The Hindu Business Line : Growth in demat accounts slows down in August

Mumbai, Sept. 5 With not many initial public offerings in the pipeline, the number of demat accounts grew only 1.45 per cent in August; lower than in July when it grew 1.85 per cent. The total number of accounts at the end of August stood at about 1.40 crore with National Securities Depository Ltd (NSDL) and Central Depository Services (India) Ltd (CDSL).

The increase in demat accounts has always been proportional to the number of IPOs that hit the market, said Mr Manish Sonthalia, Vice-President-Equity Strategy, Motilal Oswal Financial Services.

According to the figures obtained from the depositories NSDL and CDSL, 1.96 lakh accounts were opened in August compared with 2.46 lakh in July. The growth in demat accounts has been slowing from January onwards, coinciding with the bear phase in the stock markets. However, the differential has been narrowing each month.

The percentage increase in the number of investor accounts may not be much, but according to some brokers, those who had missed the last bull rally want to enter the markets at low levels and might have opened new demat accounts.

New system

Some marketmen do agree that the new payment system ‘ASBA’ for IPOs might give a boost to the number of demat accounts as it is an investor-friendly process and does not block an investor’s funds till share allotment is over. Otherwise, until there are some huge IPOs in the markets, there will not be many investors willing to enter the markets, and this will be reflected in the demat numbers, said Mr Sanjay Someshwar, sub-broker, Ventura Securities.

There aren’t many new players in the secondary markets either, as the markets have remained range-bound in the past couple of months, said an analyst.

“The last time we saw a surge in the number of demat accounts was just before the Reliance IPO in January (when demat growth was 5.43 per cent), after which the growth in demat accounts has largely been muted,” said Mr Sonthalia. There were more than 14 lakh new demat accounts that had been registered in January alone, when the Reliance issue was to open. Though there aren’t large numbers of investors entering the equity markets, a noticeable trend has been that an increased number of investors are coming from smaller towns and cities, as the increase in the number of depository participants widens reach.

Market Indicator

While the number of demat accounts are a big indicator of the direction of the markets, they are not a leading indicator, said Mr Sonthalia.

The stock prices of broking companies go up before the markets go up and that would be a leading indicator of the direction of markets even before they start moving up, said Mr Sonthalia.

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