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The number of active dematerialised (demat) accounts in the country jumped 63 per cent in the past 12 months to 89.7 million in financial year 2021-22 (FY22), shows data provided by depositories.
The growth was underpinned by factors such as an increase in smartphone usage, easier digital onboarding of customers, and attractive returns delivered by the equity markets. As of March 31, the Central Depository Services (CDSL) managed 63 million accounts with assets under custody (AUC) of Rs 37.2 trillion. Meanwhile, the National Securities Depository (NSDL) handled 26.7 million accounts with AUC of Rs 302 trillion.
In the post-pandemic world, the number of demat accounts have jumped 2.2 times, while combined AUC too has doubled.
“The pandemic compelled everyone across the world to reconsider their spending and investment habits. The widespread availability of smartphones and low-cost data has pushed investing and trading into the digital realm. The use of eKYC and Aadhaar eSign has made opening a demat account a paperless and simple process. Currently, more than 80 per cent of our total customer base is millennials, more than 85 per cent from tier-2 and tier-3 cities, and 70 per cent are first-time investors,” said Ravi Kumar, chief executive officer of Upstox, told Business Standard recently.
In the past 12 months, the markets have continued their extended rally since Covid-19 lows of March 2020. The benchmark Nifty rose 19 per cent in FY22, while the mid- and small-cap indices jumped 25 per cent and 29 per cent, respectively. Experts say the attractive returns compared with other asset classes are drawing investors towards the equity market.
“There-is-no-alternative (TINA) factor has become the mantra in equity markets, fuelling a sharp rally in stocks. This rally over the last two years has attracted a lot of new retail investors with expectations of earning higher returns than bonds or their fixed deposit investments. Another reason behind the growth of demat account is the rise of discount brokers such as Zerodha and Upstox, which have made it easy to invest in financial markets via e-KYC, zero brokerage and access to investment and trading portals at the finger tips,” said Ritika Chhabra, economist and quant analyst at Prabhudas Lilladher.
The influx of new investors has boosted trading volumes. In FY22, equity cash market turnover grew 9 per cent and derivative volumes jumped 2.6 times. Also, strong retail flows have helped the market cushion the blow from the sharp sell-off by foreign investors.
Earlier this month, Union Finance Minister Nirmala Sitharaman lauded small investors in the Parliament. “We must appreciate the Indian retail investors and their stock absorbing capacity brought into the Indian markets,” she said.
Industry players say the number of demat accounts will continue to grow. However, the pace of addition may moderate.
“Going forward, we may not see the 30 per cent annualised growth we have seen since 2020, but it will certainly be in high double digits. Still, the penetration levels of demat are far lower than the penetration of savings bank accounts or mutual fund folios. The number of customers with PAN cards is close to 500 million, and we have close to 90 million demat accounts. Many young people are getting white-collar jobs. Youngsters are keen to invest in stocks. They prefer to invest directly rather than handing it over to mutual funds or life insurance. Fixed deposit rates are not attractive for this generation,” said Dhiraj Relli, managing director and CEO, HDFC Securities.
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