Demat additions grinding at the slowest pace in 21 months as uncertainty rises

Year to date, benchmark indices Sensex and Nifty have lost around 4.5 percent each, while broader indices BSE MidCap and SmallCap have declined over 14 percent and 17 percent, respectively.

The total number of demat accounts continued to rise in February, however at the slowest pace in 21 months, weighed down by market volatility and the stock market correction.

Around 2.26 million new accounts were added during the month, the slowest growth since May 2023 and the second consecutive month of deceleration, data showed. In January 2025, new demat account additions stood at 2.83 million versus 3.26 million in December 2024. As of February, the total number of demat accounts registered with NSDL and CDSL has reached 190.40 million, up from 188.14 million in the previous month.

The slow growth of demat account addition coincided with a correction in the Indian equity markets due to sustained selling by foreign investors. Elevated valuations, a slowing economy, weak earnings growth and global tariff war under the Trump administration have further weighed on sentiment.

On a year to date basis, benchmark indices Sensex and Nifty 50 have lost around 4.5 percent each, while broader indices BSE Mid and Smallcap have declined over 14 percent and 17 percent, respectively.

Experts added that the decline in new demat account openings was also driven by reduced activity in the derivatives market following stricter regulations introduced by the Securities and Exchange Board of India (SEBI) to curb excessive F&O activity.

Market participants said the capital market regulator’s new rules have limited opportunities in the options segment, further dampening traders’ enthusiasm. A sharp fall in the pipeline of fresh initial public offerings too has contributed to the slowdown in new demat account registrations.

A period of heightened market volatility played its role with frequent spikes triggering stop-losses, or forcing investors to exit positions at losses, adding to the risk aversion. The recent slowdown has resulted in a cautious investor behavior but analysts see it as part of a natural market cycle, rather than a longer-term concern. However, in the short term, investor confidence remains subdued.

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