Demat accounts grow 41% in October, but momentum is slowing
Indian demat story has been one of the biggest growth stories since 1997. Firstly, even amidst scepticism about the efficacy of the demat system, it picked up at the fastest rate seen anywhere in the world and India had moved to 100% demat settlement in just about 5-6 years. However, the big pick-up in the number of demat accounts only started post the COVID pandemic. The chart below captures the growth in demat accounts of CDSL, which accounts for over 70% of the number of demat accounts in India. If you add up the number of accounts at NSDL also, you have total DP customers of around 10.40 crore all-India.
Chart Source: CDSL
India had opened just about 4 crore demat accounts as of mid-2020. Since then, in a little over 2 years, the number of demat accounts have grown more than 2.5 times to 10.40 crore. In the last 2 years, India has added more demat accounts than in the 24 years prior to that. The demat surge was led by CDSL in terms of numbers, but it was also triggered by people gravitating towards equities, a huge army of millennial population entering the market and a greater confidence shown by Indian investors in the power of equities and its role in long term goal planning. But, now the demat accretions are losing steam.
How fresh demat accounts are losing steam?
As of the close of October 2022, the number of demat accounts stood at a healthy 10.4 crore demat accounts. On a yoy comparative basis, the total number of demat accounts are nearly 41% higher than last year. However, monthly account accretions have been falling steadily. For instance, in August a total of 26 lakh demat accounts were added. This further fell to 20 lakh demat accounts in September 2022 and for October 2022, the number of fresh demat accounts have fallen to 18 lakhs. If you want to see the loss in momentum, it must be noted that the number of monthly demat account accretions was 36 lakhs in October 2021. From that point, it is a fall in momentum with monthly additions halving.
There are several reasons for this loss of momentum in monthly demat accretion numbers. For example, one key reason is the market volatility seen in the current calendar year combined with volatility in global markets as well as fluctuations in the Indian rupee. Also, the with IPOs drying up and just about starting to gather momentum, demat accretions have slowed. Big IPOs like Paytm, LIC etc act as a magnet for demat accounts. Also, demat is the onboarding plan for most of the brokers during the IPO. That has been missing, especially after the last IPO drought between May and October,
Others are less pessimistic about such numbers. According to some sales persons, the sharp fall in the demat accretions can be largely attributed to the festive season in the month of October with big festivals like Dussehra and Diwali lined up. That could also explain why the number of demat accounts opened have fallen so sharply. This also meant that the number of working days in October were just 18 compared to a normal month of 22 working days. In the final analysis, this point made a big difference to the eventual demat account openings.
What is the moral of the story. Demat account accretion is still happening at an aggressive pace. A growth of 41% in the number of demat accounts yoy is positive, but the 3 figure growth of the last 2 years is not sustainable. Some loss of momentum is inevitable. However, demat accounts don’t even account for 10% of India’ population. That is where, perhaps, the big growth potential still lies.
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