The rise in demat accounts matters big

India’s dematerialised (demat) accounts have crossed the 100 million mark from about 40.9 million in March 2020, shows data from National Securities Depository (NSDL) and Central Depository Services (CDSL). Millennials are opening more accounts and investing directly in the stock markets. Duplication is possible, as an investor can open demat accounts with multiple brokers. Nevertheless, work from home, rise in mobile and data penetration, and fall in brokerage rates have supported this growth. It shows greater formalisation of the economy, too. The low interest rates earlier on fixed deposits and debt instruments also led to money flowing into the markets.

Retail investors invest much smaller amounts in the markets compared to institutional investors. Many booked profits during the upturn, bought at dips, invested in exchange-traded funds and switched between multiple demat accounts to pocket discounts. Overall, the rise in retail investment to stock trading shows that young and new investors are willing to take a certain amount of risk. Apparently, this helped counterbalance the stock dumping that FPIs had undertaken.

Global stocks have weakened now following central bankers’ warning to investors to prepare for a sustained period of higher interest rates to fight inflation. Concerns that this could have destabilising effects on emerging markets are valid. So, caution is in order for rookie traders, and also new investors doing futures and options. IPOs attracted many retail investors. But these applicants reportedly lost money in 40% of the fresh issues this year. So, while India’s economic prospects remain bright and stock valuations over a 10-year horizon would only be higher, investors can’t afford to ignore bumps.