Surge in Trading / Demat accounts after Lockdown

Business Growth Support Advisory By - Kapil Vyas

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” — Warren Buffett.

The Year 2020-21 has seen its highest surge in the opening of new demat accounts, nearly 4.9 million. Central Depository Services India Limited (CDSL) which is one of India’s leading depositories experienced a 20% rise in new accounts hitting more than 25 million within 6 months of India’s first lockdown.

Now the question is what has impacted the people of this country to trade and invest in the stock market? The answer seems to be pretty simple, there are mainly 6 reasons which come to my mind.

• Free time to trade:
  As the lockdown was imposed people started working from home, schools and colleges were shut down and people had more than usual time to spend free.If we look at the data of new account openings, the age of people opening new demat accounts is between 22-28. At this age most of them had been studying in college or had been in a Junior level post without much pressure of managerial work. So speaking on this basis, the younger generation of the country had more time to spare and think about investing in stock market than ever before.
• Easy Account Opening
  Now-a-days, everything you want comes to you instead of you going out for it. Same applies to new account opening. The new technologies help people to open their account sitting at home with the help of e-kyc, all you need is a smartphone and kyc documents to open your trading and demat account.
• Lower cost than before
  An important reason younger generation are pushing themselves in the stock market is beacuse of low cost of account opening and brokerage charges. Taking the example of Zerodha, a discount broking firm, the cost to open a demat and trading account is just 200-300 INR as well as the Annual Maintenance Charge (AMC) is also quite small. Also the discount broker charges a very minimal brokerage of 0.02% or 20%, whichever is higher, in case of intraday trading and no brokerage in case you take delivery of the shares. So, a lower cost in trading and maintaining the account has helped a lot in the event of surge in new demant and trading accounts.
• Availability of shares at low prices and the data of previous market turmoils
  As the pandemic hit the market in March 2020, the prices of the shares went down dramatically. People were afraid to invest in share market and a lot of them pulled out their money from the capital market. But as we have earlier experienced such market crash before, people were very confident that the market will shoot up very soon as it was trading at a very undervalued price. So because of the availability of historical data and low prices of the shares the citizens saw a great opportunity to invest because of which there were new people entering the market and trying their luck.
• Blockbuster IPOs
  Due to a lot of liquidity in the market, the IPOs such as Happiest Minds, Chemcon Specialities, Mrs. Bector Foods saw a subscription of more than 150 times. Also the price at which most of the IPOs got listed gave a return of more than 70% to the traders on its listing date. This gave a very good reason to the new traders and investors to enter the market. People started opening accounts of their family members just to put their money in IPO as the chances of getting the allotment with just one account comes down to nearly zero with such an oversubscription.
• Scam 1992 (A webseries)
  Although it might sound strange and funny to include this in the reasons of surge in trading/demat accounts. But to be very honest I feel this has been a major reason why there has been so many new entrants in the stock market. The webseries depicting the life of Harshad Mehta a.k.a. the big bull, has on a serious note influenced the mind of people to invest in the share market especially the youth. The lavish lifestyle of Harshad Mehta shown in the webseries and the dialogues used has severly impacted the people of this country and has motivated them to enter the stock market and play on front-foot.

So to conclude with some data, Zerodha added almost 0.7 million new account in the previous month following a rising trend since April 2020 with Tier 2 cities contributing almost 40% and the age group being within 20-30 years; The number of new accounts that women opened with Sharekhan in January 2021 saw a rise of 77% than that of January 2020. Sharekhan’s nearly 77% of the new customers belong to the age grouo of below 40.

” The Stock market is the story of cycles & of the human behavior that is responsible for overreactions in both directions.” ― Seth Klarman

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