Introduction
The financial Year 2020-2021 proved to be exceptional. At the same time as the COVID-19 pandemic’s assault, the stock market also saw highly unusual movements (a result of the highly unusual situation, one could theorize). As the stock market dipped in mid-2020 due to the lockdown, many seasoned investors saw an opportunity to capitalize on the deviant movement of stock market charts. Close on their heels were young investors, who, as a result of being thrown into the deep end of work from home, looked for other avenues to make up for any loss in income and to better invest the excess disposable income they now had.
As the country quickly caught on to this trend, fueled by social media personalities in their attempts to capitalise on it as well, the country saw investors-to-be around the country, flocking to the stock market. The result? A staggering 10.7 million new Demat accounts blew through the previous year’s record of 4.7 million accounts, and by almost double at that. However, is this a short term trend that has taken the form of the market’s response to be covid 19 pandemic, or has the trend been brewing for years, and was merely fast-tracked and propelled to the forefront of the economy? Let’s take a look at how new Demat account openings jumped to record high in FY2021.
CDSL Hits the three-crore mark.
In February of 2021, the Central Depository Services Ltd (CDSL) had more than 3 crore Demat accounts registered with it. However, if one were to look further into the historical landmarks of the CDSL, one can see how it took the depository merely one year to increase the Demat accounts it held from January 2020 to February 2021. While the latter half of the year saw a steep, and abnormal increase in Demat account openings, one could state that Demat account openings were on a general uptrend even before the pandemic took place. Additionally, the CDSL is but one of two depositories, and one could assume that NSDL is making significant demat account numbers as well.
Soon into the first pandemic wave, individuals and investors began recognising the lucrative returns that lay ahead of the stock market. And all they had to do to begin this journey, was to open a new Demat account online. This all-access pass to the stock market would allow them to buy and sell stocks as they pleased, investing their earnings to secure their future, investing excess income in order to generate more income, and chase all their stock market aspirations. As a result, it was reported that a million new Demat accounts were opened in the month of December 2020, contributing to a trend that was now 5 months in the making. From August 2020 to December 2020, 4 million new accounts were added at a rate of a million a month. To put this into perspective, financial years 2017 and 2018 both saw 4 million accounts being added in their 12 months; FY 2020-2021 did it in a mere four. To add to this, new Demat account openings continued to trend upwards, with January 2021 seeing 1.7 million accounts being opened.
Short or long term trend?
Some would argue that the increase in new Demat accounts being opened is solely a symptom of unusual turbulence in the economy caused by COVID. However, the rapid digitalization of the stock market, the development of user-friendly applications and proliferation of easy to access knowledge has laid the foundation for this much before. With a slew of depository participants DPs entering the markets, they drove prices down, making it cheaper than ever for someone to become a financial market participant. The ability to trade remotely from your device provides an additional advantage, wherein every individual, employed in the stock market or not, could make time to invest, given that this time requirement was significantly reduced.
The new demat accounts that are being opened are a result of a ‘do it yourself’ attitude that is being inculcated in the youth and new investors of the country. This means that these investors are will open a new demat account with two objectives; the first is to make returns, to invest their money in a way that they receive some multiplier of returns in the future, and the second, is with the aim learning how to work the stock market, how it functions and how one can interact with it, study trends, technically and fundamentally analyze stocks in order to invest in. This do it yourself attitude is here to stay, as investors pick various investing goals and open a demat account, they are likely to continue this journey into the long run, making this growth in a demat accounts more of an indication of what’s to come in the future, than a temporary reaction to the pandemic.
Conclusion
The financial years affected by covid saw a number of unusual economic movements. With a unicorn boom to an exponential increase in IPOs being offered (and news of new IPOs being in the work still actively coming in), a number of companies made headlines. Therefore, one could make the argument that while the pandemic drove new investors to the stock market and to open new Demat account online, the increase in incentives offered by the stock market, coupled with the historically reducing rates of opening and owning a Demat account paved the way for this unusual phenomenon to take place.
It is clear that the pandemic was not the sole cause of the rush of new Demat account openings, but instead simply catalysed a reaction that was bubbling in the country for some time now. While it may seem that the piece of pie you get gets smaller with the addition of new entrants, one could perceive it as the pie getting bigger as a whole, leaving more for everyone. What remains to be seen is whether the stock market can sustain this upward movement, or if it will simply amount to a mere abnormality in a long run graph?
