LIC's mega Rs 21,000-cr IPO does little to lift demat tally in May

The pace was down by almost 750,000 when compared to January when over 3.4 mn new accounts got added

New dematerialised (demat) account opening continued to show signs of moderation with the mega initial public offering (IPO) of state-owned Life Insurance Corporation of India (LIC) doing little to lift the tally in May.

About 2.65 million new demat accounts were opened last month, according to data released by the country’s depositories—CDSL and NSDL. This was a reduction of almost 750,000 compared with January, when over 3.4 million new accounts were added.

Since January, the pace of new account opening has declined every month with May showing only a slight uptick over April. The total demat count stands at 94.8 million.

LIC’s Rs 21,000-crore was widely expected to help the tally cross the 100-million-mark. And though the IPO, which opened on May 4, did attract a record number of retail applications at 6.13 million (close to 7.5 million before rejections), industry players said most of the account openings took place months before the issue hit the market.

“The LIC IPO was supposed to be launched in the third quarter (Q3) of the last financial year, which was postponed to Q1 of this fiscal. The account opening had picked up much before that. The markets were also doing well then. And the push that the government had made for the LIC 

IPO led to new account openings,” said  E Prasanth Prabhakaran, managing director and chief executive officer, YES Securities. He added that most of the accounts were opened in Q2 and Q3.

The moderation in new account openings seen in recent months comes after a record jump after the outbreak of Covid-19 in March 2020. Between March 2020 and March 2022, the demat account tally more than doubled to from 40.9 million to 89.7 million. To be sure, these numbers do not indicate unique investors as many individual investors have demat accounts with multiple brokers.
 

Direct equity investments by a large number of first-time investors have helped propel the domestic market and cushion the fall from the sell-off by overseas investors. However, the spike in volatility is starting to weigh on investor sentiment.

Some analysts believe even the current pace of demat account opening is healthy. But they say many investors are turning inactive due to the spike in volatility.

“For the last three months, markets have moved sideways. Several small- and mid-caps, where there is maximum retail investor interest, are down 20-30 per cent. When markets are weak, retail investors shy away from investing. The euphoria in terms of new investors coming into the market seen during 2021 may not exist but the trend of new demat accounts getting opened will remain. Investment activity will depend on market conditions,” said Prakarsh Gagdani, CEO, 5Paisa Capital.

The Nifty Midcap 100 index swung 12 per cent and ended May with a 5.3 per cent decline, while the Nifty Smallcap 100 gyrated an even sharper 18 per cent and finished last month with a 10.2 per cent loss.

From this year’s peak in January, the benchmark Nifty fell as much as 14 per cent before recovering slightly. The index is currently down 10 per cent from its 2022 high of 18,308.

“We need the volatility to come down for more demat accounts to open. Retail operates in a bullish market,” added Prabhakaran.