Market rally drives demat account addition to 13-month high

New demat account additions zoomed to a 13-month high in June, with investors looking to participate in the market rally amid the new highs.

Data from depositories – CDSL and NSDL – show that June registered a net addition of 2.36 million demat accounts — the highest since May 2022, a month that had registered 2.67 million additional accounts over the preceding month.

A surge in demat account openings during market rallies, say experts, is a common occurrence. “This direct correlation between new account openings and market rallies holds good during the ongoing rally. The sharp 15% rise in the Nifty from the March lows, coupled with news and stories surrounding the consequent wealth creation, is attracting new investors,” says VK Vijayakumar, chief investment strategist at Geojit Financial Services.

Market players expect the trend to continue as long as the market remains resilient.

Similarly, the lowest addition in demat accounts during this 13-month period was in April 2023, right after the March lows registered by the Sensex (57,527.10) and Nifty (16,945.05). Since then, the Sensex has recovered 13.5% and the Nifty by 14.1%.

Tejas Khoday, co-founder and CEO of FYERS, said the Nifty and Sensex breaking all-time highs has attracted a wave of new investors eager to capitalise on the market’s momentum.

However, investors would do well to exercise some caution, with Vijayakumar saying that there is a negative dimension to this retail exuberance as well. “New investors normally chase low-grade small-caps, which slowly run into the bubble territory. There are signs of this happening now. Seasoned investors normally take this as a sign of caution.”

Agrees Khoday, saying not all of lockdown period investors experienced success. “Some traders, enticed by the fear of missing out, or FOMO, factor, entered the market during Covid, but are now realising that only disciplined traders with a long-term outlook are staying put and reaping profits.”

The heightened action in smallcaps and midcaps contributed heavily to the market boom. The midcap and small-cap indices have bounced back 22.7% and 23.77% since the March low.

Others say a resurgence in the IPO market also lent a helping hand. “Upward bounce in IPOs also brought some relief to investors facing deep losses. Cash segment volumes touched a 14-month high in June and the average daily turnover was up 42% YoY — reflecting high interest by retail investors. At such times, investors open new accounts at a fast pace, expecting the bullish sentiments to continue,” said Deepak Jasani, head of retail research, HDFC Securities.