Record-breaking 41 lakh demat accounts added in a year

Investor sentiment seems to be positive as lakhs of new demat accounts were opened across depositories as of June 30, 2019

Record-breaking 41 lakh demat accounts added in a year

There hasn’t been much to harp about equities over the last year in terms of performance. The Sensex has delivered a measly 7% returns since June 2018. The BSE mid-cap and small-cap indices have taken a hit of 6% and 13% respectively. Despite the volatility, investor sentiment seems to be positive as a whopping 41 lakh new demat accounts were opened across depositories as of June 30, 2019. This is reported as per data from Securities & Exchange Board of India (SEBI). 

What do the numbers say?

The total number of demat accounts has grown by almost 48% over the last four years, jumping from 218 lakh investors in 2014 to 324 lakh investors in 2018. Between 2017 and 2019 itself, a steep 76 lakh new accounts have been added.

Even though the geographical split of the demat accounts is not publicly available, Mumbai continues to be the largest contributor by market volume. This, despite its market share dipping from 63.8% to 63.6% since FY13. The sizeable contribution of Mumbai to the overall turnover is attributed to the financial capital being home to large institutional investors.

Related: Equity Mutual Funds vs Stocks: Where to invest?

Factors responsible for the surge

Other than direct equity investments, the data also accounts for mutual fund investments and subscriptions to non-convertible debentures (NCDs). 

Additionally, the red tape surrounding account opening has been completely done away with. The implementation of digital KYC and e-signatures have cut down the turnaround time from a couple of weeks to 24-36 hours, reducing entry barriers. 

Related: How to choose an equity mutual fund

On the qualitative side, improved financial literacy in the country and higher disposable income has attracted more investors to equity. Metropolitan areas, especially IT and startup hubs such as Bengaluru and Hyderabad are fast catching up with the equity culture.

The share of cash market transaction for Bengaluru has gone up from 0.3% to 4.2% since FY13, while Hyderabad’s participation has witnessed an uptick from 1.4% to 3.3% during the same period. The stock market has outperformed other asset classes over the past five years including real estate and gold.

The benchmark Sensex has witnessed an upturn of 70% since 2016, indicating an average return of 20% annually. The sentiment continues to remain positive despite three major sell-offs last year and the Sensex taking a 13% fall in a single correction between August and October 2018.

The retail investors continued to hold on to the portfolio and home-grown mutual funds received steady inflows averaging at Rs 8000 crore a month despite market volatility.

The new blood of investors are keen to learn and spend a considerable time researching, bringing in qualitative participation that any robust equity market needs. Here are some important things to know before investing in the stock market.

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