New milestone: Demat accounts surpass 100 million for the first time

The country’s demat account tally topped the 100 million-mark for the first time, in August. Over 2.2 million new accounts — most in four months — were opened last month, taking the cumulative figure to 100.5 million, according to data released by depository firms National Securities Depository Limited (NDSL) and Central Depository Services (CDSL).

India’s demat account tally was 40.9 million in March 2020 just before the outbreak of Covid-19 in the country.

The sharp surge in the market, greater lean hours due to the lockdown and mobility restrictions, shift to the work-from-home set-up, ease of account opening, increase in mobile and data penetration, and a drop in brokerage rates have underpinned this growth.

“The milestone of 100 million demat accounts is a testament to the acceptance of demat accounts and the securities market as an investment avenue against the backdrop of growth in household savings,” said Nehal Vora, MD & CEO, CDSL. “We witnessed a substantial increase in demat accounts in the past two years. It is equally important to note that NSDL’s custody value increased from Rs 174 trillion in April 2020 to Rs 320 trillion ($4 trillion) in August 2022. This indicates participation from both retail and institutional investors,” said Prashant Vagal, executive vice-president, NSDL.

In terms of number of accounts, CDSL, a listed firm, has a higher market share but NDSL is bigger when it comes to assets under custody (AUC). At the end of August, CDSL operated 71.6 million demat accounts with an AUC of Rs 38.5 trillion. On the other hand, NSDL had 28.9 million accounts with AUC of Rs 320 trillion.

The 100-million demat account tally isn’t representative of unique investor count in the country. As an investor is allowed to open demat accounts with multiple brokerages, there is a lot of duplication. Industry players peg the unique investor tally between 60 million and 70 million. This translates into equity market penetration of less than 6 per cent. Besides direct investing, domestic retail investors are exposed to the equity markets through mutual fund (MF), insurance, and pension fund routes.

The demat account trajectory and investor count are interlinked. To illustrate, new demat openings fell to a 16-month low of 1.8 million in June, following a sharp correction in the market. But thanks to a sharp rebound in the markets from their June lows, investor confidence has once again improved.

“Growth in the demat account tally has a high correlation to the state of the market. A bullish market will get a lot of newer investors into the market fold. This is why we had that slight dip during the first quarter in new account openings but now things are again looking up. There is also a strong IPO pipeline, going by the number of filing and this, too, will help increase the demat count,” said E Prasanth Prabhakaran, MD & CEO, YES Securities.

Near-term factors aside, market players believe there is still a long runway ahead as brokerages try to penetrate into newer cities. “A large part of growth over the past two years has come from tier-2 and tier-3 cities. We have barely scratched the surface. Once investing becomes part of everyone’s life and the economy returns to high growth, structurally the broking industry has high growth potential,” said Prabhakaran.

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