Demat account openings hit 19-month high in August amid mid, smallcap rally; total count crosses 12.66 crore

Demat account openings hit 19-month high in August amid mid, smallcap rally; total count crosses 12.66 crore

Despite a decline in benchmark indices in August, there has been a notable surge in the number of new investors opening demat accounts. In fact, August witnessed the highest number of demat account additions in 19 months, indicating a growing interest in stock market participation.

Data from the Central Depository Service and National Securities Depository reveals that over 31 lakh new demat accounts were opened in August. This figure represents a significant increase compared to the previous month, which saw 29.7 lakh additions, and a substantial jump from the same period last year, when 21 lakh accounts were opened. The total number of demat accounts now exceeds 12.66 crore, reflecting a 2.51 percent increase from the previous month and an impressive 25.83 percent surge compared to the same month in the previous year.

This surge in new demat accounts suggests a heightened enthusiasm among individuals to invest in the stock market, despite the volatility and fluctuations in benchmark indices. It reflects a growing trend of retail investors seeking to participate in the financial markets and potentially capitalize on investment opportunities. The accessibility of online trading platforms, increased financial literacy, and the pursuit of alternative investment avenues may be contributing factors to this remarkable increase in demat account openings.

Rajesh Palviya, an analyst at Axis Securities, has noted that the Indian economy has demonstrated robust performance in recent times. This positive economic performance has translated into the stock markets trading near all-time highs, instilling confidence in the minds of investors regarding the long-term prospects of India.

Several factors have contributed to this confidence. First, there has been noticeable strong economic growth in India. This growth is likely driven by various economic activities and sectors, indicating a vibrant and dynamic economy.

Second, the government has shown a commitment to various short- and long-term infrastructure projects. These projects can have a significant impact on economic development, create jobs, and improve the overall infrastructure of the country.

Third, private sector capital expenditure (capex) has increased. Private sector investments in various industries can stimulate economic growth and employment opportunities.

All of these factors have not only bolstered the domestic demand but have also supported the valuations of the stock markets. The attraction of higher valuations and positive economic indicators has led to the participation of more young investors, particularly millennials, who have disposable income and are looking for investment opportunities.

It’s worth noting that while India’s flagship stock market indices like the Sensex and Nifty experienced a slight decline of around 2.5 percent each in August, the broader markets, such as the BSE MidCap and SmallCap indices, have shown resilience and even recorded gains of nearly 2.6 percent and 6.1 percent, respectively. This divergence between the flagship and broader indices reflects the diversity of investment opportunities in the Indian stock market, offering investors a range of options to consider based on their risk tolerance and investment objectives.

The past month has witnessed a notable shift in the behavior of small investors in the Indian stock market. While the benchmark index displayed relative stability, many small investors have redirected their attention towards fundamentally strong yet undervalued stocks. This change in sentiment has been particularly prominent in sectors that are undergoing positive business cycle shifts. As a result, there has been increased participation and trading volumes in the Midcap and Smallcap Indices, both of which have surged to all-time highs.

Several factors have contributed to this shift in investor sentiment. Firstly, the growing optimism and confidence in the financial market have played a significant role. Investors are becoming increasingly aware of equities as a viable asset class, and this awareness is driving them to explore opportunities beyond the traditional safe havens.

Secondly, the rising number of demat accounts indicates a growing interest in stock market participation. This trend suggests that more individuals are seeking to invest in stocks and are taking steps to open demat accounts to facilitate their trading activities.

Furthermore, the surge in Initial Public Offerings (IPOs) has attracted a considerable number of new participants. IPOs, on average, have been providing returns in the range of 35 percent to 40 percent, making them an attractive investment option for both seasoned and novice investors.

Lastly, mutual funds have outperformed benchmark indices, offering higher returns compared to traditional savings schemes. This has piqued the interest of the public, leading to increased investment in mutual funds, both through passive and active approaches.

In summary, the shift in investor behavior towards fundamentally strong and undervalued stocks, along with increased participation in Midcap and Smallcap Indices, reflects a dynamic and evolving Indian stock market. Factors such as IPO listings, the performance of mutual funds, and growing financial market optimism have all contributed to this changing landscape, making equities a compelling investment avenue for a broader spectrum of investors.

Despite the consolidation observed in the Indian equity markets during August, analysts are advising investors to adopt a “buy on dips” strategy, viewing short-term corrections as favorable entry opportunities. While the short to medium-term trend is currently characterized as negative to neutral, the prevailing expectation is that bullish sentiment will persist, driving the market index towards the 19,800-20,000 levels.

In its latest market analysis, Axis Securities has maintained its Nifty target for December 2023 at 20,200, with a valuation at 20 times the earnings projected for December 2024. The brokerage house is advising investors to retain 10 percent of their portfolio as readily available liquidity. This liquidity can serve as a strategic asset during market declines, enabling investors to gradually build positions in high-quality companies with strong earnings visibility.

The recommended investment horizon for this strategy spans 12 to 18 months, indicating a focus on longer-term growth and stability. This approach aligns with the notion that despite short-term market fluctuations, there is optimism about the Indian economy and equities as a favorable asset class for investors seeking potential capital appreciation and returns. By utilizing market dips to accumulate shares of robust companies, investors can position themselves to benefit from the anticipated upward trajectory of the market in the coming months.