Markets up, but demat openings moderate in July in continuing trend

1.8 mn new accounts added last month, compared to 2.7 million during first half of this year

Equity markets made gained in July, but new dematerialised (demat) accounts did not see much growth.

About 1.8 million new accounts--needed for holding shares in an electronic format--were opened with two depositories, CDSL and NSDL, to take the total to 98.33 million. The number was slightly more than 1.77 million in June, but nearly 30 per cent lower than the average 2.7 million new accounts opened during the first half of calendar 2022.

The Nifty 50 index rallied 8.7 per cent in July, snapping three straight months of losses. Foreign portfolio investors (FPIs) who were net sellers since October turned buyers in July.

New demat account openings hit a high in October 2021, when the Sensex and the Nifty gained too. Since then the market trend has largely been downwards amid headwinds such as monetary tightening, the Russia-Ukraine war, rising commodity prices and fears of recession.

Trading volumes have slowed down as well. The average daily turnover for the cash segment—dominated by retail investors--was Rs 46,602 crore in July. The amount was up 4.5 per cent month-on-month (MoM), but 26 per cent lower than the 12-month average.

A moribund initial public offering (IPO) market is weighing on new account openings. There has not been a single offering since after May.

"IPOs have been magnets of sorts that attract new investors to the market. The recent IPOs not performing has affected sentiment. The sentiment towards the IPO market will only revive after a few issues do really well,” Nitin Kamath, founder and chief executive officer of Zerodha.

E Prasanth Prabhakaran, managing director and CEO of Yes Securities, said the euphoria around for Life Insurance Corporation’s IPO contributed to new account openings last year.

"There was a slowdown in primary and secondary markets in the last few months. The IPO pipeline is large, but unless there is market stability, these IPOs won't come for a launch."

Total demat accounts were expected to cross 100 million in July. However, given the drop in pace, the milestone is expected to be hit sometime this month. Last week, CDSL announced it had crossed 70 million demat accounts. Drying of the IPO market and trading volumes has made brokerages scale back their promotional activities.

"Some of the new age brokerages have slowed down on their advertising and cut the incentives they gave for opening new accounts," said Kamath.

Brokers said retail investors are by nature bullish, and market volatility is discouraging investors. New demat accounts and trading volumes are likely to remain stagnant till the markets rise consistently. Hence, the sharp rebound seen in the market from June lows is once again proving to be a bright spot for brokerages.

"The reaction to gain in markets is not immediate. In the last two weeks, the new Demat accounts openings is 20 per cent more than during the same time last month,” said Kamath.

However, for the demat account opening tally to top last year’s mark will require the market to do consistently well.

"Unless volatility subsides, and there is a one-sided bull market, you won't see the kind of account openings we saw last year,” said Prabhakaran.