With local equity markets offering attractive returns, new investors have been rushing to open demat accounts, with June recording the highest addition of such accounts in 13 months.
According to data from the Central Depository Service and National Securities Depository, the number of demat accounts opened in June totalled over 2.36 million, marking the highest account opening rate since May 2022, compared to 2.1 million additions a month ago and 2.3 million a year ago. The total demat tally crossed 120.51 million, up 2 percent from a month ago and 24.41 percent from a year ago.
Equity markets have experienced a remarkable resurgence in the June quarter of FY24, with the Nifty50 index crossing the 19,500 points milestone for the first time. Both Sensex and Nifty have risen over 14.2 percent and 15 percent since 28 March while BSE Midcap and SmallCap advanced over 24 percent and 27 percent respectively. So far 2023, both benchmark Sensex and Nifty gained nearly 8 percent each while BSE Midcap and SmallCap climbed nearly 15 percent each.
"This surge in the market was not limited to the Nifty50 alone, as the broader markets, including mid-cap and small-cap stocks, also exhibited strong performances. Multiple parameters, such as trading volumes, order flow, and client additions, gained significant momentum during this period. This positive momentum indicates the growing confidence and participation of investors in the market. As long as the market maintains its resilience, this trend is expected to persist,” said Hemang Jani, an independent market analyst.
The combined average daily turnover (ADTV) of both the BSE and NSE cash segment in June hit a one-year high to touch Rs 67,491 crore, a 42 percent jump year on year, while ADTV for the derivative market recorded a fresh high of Rs 259 lakh crore.
According to Arvinder Singh Nanda, senior vice president, Master Capital Services, increased activity in IPOs on both the main board and SME board tends to drive onboarding of demat accounts. Other important factors contributing to this uptick in the trading activity are millennials getting educated on investing, an increase in disposable income and rising savings.
The IPO market witnessed a significant increase in activity in June, with five mainboard share sales garnering tremendous subscriptions and raising a total of Rs 2,588 crore. Analysts anticipate that more IPOs are in line, suggesting a continued trend of heightened IPO activity.
Notably, the SME segment also experienced a surge in share sales, with 17 issues opening in June alone. Since the beginning of 2023, 73 SME issues have been launched, raising approximately Rs 1,804 crore.
Meanwhile, a few analysts are cautious and said that while the surge in new demat account openings reflects growing investor interest, it is crucial to exercise caution and carefully assess investment choices, particularly with regard to potentially overvalued small-cap stocks. It is important for both new and seasoned investors to approach the market with prudence and consider the potential risks associated with excessive exuberance, they added.
"There is a negative dimension to this retail exuberance. The new investors normally chase low-grade small-caps, which slowly run into bubble territory. There are signs of this happening now. Seasoned investors normally take this as a sign of caution,” said VK Vijaykumar, chief investment strategist, Geojit Financial Services.
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