The number of dematerialised (demat) account additions in August exceeded 3 million, driven by the rally in small- and mid-caps, as well as the strong performance of initial public offerings (IPOs), which drew new investors into the equity market.
During August, 3.1 million new demat accounts, which are necessary for trading and electronically holding shares, were opened with the two depositories, Central Depository Services and National Securities Depository. This marked the highest number of additions since January 2022.
The additions in August increased by 2.4 per cent compared to the previous month and were 47 per cent higher than the previous 12-month average of 2 million.
The total number of demat accounts has now reached 126.6 million, which is more than 3x the pre-pandemic level.
Exchange sources have reported that the unique client code (UCC) has surpassed 140 million for the first time. A single demat account can have multiple UCCs, and a single permanent account number can have multiple demat accounts.
The estimated unique investor count in the country stands at around 60 million.
Despite a decline in benchmark indices in August, the small- and mid-cap indices performed well. While the National Stock Exchange Nifty fell by 2.5 per cent in August, the Nifty Midcap 100 and the Nifty Smallcap 100 rose by 3.7 per cent and 4.6 per cent, respectively.
Additionally, the number of stocks that gained outnumbered those that declined. On the BSE, 2,126 stocks advanced while 1,955 declined in August, resulting in an advance/decline ratio (ADR) of 1.1.
The ADR for the domestic market has remained above 1 since April, indicating continued outperformance in the broader market.
Prakarsh Gagdani, whole-time director and chief business officer of 5Paisa, remarked, “Many mid-cap stocks are reaching all-time highs with significant trading volumes.”
Chokkalingam G, founder of Equinomics Research & Advisory, noted that broader market gains are attracting hundreds of thousands of new investors to enter the market every week.
“We are witnessing a rare event of small- and mid-caps outperforming the indices. This year, the small- and mid-caps have provided 3x the returns of the indices. When small-caps outperform the S&P BSE Sensex, retail participation in cash trading increases. Furthermore, retail participation in the derivatives market has also recently increased,” said Chokkalingam.
The BSE’s relaunch of new derivatives contracts, featuring reduced lot sizes and new expiry cycles, has contributed to luring new investors.
BSE reduced lot sizes to attract investors and shifted the expiry cycle to Friday.
Encouraged by the positive response, BSE has now decided to move the expiry date for its Bankex contracts to Monday. As a result, derivatives contracts will now expire on all five weekdays, starting with BSE Bankex on Monday (effective from October), NSE’s Nifty Financial Services (FinNifty) F&O contracts on Tuesday, Nifty Bank on Wednesday, Nifty on Thursday, and the Sensex on Friday.
Exchanges expect that spreading derivatives expiry across the week will boost trading activity.
“The launch of new derivatives products is allowing investors to hedge between Nifty and Sensex,” said Gagdani.
Another contributing factor is the recent surge in IPOs, which are seen as a magnet for investors.
In August 2023, seven IPOs worth Rs 4,737 crore were launched, marking the highest number since December 2022.
Market players have observed that, given the recent listing day gains, investor sentiment toward IPOs has become more favourable. Many individuals are opening new accounts for their family members to enhance their chances of securing an IPO allotment.
Technology has simplified the process of opening demat and trading accounts for investors. This technological advancement is one of the most significant factors contributing to the threefold increase in demat accounts since the Covid-19 pandemic breakout. In March 2020, the demat account tally stood at just 40.9 million.