Demat accounts in India cross the 10 crore mark

The number of demat accounts (dematerialized accounts) have seen an unprecedented surge in the last 30 months since the post-COVID recovery started. The total number of demat accounts in India stood at just 4.09 crore as of March 2020, when the COVID had peaked. From that point, there has been a 2.5X jump in the number of demat accounts in 30 months. As of August 2022, India finally crossed the 10 crore demat account mark, adding more than 22 lakh demat accounts in the month of August 2022 itself. 

There have been several factors triggering the surge in demat accounts. The biggest is the surge in scores of millennials entering the equity market and demat account is obviously the first step for them. Secondly, debt and other asset classes have not given very flattering returns so most investors are now gravitating towards equities. This TINA factor has also resulted in a surge in demat accounts. Last, but not the least, the IPO mania of 2021 also triggered a large number of fresh demat account openings in India.

The above were the very macro reasons for the surge in the demat accounts. But, then macros alone don’t amount to much so there have also been a number of micro reasons for the surge in demat accounts. For instance, the sharp surge in the index, substantial lean hours due to the lockdown and mobility restrictions and shifting to work-from-home models also encouraged equity trading and demat account opening. Factors like ease of account opening, quality data penetration and lower brokerage rates also led the demat surge.

The 10 crore demat mark is the overall demat account base across the principal depositories viz. NSDL and CDSL. How is the break up? While CDSL continues to dominate on number of demat accounts, it is NSDL that continues to dominate on assets under custody (AUC). Here are the numbers. As of August 2022, CDSL had 7.16 crore demat accounts while NSDL had 2.89 crore demat accounts. However, NSDL had AUC of Rs320 trillion ($4 trillion) compared to just Rs38.50 trillion ($480 billion) in case of CDSL. NSDL dominates institutional clients. 

However, it must be noted here that this 10 crore mark is not indicative of the unique investors having demat accounts. Several investors have multiple demat accounts across multiple brokerages, so there is bound to be a good deal of duplication. However, industry insiders estimate that close to 70% or around 7 crore demat accounts would represent unique investors, which is still a fairly good number. Demat is only part of equity exposure since investors are also exposed to equities via mutual funds, PFs and insurances.

One interesting observation over the years has been that there is a strong correlation between the market conditions and the number of demat accounts opened. For instance, new demat openings were only 18 lakhs in June amidst the sharp correction and the FPI sell-off. However, with the markets rebounding in July and August, the number of demat account openings in the month have also bounced back. The IPO pipeline could also hold the key to the surge in demat accounts; and LIC IPO is a classic example of the demat surge.

However, India may have just scratched the surface. With a population of 135 crore, having over 100 crore mobile connections with more than 45 crore bank accounts and over 27 crore insurance policies, demat may have just scratched the surface. A large part of growth in the last 2 years has come from tier-2 and tier-3 cities, which is a good sign. For now, it is time to celebrate that the Indian demat story has just touched another milestone.