Putting the skids on: When market volatility punctures demat growth's tyres

STUCK IN NEUTRAL: New demat accounts sputter, slipping to a 14-month low of 2.84 million

A surge in market volatility has dampened retail investor sentiment, evidenced in the slowdown of new dematerialised (demat) account openings at brokerages in January.

 

Data from the country’s two depositories, Central Depository Services and National Securities Depository, show that 2.84 million new demat accounts were opened last month — the lowest since November 2023. This is a sharp drop from the monthly average of 3.84 million new accounts during 2024.

 

Demat accounts are essential for holding securities such as shares, mutual funds, and exchange-traded funds in electronic form. In January, the total number of active demat accounts reached 188.1 million. However, since investors can maintain multiple demat accounts, the number of unique investors is estimated to be around 110 million.

 

Market turbulence in January was driven largely by heavy selling from foreign portfolio investors (FPIs), who offloaded Rs 75,000 crore — the second-highest outflow in a calendar year. This selloff triggered sharp declines in key indices. The Nifty Smallcap 100 slid 9.9 per cent, its steepest drop since May 2022, while the Nifty Midcap 100 fell 6.1 per cent, its worst since October 2024. Largecap stocks fared better, with the Nifty 50 edging down 0.6 per cent, marking its fourth consecutive monthly decline. 

 

A recent report by CareEdge Ratings projects slower revenue growth for the stockbroking industry, estimating a 13 per cent rise in 2024-25 (FY25), down from 29 per cent over the past three years. Profit margins are also expected to shrink from 36 per cent in 2023-24 to 32 per cent in FY25. The report attributes this to higher securities transaction tax rates, increased stock exchange charges, and new futures and options (F&O) trading rules, all of which have weighed on trading volumes and earnings.

 

The average daily turnover for F&O in January stood at Rs 298 trillion, up 6 per cent from the previous month but still 44 per cent below its peak of Rs 537 trillion in September. This underscores the industry’s struggle to adapt to regulatory changes and sustain growth amid shifting market sands.