More Indians dabble in stocks as number of demat accounts hits new record

India has recorded yet another surge in demat accounts as more people dabbled in capital markets.

The number of demat accounts jumped to 7.38 crore at the end of October 2021 from 7.03 crore in September, as per Securities and Exchange Board of India (SEBI) data that comes with a one-month lag.

The jump in October activity represents a 5% increase month-over-month as stock markets continued the positive momentum. The jump is even bigger compared with October last year when India had active demat accounts at 4.76 crore, data showed.

This growth in demat accounts has been consistent for the past many months and mirrors the trend in India’s stock market with the BSE’s benchmark Sensex rising 25% since the beginning of 2021. Since the market crash in March 2020, induced by the coronavirus pandemic-led panic selling, the 30-share gauge has more than doubled.

Market participants highlighted multiple reasons for the increase in demat accounts. Money making and wealth creation in the time of a pandemic is the foremost reason, but other factors such as ease of account opening and electronic KYC norms, and mobile trading and enhanced technology also supported the activity.

Demat account, short for dematerialised account, is opened by an investor with a depository participant (DP) — an intermediary — that helps an individual transact in the securities market involving assets such as stocks and bonds. These securities are held in digital or dematerialised format as opposed to paper certificates three decades ago.

Also, the stock market has yielded much higher returns when compared with other asset classes such as bank fixed deposits (FDs), bonds, and real estate. 

Data trends show that younger or millennial investors started opening demat accounts after the pandemic, in line with the global trend. Not only that, stock trading has become more gender inclusive with more female participants in the market as traders or investors as opposed to a few years ago.

According to Jaideep Arora, CEO of Sharekhan, the Covid-19 pandemic has had a major impact on livelihoods and taught people a very important lesson in financial planning and investments

“To ensure people are financially secure, more and more retail investors are entering the capital markets. Another interesting observation is that we have seen a sharp increase in the number of women investors,” said Arora.

“Our firm has seen an 80% growth in the number of accounts opened between now and January 2020 from women individuals. This implies that women are also major contributors to the market participation growth we have seen since 2020,” he added.

However, one concerning factor the data indicates is the highly under-penetrated nature of India’s securities market, with less than 6% of the 1.3 billion people population having access to it.

Nehal Vora, managing director of depository participant CDSL, said that for India to become a capital markets hub, the country needs to engage a larger number of people into the securities market.

“This journey of financial inclusion has to be enhanced to engage with a higher number of persons to foray into the securities market to achieve the objective to make India a capital market hub that is highly focused on corporate governance, technology, investor protection, transparency and sustainability,” said Vora.