Demat additions slow in April despite sharp market rally, shows data

Despite a sharp rally in domestic equities in April, fewer investors rushed to open their trading accounts than in the previous few months.

About 1.59 million new demat accounts were opened with two depositories -- CDSL and NSDL -- taking the total tally past 116.05 million in April. The demat additions were 23 per cent below the 2022-23 financial year monthly average of 2.07 million.

Market experts said that a combination of direct equity investors reaching a saturation point and less number of initial public offerings or IPOs in the market have contributed to this trend.

"For more demat accounts to open, income tax and PAN (Permanent Account Number) penetration need to happen. We are hitting the ceiling. We already have 116 million plus demat accounts. About half of the demat accounts would be the second accounts. Sometimes investors keep a backup. And sometimes, for income tax purposes, people keep their investments in one account and trade in another account. Unless the total addressable market grows, we will find it hard to see an uptick in demat accounts," said Jimeet Modi, chief esecutive officer of Samco Securities.  

In April, the Nifty50 gained 4.1 per cent and was the best-performing equity benchmark amongst major global equity markets on the back of inflows from foreign portfolio investors (FPIs) and encouraging January-March quarter results. 

The Nifty Midcap 100 rose 5.9 per cent, and the Nifty Smallcap 100 rose 7.5 per cent. FPIs bought shares worth Rs 11,631 crore in April.

Modi also noted that April had one of the lowest trading and working days at 17. "There were three trading holidays in April, the highest this year. There is a bit of holiday effect, which would have resulted in lower numbers,' said Modi.

The tepid IPO market in 2023 is also attributed to the lack of growth in new demat accounts, as new issues are seen as an investor lodestone. Till April 2023, only five IPOs were launched.

"Historically, the best month for demat account openings have been those years when there are large IPOs. This year the IPO market has been subdued compared to the previous years. And unless we have a big IPO, it will be hard to see a massive jump in demat accounts,' said Modi.