Demat account openings hit 19-month high in August amid mid, smallcap rally

Despite a drop in benchmark indices during August, there has been a surge in new investors opening demat accounts. August marked the highest number of additions in 19 months. According to data from the Central Depository Service and National Securities Depository, the number of demat accounts opened in August totalled over 31 lakh, marking the highest account opening rate since January 2022, compared to 29.7 lakh additions a month ago and 21 lakh a year ago.

The total demat tally crossed 12.66 crore, up 2.51 percent from a month ago and 25.83 percent from a year ago.

Rajesh Palviya, an analyst at Axis Securities, said the Indian economy has shown a robust performance in recent times, which has led to markets trading near all-time highs and creating a sense of confidence in investors’ minds that the long-term story of India is very bright and encouraging.

Noticeable strong economic growth, thrust of the government on various short- and long-term infrastructure projects and private sector capex have augmented domestic demand, further cementing the valuations of markets and attracting more young millennials with high disposable income, Palviya added.

India's flagship indices Sensex and Nifty have lost around 2.5 percent each in August while broader markets BSE MidCap and SmallCap have advanced nearly 2.6 percent and 6.1 percent, respectively.

Last month, the relatively stable performance of the benchmark index led many small investors to shift their focus to fundamentally strong but undervalued stocks, particularly in sectors experiencing positive business cycle shifts. This shift in sentiment has driven increased participation and trading volumes in Midcap and Smallcap Indices, both of which have reached all-time highs. Additionally, growing optimism and confidence in the financial market, coupled with greater awareness of equities as an asset class, have contributed to the rising number of demat accounts, according to analysts.

A few analysts said a surge in IPO listings, which averaged around 35 percent to 40 percent returns, attracted many new participants. Also, mutual funds have outperformed benchmark indices, offering higher returns than traditional saving schemes, drawing both passive and active interest from the public.

Meanwhile, despite the consolidation in the local equity markets in August, analysts recommend buying on dips, using short-term corrections as favourable entry opportunities. The short to medium-term trend is currently negative to neutral, but the expectation is for the bulls to maintain control and drive the index toward the 19,800-20,000 levels.

In its latest note, Axis Securities maintained its December 2023 Nifty target at 20,200 and value at 20x December 2024 earnings. The brokerage house has recommended that investors retain 10 percent of their portfolio as good liquidity. This liquidity can be utilised during market declines to gradually establish positions in high-quality companies with strong earnings visibility. The suggested investment horizon for this strategy is 12 to 18 months, it added.