25 Million Demat Accounts added in India in FY23

The financial year FY23 has been a tough year for the markets. FPIs were net sellers, the IPO market was largely tepid and global headwinds like central bank hawkishness and rising inflation dominated the news. In addition, the Russia Ukraine war continued to rage on, even as the banking crisis brought down banks like SVB Financial and Signature Bank in the US as well as Credit Suisse in Europe. Under these circumstances, the demat account accretion in FY23 was clearly lower than FY22, but that was largely along expected lines. IPOs tend to be the biggest onboarding vehicle for demat accounts. Barring the mega LIC IPO, there were hardly too many IPOs that could really contribute to the demat count.

How 25 million demat accounts got added in FY23

The table below captures how the 25 million demat accounts got added during FY23 and to give a broader picture, we have also provided the overall cumulative demat accounts.

Data Source: NSDL / CDSL

To be precise a total of 24.8 million demat accounts were added during financial year FY23, averaging a little over 2 million accounts a month. During the financial year, the actual demat accretion was more than 2 million in 7 months while in 5 months it was less than 2 million. As of the close of the fiscal year in March 2023, there were a total of 114.46 million demat accounts in India. Out of these, 31.46 million demat accounts were accounted for by NSDL while 83.00 million accounts were accounted for by CDSL. Clearly, CDSL dominates the number of demat accounts and accounts for 72.5% of the number of demat accounts in India with NSDL accounting for 27.5%. However, NSDL accounts for nearly 88% of assets under custody while CDSL accounts for the balance.

Demat account growth in FY23 was slower than FY22

During the just fiscal year FY23, nearly 25 million (2.50 crore demat accounts were opened). That is a run rate of roughly 2 million accounts every month across NSDL and CDSL. However, the accretion at 27% in FY23 was much lower than 63% in FY22, albeit on a much higher base. The fall in the growth rate was partially about the higher base, but there were other factors that were also instrumental in the sharp fall in demat account growth. Here are some of the key reasons why the demat account growth came down in FY23.

• The previous two years viz. FY21 and FY22 had seen a surge of millennials entering the equity markets and that was also evident in the pace at which the new age and low cost brokers were growing their customer base. In FY23, that pace has also slowed and that is reflected in the slowing demat account growth in FY23.
   

• There were been some other trends in FY23. The number of active clients has been come down, the retail volumes are shrinking and there is a greater tendence in volumes to veer towards F&O volumes and less towards equity volumes. All that has impacted the growth in demat accounts in FY23.
   

• Probably, the most important reason was the tepid IPO markets. In FY23, LIC and Delhivery combined, accounted for 48% of the total IPO fund raising. While LIC did contribute a good deal to the demat account openings, the same cannot be said about other IPOs. That is contract to FY22, when a slew of digital IPOs attracted a lot of retail buying interest in the hope of quick gains.
   

• Normally, the growth in demat accounts is also a function of the equity market returns. While FY21 and FY22 were relatively better years for the market, FY23 saw the markets literally not going anywhere. That had its impact on the overall demat demand. Also, most of the digital IPOs of FY22 gave deeply negative returns post listing and that was a dampener to fresh IPO demand and for fresh demat accounts.
   

• Finally, macro concerns have also made investors wary. This includes inflation, rising interest rates and cues like the global banking crisis. However, despite these headwinds, it is actually appreciable that the Indian markets saw an average accretion of around 2 million demat accounts per month.

How is the outlook for FY24

Clearly, FY24 is likely to see better growth in demat account as also better average monthly accretion in demat accounts. There is a huge IPO pipeline already in place. Even if you exclude the IPOs that have been shelved, there are IPOs worth Rs76,000 crore with SEBI approvals in place. In addition, IPOs worth Rs32,000 crore are awaiting SEBI approval. These are likely to drive demat account growth.

It is also expected that rate hike cycles should top out during the year and that could drive a lot of equity market returns from these levels. That is normally a force multiplier for the growth of demat accounts. But above all, there is the demographic dividend that will work in India’s favour as scores of young people are entering the working population. More than anything, that is likely to drive demat account growth in FY24.