Demat account additions exceed 2 million in May on the back of rally in equity market

Sensex Nifty Markets

Demat account openings scaled its peak so far in 2023 with the addition of 2.1 million accounts in May. This was a significant milestone as it had been three months since over 2 million accounts were added last.

The number of demat accounts surpassed 118.16 million, reflecting a 1.8 percent increase from the previous month, and a substantial 25 percent growth over the same period last year. April experienced a dip in demat account openings, hitting the lowest level since December 2020, with only 1.60 million accounts opened in volatile markets, NSDL and CDSL data showed.

Analysts attribute this surge in demat account openings to the renewed participation of retail investors in the Indian equity markets, encouraged by appealing returns witnessed over the past two months. Historical data also shows a direct correlation between the trend of demat account openings and the performance of both the secondary and primary (IPO) markets.

Following a period of sluggishness influenced by global sentiments, the Indian markets experienced a revival in optimism. In April 2023, the market outperformed the global market by 4 percent, and this positive trend continued into May, with the market outperforming by 3 percent. Analysts point to the Reserve Bank of India's stance on the interest rate scenario as a catalyst for this trajectory, providing further impetus to market growth.

Increased activity in SME IPOs and a surge in midcap and smallcap indices have bolstered investor sentiment. The successful performance of the Mankind Pharma IPO has instilled confidence in investors, further fueling their returns to the market. Analysts suggest that due to the overall optimism in the Indian markets in the medium-to-long term, this trend is likely to continue.

Prashanth Tapse, Senior VP (Research) at Mehta Equities, highlighted the healthy returns delivered by mid-cap stocks in the past two months, citing factors such as stable interest rates, lower inflation, global stability, and falling crude prices as contributing to the market's positive performance.

Tapse further emphasised that the IPO market is expected to see increased traction, echoing the gains seen in the secondary market in recent months.