12-month high in November, with 10 companies cumulatively raising Rs 10,560 crore. However, the trend failed to prop up the dematerialised (demat) additions.

Brokers said retail investors are bullish by nature, and market volatility is the last straw.

“The earlier euphoria is largely missing. The index is up, but the broader markets aren’t. Even in IPOs, the oversubscription levels are not like last year’s,” says Nitin Kamath, founder, Zerodha, the country’s largest brokerage in terms of investor accounts.

Although the Nifty rose 7 per cent year-to-date, the Nifty Smallcap 100 declined 11 per cent during the same period.

Moreover, some regulatory changes and a cyberattack on retail-focused CDSL could have slowed the opening of demat accounts, observe industry players.

“Last month there was a big regulatory change for the industry. Earlier, the customer would approach the broker for an account opening. Trading would start as soon as the details were furnished to the Know-Your-Customer Registration Agency (KRA). But from November onwards, the process changed. Now we have to send the details to KRA first and await approval. Customers can only trade after KRA’s go-ahead. Because it started in November, there was a slight lag in the first seven-eight days. And there was a malware attack on one of the depositories, delaying the process further,” says Prakarsh Gagdani, chief executive officer, 5Paisa Capital.

Industry officials expect growth to plateau further.

“Anywhere between 1.5 million and 2 million accounts per month is the number at which the industry will peak. We are already past 100 million,” adds Gagdani.