1.79 million new dematerialized (demat) accounts were opened in June, which is the fewest since February 2021. The euphoria surrounding stock market investing among individual investors has been dampened by equities falling to their 13-month lows and small- and mid-cap stocks taking a beating, note industry players.
After peaking at 3.5 million in October 2021 when the benchmark indices reached their all-time highs, the number of new demat account openings has since moderated. Since then, markets have made halting attempts to recover, but the overall trend has been downward due to factors like monetary tightening, the Russia-Ukraine war, and rising commodity prices, among others. Additionally, trading volume has decreased. The cash segment’s daily average turnover hit its lowest levels since February 2020.
According to Vijay Chandok, managing director and CEO of ICICI Securities, “the level of participation by retail investors is showing a pronounced slowdown.”
“The industry added 5 million new demat accounts in 2019–20. This number tripled to 15 million in 2020–2021 and nearly doubled to 30 million in 2021–2022. The industry is experiencing its best growth phase ever right now. We observe a slowdown in the rate of new entrants into the market since markets peaked in October 2021 and then corrected, Chandok continues.
The total number of demat accounts is currently 96.5 million, up from 12.4 million in the first half of 2021 thanks to the addition of 16 million new accounts.
According to data from the Securities and Exchange Board of India, a startling 18.5 million new accounts were added during the second half of 2022. However, a sizable portion of these accounts no longer engage in active trading as a result of the depressed initial public offering (IPO) markets and falling stock prices.
The rises following the October 2021 sell-off have been fleeting and are being sold into, primarily by foreign investors, which has had an impact on consumer sentiment. Most retail investors have exposure to small- and mid-cap markets. In most IPO allotments this year and the year before, retail investors are also suffering losses, according to Deepak Jasani, head of retail research at HDFC Securities.
The Nifty Midcap 100 and the Nifty Smallcap 100 were down 25% and 35% from record highs in June, respectively. Although these indices have since recovered, they are still significantly below their peak.
Brokers claim that such unstable market conditions are deterring investors. If the market doesn’t experience a significant recovery, experts say, the number of demat accounts opened and trading volumes may moderate further.
“Retail investors are bullish by nature. Retail participation may decrease if markets don’t move upward. Individual stock retail volumes are down between 25 and 30 percent. The volatility will be at its peak this year, which will be a difficult year. Capital expenditure may slow down once more as balance sheets tighten, predicts E Prasanth Prabhakaran, MD and CEO of YES Securities.
