Demat account additions reach a record 3.7 crore in FY24

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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