Demat account openings hit lowest since Dec 2020 at 1.6 million as volatility continues

The Sensex and the Nifty fell 0.23 percent and 1.5 percent between S.eptember 2021 and March 2023

Demat (dematerialised) account openings were at the lowest level since December 2020 with only 1.60 million accounts opened in April. This made a significant deviation from the average of 2.9 million and 2.09 million accounts added per month in fiscal 2022 and 2023.

Analysts attribute the decline in demat account openings to factors such as volatile markets lasting beyond 18 months, lack of attractively priced large initial public offerings, and muted returns for investors, especially in the small and mid-cap segments.

The demat tally crossed 116.04 million, up just 1.6 percent from a month ago and 26 percent from a year ago.

Hemang Jani, Head of Equity Strategy, Broking and Distribution at MOFSL, has cited high base effect and availability of superior returns through fixed income investments, which have been further boosted by the Reserve Bank of India's ongoing rate hikes, for the slump.

The Sensex and the Nifty fell 0.23 percent and 1.5 percent between September 2021 and March 2023, while the BSE MidCap and SmallCap fell over 4 percent each during this period.

The recent high volatility in the market has resulted in losses for the new generation of active traders, leading many to exit the market. However, the steady growth of Systematic Investment Plans (SIPs) in mutual funds - which have surpassed Rs 14,000 crore per month - is a positive development for the market, and has helped to partially offset the impact of the traders' exits.

Some analysts also blamed the ongoing crisis in the IT sector for the loss of interest in demat accounts. IT, which has historically been a key contributor to new account openings, is in throes of severe uncertainty, leading to large-scale downsizing and pay cuts.

According to Prashanth Tapse, Mehta Equities' Senior Vice President of Research, the decrease in the availability of work-from-home facilities, lower salary income growth, and tightening of exchange margins may also be contributing factors to the market's decline in activity.