Demat account additions reach a record 3.7 crore in FY24

Nearly 3.7 crore demat accounts were added in fiscal year 2024, marking the largest increase ever, averaging over 30 lakh accounts monthly.

Nearly 3.7 crore demat accounts were added in the fiscal year 2024, marking the largest increase ever, averaging over 30 lakh accounts a month, driven by a rally in the market.

The number of demat accounts opened with two depositories –  the Central Depository Services (CDSL) and the National Securities Depository (NSDL) -- jumped  11.9 percent year-on-year, to 15.14 crore from 11.45 crore.

At the same time, the benchmark Sensex and Nifty50 jumped 24.85 percent and 28.61 percent in FY24, while the broader BSE Midcap and Smallcap indices jumped 63.4 percent and 60 percent.

According to  Deepak Jasani, head of retail research at GDFC Securities, the surge in demat accounts stems from a host of factors. First, the thriving markets fuel a fear of missing out (FOMO), especially among young investors, driving a surge in sign-ups at both broker and depository levels. Second, equity's rising popularity as an asset class, fuelled by its higher returns, prompts more people to invest in equities. Equity mutual funds and direct investments are also on the rise, as investors seek higher returns and more control.

Additionally, the focus of new brokers and discount brokers on expanding their account base contributes to the trend. Unless the market experiences a major downturn or remains stagnant for an extended period, the addition of demat accounts is likely to continue at its current pace. However, if the market remains volatile and then resumes an upward trajectory, more people are expected to capitalise on the opportunity by signing up for new accounts, Jasani said.

Investor interest in Indian stocks has surged as they have consistently outperformed global and emerging market equities over the past 10 and five years, trailing only behind the US. This growth has been more broad-based compared to the US market, which has been dominated by a few major players.

Additionally, the number of Rs 1-trillion mcap stocks has increased to 80 from 48 last fiscal year, accompanied by a significant rise in coverage by sell-side analysts, with 250 stocks now covered by at least 10 analysts. This mutual increase in interest and coverage enhances earnings visibility and governance, attracting more institutional investors.

Underlying drivers such as steady inflows into equities and a more diversified market contribute to India's outperformance and market stability. However, extreme valuations driven by inflows into small and mid-cap stocks have led to a flurry of downgrades, especially in the past three months. Despite this, sectors like industrials and staples have shown resilience with stable or upgraded ratings, according to analysts.

Global investors remain interested in India due to its increased weightage in MSCI indices, despite high valuations. Factors such as the country's growth outlook, supportive macroeconomics, expected policy continuity during an election year, and financialisation of savings contribute to this interest.

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