Despite market volatility, 25 million demat accounts added in FY23

Close to 25 million dematerialised (demat) accounts were added in the 2022-23 financial year (FY23), at a monthly average of over 2 million despite lacklustre returns and sustained volatility in the market.   

The number of demat accounts opened with two depositories –  the Central Depository Services (CDSL) and the National Securities Depository (NSDL) -- jumped  27  per cent in the past 12 months, from 89.7 million to 114.46 million.

At the same time, the benchmark Nifty50 declined 0.6 per cent in FY23, while the Nifty Midcap 100 rose a meagre 1.2 per cent and the Nifty Smallcap 100 fell 13.8 per cent.

Sustained rate hikes by global central banks, the Russia-Ukraine war, stubborn inflation, and the banking crisis in the developed world raised volatility the year gone by.

Even the number of initial public offerings (IPOs), seen as an investor lodestone, declined in FY23. In FY22, around 53 companies raised Rs 1.11 trillion through public offers while in FY23, 37 firms raised Rs 52,115 crore.

Reacting to the numbers, market experts said that volatility is not such a big hindrance for new customers as they believe that it affects investors who are in the market for a while, not the ones new to it. Sentiment will affect new customers more.

"We have a young population looking for investment avenues. And a fall in stock prices due to volatility gives them an opportunity to buy stock cheaper," said Alok Churiwala, managing director, Churiwala Securities.

Moreover, there are pockets in the country where people are coming to markets through mutual funds and that section, with better awareness, will be keen to invest directly into the market.

"There are a lot of youngsters who join the workforce every year. For someone who is starting new, it is a clean slate. We will continue to open 1.5 to 2 million accounts every month," said Prakarsh Gagdani, chief executive officer (CEO) at 5paisa Capital.

The growth, however, is muted compared to FY22 when demat accounts grew 63 per cent. 

The robust addition to accounts in FY23 may not bring cheer to brokers as the number of active clients and retail participation has been on the decline. NSE's active clients have been going down for eight months till February. Moreover, some of the demat additions last year may be from existing investors who wanted a second account.

"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 trading in another account,' said Jimeet Modi, CEO of Samco Securities.

Going forward, experts believe that the growth in new demat accounts will depend on the market trajectory.

“After June, if we see a pause in the rate hikes and inflation cooling a bit then we will see more investors joining the market," said Gagdani.  

Modi pointed out that the new investor numbers will see a jump only if the markets see a broad based rally.

"Retail trading activity is correlated to mid-cap and small-cap index. In FY24, if the mid-cap and small-cap stocks are more buoyant, then we will see a pick-up in activity -- both in demat additions and active client count. "