In December 2023, the Indian stock market experienced a significant burst in investments, with a massive 4.2 million new demat accounts being opened. According to several experts, this surging interest in equities is likely due to increased financial literacy, digitisation, user-friendly trading platforms and the FOMO factor. The growing number of demat accounts may foretell a promising future for fostering investment growth in India.
Mukesh Kochar, national head of Wealth, AUM Capital, says, “Opening this record demat account is due to fear of missing out (FOMO) factor. The market is trading at a record high, and investors have made significant profits as the rally is broad-based. New investors are coming in by hearing the noise around to participate in the rising market. Buoyancy in the IPO market is also prompting these investors to open demat accounts to participate in these IPOs.”
The retail base has significantly increased post-Covid and has supported the volume of the market heavily. New investors are coming from different parts of the country, including small towns. “Opening these accounts will further strengthen the retail volume and participation. However, a word of caution is important at this point in time. These investors should come to the market for a longer period of time with a mindset of regular investing and should avoid investing in penny stocks on rumours. The marker is at a lifetime high, and volatility may increase from here on,” said Kochar.
The new broking accounts opened a trend showing continued momentum and growing participation of Indians towards equities. Harsh Gahlaut, CEO of FinEdge, said that this augers well for the stock markets as well as investors, as the India growth story will offer great opportunities over the next decade and will reduce dependence on overseas institutional investors.
“While in terms of the percentage of the population investing in Indian equities, we still have a long way to go considering world averages, what is immensely gratifying is that we are seeing a significant surge in participation from tier 2 and 3 towns. States like UP are now leading the country in terms of new account openings,” said Gahlaut.
“Customised expert advice for these investors based on risk & return, having the right expectations, investing based on goals rather than chasing returns will become extremely important to sustain these first-time investors through their investing journey,” he added further.
The digitalisation offered by investing platforms has also made investing easy and location-agnostic. This has contributed significantly to the secular deepening of the investing industry. Conversely, while starting investing is much easier, creating wealth has become tougher with the information clutter. The ability for investors to remain invested to create wealth will remain a big challenge and, if left unaddressed, can leave these new investors with an unsatisfactory experience,” added Gahlaut.
Also, while the surge reflects the deepening of the securities market and greater financial inclusion and showcases the attractiveness of India’s securities market, the challenge now is to ensure that this momentum is sustained and that investors are adequately informed.
Besides, this spike in demat accounts alludes to the need for improved investor education. Consumer protection should be prioritised to ensure new investors make informed decisions.