Demats dip, SIP gain

New demat accounts more than doubled in 2020 to 10.5 million from a mere 4.5 million the previous year as the super rally in stock markets in 2020 attracted a lot of new investors, a phenomenon seen worldwide post-lockdown. A demat account is opened by an investor with a depository participant to invest in securities such as stocks and bonds. The securities are held in digital format. In India, individuals with shareholdings of up to ₹2 lakh in a listed company are considered retail investors.

The number of new demat accounts created in October was 1.8 million, a sharp fall of 94 percent from 3.5 million in the same month last year. Data showed that new demat account additions started to shrink from April, as the number fell to 2.4 million from a monthly average of 3 million in the January-to-March period.

Prakarsh Gagdani, CEO, 5paisa.com says the volatility in stock markets have impacted direct investing in stocks. “The generation of investors who started during 2020 and only saw the upside for quite some time, witnessed some volatility this year and tasted some losses as well. This has affected sentiments,” he says. However, he adds, this doesn’t mean that the affinity for direct equity is over in any way as there is more awareness and stickiness as well from investors.

Also read: Will Indian markets outperform in 2023?

“They are maturing and are behaving as smarter investors than their counterparts of the previous two decades, who left the market completely at the first sign of a downside. Rather than leaving the market in hordes, they have played the diversification and SIP game effectively to actually prolong their stay as investors. They have understood that, while direct equity investment is good during a rally, to benefit from the market in the long-term systematic investment makes sense. But, obviously, in the absence of ample liquidity and euphoria related to the markets, new account openings have slowed down,” Gagdani explains.

He is  optimistic that new investors will continue to open demat accounts in 2023, even though the pace may be slower than in the last two years. “Investors, we believe, will continue the direct equity as well as systematic mutual funds route,” he adds.

Association of Mutual Funds in India (Amfi) data showed a contrast trend of higher inflow of retail money into equity mutual funds. Monthly SIP inflows surged to ₹13,041 crore in October for the first time ever, rising 13.23 percent from ₹11,517 crore in January.

NS Venkatesh, CEO, Amfi remains confident that money through SIP will continue to flow into MF schemes in 2023. “In the last few months, markets reacted to inflationary factors and events like rate hikes. However, small investors have shown consistent faith in mutual fund investments. They see SIP as wealth accumulation and wealth creation over a longer term,” he says.

However, the number of new SIPs registered till October is 21.23 million compared to 24.34 million in full year of 2021.

Watch here: Rewind 2022: Year in Review All Major Events That Happened This Year

“The testimony of maturity among retail investors is the continuous rise of SIPs despite multiple market fall and rise,” says Sachin Jain, analyst, ICICI Securities. “While the domestic financialisation story in well-acknowledged, the maturity and smartness of retail investors in under-appreciated. This maturity among wider retail investors will ensure stable and consistent domestic inflow into the Indian financial sector and equity markets in particular,” he adds.