Increase In New Demat Accounts A Good Sign!
The ongoing freefall, it would seem, would keep investors away from the markets and wait for the right opportunity to return and start investing again. But going by the number of demat accounts that are being opened, it does look like investors are in high spirits, which certainly is a good sign for the markets. Geyatee Deshpande finds out the reason behind such excitement and how the statistics are reflecting this new trend.
The markets are in no mood to continue the recovery they displayed in April with May trying to make investors realise the ground realities faced by the economy. However, the recent volatility in the markets has done what few would have imagined – it has led to record opening of demat accounts! Yes, it is true that the pace of new demat account opening has increased in March and April, as is evident from the data provided by the Central Depository Services Limited (CDSL). What is more interesting to note is that the spur in account opening is also being witnessed in the US markets.
Discount brokers like Charles Schwab, TD Ameritrade and Etrade have shown increase in trading accounts for Q1 2020 when compared to a similar quarter a year back. In fact, the jump in accounts for Charles Scwab, TD Ameritrade and Etrade is 58 per cent, 149 per cent and 169 per cent, respectively. This happened in the Q1 of 2020 (CY) when the markets entered into its fastest bear phase in history and the DJIA fell by close to 35 per cent. The data of the US markets reveal that first-time investors who are mostly inexperienced opened online broking accounts. These fresh investors saw the downturn created by the pandemic as as an opportunity to enter the markets.
If we go by the data of account opening at CDSL, almost 12 lakh new investors have opened demat accounts in March and April alone. March saw 6.18 lakh new accounts while April saw another 6 lakh accounts. These figures are important when we consider the fact that 42 lakh new demat accounts were opened in the prior 11 months i.e. between April 2019 and February 2020. That means on an average the new demat accounts opened per month since April 2019 to February 2020 were approximately 381,000, which jumped to 6+ lakhs in March 2020 and April 2020. This reflects a neat 36+ per cent jump in new demat accounts for March and April.
As is the trend, majority of the new demat accounts have been opened with discount brokers. Zerodha itself has almost 3 lakh new demat accounts opened in two months i.e. March and April, reflecting a big jump in volume for the discount broker. Zerodha is the biggest online discount broker in India and has seen monthly accounts double since February this year. According to the management, almost 20 per cent of the new accounts opened belong to first-time investors who are under the age of 30 years.
"While the global markets, including the US markets, have crashed over the last couple of weeks, we have seen an increase in new brokerage accounts being opened via our platform as well as new investments being made. Both fund deposits and new brokerage accounts are 10 per cent to 15 per cent higher than the usual volumes we see on a weekly basis. This increase in growth could be due to investors wanting to get in at cheap valuations or due to individuals wanting to exhaust their LRS limit before March 31."
-Viram Shah, Co–Founder and CEO , Vested Finance
Prakarsh Gagdani, CEO, 5paisa.com
Is it correct that there is a surge in new demat accounts opened in March and April this year? What could be the reason behind this surge in demat accounts?
As you may be aware, FY20 has seen the highest new demat account additions. Post the virus-induced lockdown, there has been massive interest expressed in demat account opening by Indian investors. While easy access to mobile phone apps along with affordable and fast data services is the reason for this boost, we have to respect a new breed of investors – the millennials. Millennials find equity trading a profitable investment option and we have seen huge growth in participation in that segment. There was 80 per cent growth in retail participation from February to March and 10 per cent in April on our platform and 70 per cent of the investors are millennials. In fact, now we have about 6 lakh customers and our app has over 4 million users.
Operationally, what are the challenges posed by the current lockdown to your company? Thankfully for a mobile-first and ‘digital only’ company like us, everything has been good. In fact, the past two months have been one of the best for us in our four years’ history. We have given raise to all employees and also given bonuses ahead of time for their hard work from home which has helped us to grow in these difficult times.
What is your market outlook for the remaining part of 2020?
Lot of people are expecting a V-shaped recovery once lockdown ends. But I think it is going to be a mixed bag. The real pain in economy will be known in Q2 when businesses will open and everyone will run for cutting expenses, reducing manpower, etc. Demand will be muted and restricted to essentials only. Sectors like travel, hotels, retail and entertainment will take more than 6 – 9 months for recovery. The impact of the same on the BFSI segment will be seen in Q3 when the moratorium will end and a 90-day DPD will be declared by banks and NBFCs. So, on an overall basis, I don’t think there would be a big upside in the markets in 2020 but some sectors like agriculture and allied, FMCG, automobile and automotive components, etc. are the ones to watch for.
Aasif Hirani, Director, Tradebulls Securities
Why is there a sudden surge in new demat accounts in 2020?
The current impact is purely due to the effects of the virus pandemic with stock markets across the globe witnessing sizeable corrections in the past two months. The recent decline of around 40% in our stock markets too has attracted a lot of retail and domestic participants. A similar wave was witnessed post demonetization when an increasing number of households turned to stock market investing via the mutual funds’ route.
The ongoing extended lockdown periods have created a lot of leisure and quality time. The end effect has resulted into an increase in digital consumption be it via online content or online trading. The rapid boost in technology due to robust trading platforms, mobile application, digital KYC and e-KYC has contributed to the ease of trading or participation in the stock markets. In short, online ease is leading to more accounts and more trading.
Have you witnessed an increase in participation from retail investors in recent months at Tradebulls Securities?
Our latest collaborated facility, E-Dis with CDSL, has been instrumental during this lockdown period since it completely sidesteps all the hassles of document collection and processing of physical POAs. It leaves no scope for errors now which had been a prime reason for delays in account activation. For customers it has bridged a seamless gateway to enter the markets swiftly and for us a renewed customer experience.
Our ratio of clients trading online has significantly improved during this lockdown. Up to 65-75% of our clients are trading online, which is a good improvement on 40-45% before the lockdown.
This could also be the impact of several investors awareness programmes conducted by various market participants such as asset management companies and brokers as well as the Association of Mutual Funds of India (AMFI). Says Renuka Wakale, a first-time investor: “I have attended at least three investor awareness programmes and was planning to invest in equity markets for the past one year. Now that I am working from home and the markets have fallen the way they have, I decided to buy some blue chip stocks only to realise that I do not have an online demat account. So I applied for one with a leading discount broker in India and got my demat account opened in just two working days. The account opening process was easy and quick. Anyone can do it.” Indeed, with innovation in technology, account opening is quick now, which was not the case in, say, 2009 or even 2013-2014. The advent in technology and advance trading platforms is a big lure for new investors.
The freefall in the markets has pushed Sensex down by almost 27 per cent on YTD basis, in spite of a stellar recovery in April. Several HNI investors and seasoned investors are hoping for markets to correct further and witness the lows the markets have seen in March to deploy cash in equities. However, first-time investors could not resist the temptation to enter the markets after witnessing a fastest freefall of its kind in the history of the markets, both globally as well locally. The increased participation in the crisis is a healthy sign for markets in terms of penetration and wider participation, but it may not necessarily lead to increased volumes in the markets.
The initial enthusiasm may not endure for the rest of the year as the markets may remain volatile. Usually the first-timers are not always the long-term investors and may prefer to book some quick profits. Having said that, the opening of new demat accounts is a positive development for the equity markets. A combination of market correction, innovation in technology and trading has led to a surge in new demat accounts. The trading commissions are also close to flat for several of the discount brokers, which have managed to attract the new millennial traders and investors who are relatively tech-savvy.