Indian markets raced to fresh record highs in FY21 with benchmark indices gaining over 70 percent each. The other, more startling phenomenon on display is the multifold rise in new account openings, mainly from Tier 2 and Tier 3 cities.
Experts suggest that this momentum is likely to continue in the immediate future.
It looks like the ‘pawri’ on D-Street will continue, with the number of people attending it going up from here on. Data suggests that over 12 million new accounts got added in FY21 - almost double from 4.7 million accounts added in FY20.
The vertical rise seen in equity markets, high broadband connectivity, online trading programmes, as well as the need for an alternate source of income amid the pandemic, has led to a multifold rise in the opening of new Demat accounts in the last 12 months.
“In the last 11 months, Central Depository Services Ltd (CDSL) and National Securities Depository Limited (NSDL) collectively added 122.5 lakhs new accounts, taking the total number of Demat accounts across the country to 531.2 lakhs. Our overall client base doubled to approximately 38 lakh clients in February 2021, compared to just over 18 lakh in March 2020,” Dinesh Thakkar, CMD, Angel Broking Ltd told Moneycontrol.
“We are witnessing growth across all geographies. The advantage of being a digital player is that we are tier- agnostic. As penetration in Tier 2, Tier 3 and beyond has been very low, we are witnessing a surge from those pockets,” he said.
What is fuelling the trend?
The rise in retail investors as a phenomenon was evident across the globe. Robinhood in the US added to the retail stock trading boom in 2020. Most investors who opened new accounts in FY21 fall in the bracket of 30-40 years. Robinhood is a retail stock trading app, which has grown from one million to 10 million users since 2016.
Work from home gave enough time to investors to understand the trend and adopt new trading techniques.
Jaideep Arora, CEO, Sharekhan by BNP Paribas, told Moneycontrol: “The rise of retail investors in 2020-21 is something that we have seen across the globe. Trend-wise, a large part of this increase here is a replica of what was also seen in the US, with more and more tech-savvy youngsters entering the markets wanting to take control of their own finances."
“This holds true for Sharekhan as well, with almost 77 percent of our new account holders being under the age of 40. The rise of the tech-savvy generation, powered by freely available content from influencers, is motivating more and more people to enter the markets,” he said.
Thakkar of Angel Broking confirmed the larger addition of millennial clients. The average age of clients on-boarded has continuously dropped from over 35 years in FY19 to 30 years today.
The lockdown and the stay-at-home economy was a wake-up call for many millennials to think about investing in the stock market. As digital natives with a higher risk appetite than the older generation, they realized that getting started in the stock market is not that difficult in this digital era, say experts.
“The simplicity of digital trading platforms with a flat-fee structure, simple interface, and hassle-free account-opening process, has led to the entry of several first-time Demat account holders,” Ravi Kumar, Co-founder and CEO, Upstox told Moneycontrol.
“And it’s a trend that we believe will continue to rise well into 2021. More than 75 percent of Upstox’s existing customer base is below the age of 35,” he said.
Growth from Tier 2 and Tier 3 cities
The trend, which began in FY21, will definitely spillover into FY22, as more and more new accounts are being opened by small town citizens. Some brokerages have claimed that 70-90 percent of the accounts opened in FY21 were from non-metros.
Around 70 percent of Upstox’s customer base is from Tier 2 and Tier 3 cities such as Nashik, Jaipur, Guntur, Patna, Kannur, Tiruvallur, and Nainital, points out Kumar of Upstox.
The one big factor propelling this trend is that traditionally the penetration in non-metros was very low, but with phones, tablets along with the easy availability of a high-speed data connection, the trend is catching up.
Says Thakkar from Angel Broking: “As penetration in Tier 2, Tier 3 and beyond is very low, we are witnessing a surge from those pockets. The digitisation wave across India and the democratisation of mobile phones have helped us penetrate further into the country across all tiers.”
“Today, more than 90 percent of our clients come from Tier 2, Tier 3, and beyond cities. If one adjusts for unique accounts, this number may be still lower. There is tremendous opportunity in small towns, which have remained largely untapped to date,” he explains. Clearly though, the times are changing.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.