Recently I took a few rides in the Delhi Metro after quite some time. The last I boarded the Delhi Metro was probably 2 yrs back. But now with COVID almost history, at least in everyone’s mind, I decided to jump into a metro. To my surprise, the scenes inside the metro had changed. Two years back, I remember most of the commuters were hooked on their phones either watching something on OTT platforms or listening to music or trying to get a quick nap. However, now I see at least 10-15% of commuters (excluding those who are taking a nap) regularly checking the stock prices in the morning. This stock price check is not on some news app, say Moneycontrol, but on a Demat trading app like Zerodha or Groww, etc-. I find some of them trying to read a few candlestick charts and a few of them even trying to place an order amidst the patchy network inside the metro. Considering not everyone would have come to my notice, this number could be a lot more. This was not a common sight in my Pre-COVID rides. So what changed?
Retail participation in the Indian stock market and Demat accounts in India have been on a staggering growth trajectory in the past two years. The resilience of the Indian markets has surprised many analysts in the background of global economic headwinds and it’s been attributed to the active participation of retail investors.
As the graph below suggests, Demat accounts in India have been growing constantly since 2020 and over 2 million new accounts have been added every month since 2020.
In August 2022, Demat accounts in India crossed the 100 mn mark. So if we extend the above graph that’s another addition of 10.3 Mn accounts from Apr 22 – Aug 22. That again averages more than 2 Mn account net addition every month and that too in a market that has been moving in all directions every day due to negative global cues. In the past 3 years, the numbers of Demat accounts have more than tripled and reached above 10 crores (100 mn) on Aug 22.
So what has driven such unprecedented growth?
Nithin Kamath, CEO of Zerodha the biggest broker in India which holds close to 18% market share by the number of active clients, shared a few tipping points in their growth journey. We can fairly assume that it remains the same for competitors as well and can be attributed to the overall growth of Demat Accounts in India.
Here is what has fuelled the growth of Demat accounts in India:
1. Introduction of Zero Brokerage Discount Brokers
Traditionally buying or selling stock was possible only by calling up a broking partner and asking them to place an order on your behalf. Basically, brokers were inherently built into the traditional buying process. From telephonic transactions, it evolved to internet-enabled trading platforms built by these brokers. However, this had two disadvantages:
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- Firstly, these portals were heavy. It had full stack services built in which made the pure trading exercise cumbersome and slow owing to the heavy online suite.
- Secondly, these platforms had their brokerage built-in at the backend. Thereby, there was no option to buy Direct Mutual Fund Plans on these portals.
With increasing 4G penetration, early movers (like Zerodha) took advantage by building light HTML5-enabled platforms and apps. They also introduced zero brokerage on stocks and the option to buy and sell direct mutual funds.
2. Enabling AADHAAR Enabled 100% online account opening
The biggest deterrent in opening an account was the numerous formalities to be done – from filling the form to enabling NACH etc-. AADHAAR enable account opening was the biggest tipping point in this entire growth story. Customers can now open an account sitting at home via a hassle-free process.
3. UPI-enabled IPO applications
For a very long time, IPO applications were one differentiator that traditional full stack brokers had. However, this core competency was also dissolved once UPI enabled IPO application came in to picture. Customers now needed to have a Demat account and UPI to apply to any IPO which much ease. In fact, few IPOs (like PayTm, LIC) fuelled the opening of new Demat accounts in India as customers opened accounts just to apply for these sought-after IPOs.
4. COVID Lockdown & Work From Home
COVID lockdown did push the openeing of new Demat accounts via many factors:
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- Firstly, with WFH people had time to trade at their convenience from home.
- Secondly, many people saw pay cuts or even lost jobs and were hunting for an alternative source of income.
- Finally, though markets tanked, they went through a sharp recovery post-COVID which made many people think about catching up with the trend.
5. Increasing Inflation & decreasing FD Rates
The trend of adding more than 2 mn accounts per month has continued to as recent as Aug 2022. One reason behind this is the increasing inflation. Consumers want to beat inflation in their investments and the stock market is among the very few investment avenues easily accessible to them which can help the consumer achieve their goals.
Increasing retail participation in the stock market is a healthy indicator of the economy. However, customers must not see it as a pastime. As most of these investors are trying to invest directly without any assistance, it is advised that they pick quality stocks only and keep their time horizon long. This way it will profitable for both the investors and the economy.
