NEW DELHI : The scorching pace of new demat registrations has cooled significantly, following the market correction and volatility in the last few months. Only 2.65 million accounts were opened in May, sharply lower than the 3.63 million opened in November, data showed.

The primary factor behind increased account opening is market performance, said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services Ltd. The broader markets have not performed in the recent past, and mid-cap and small cap stocks have seen many sharp corrections, discouraging potential investors. Growth is slow also because of last year’s high base, and the fact that many large IPOs are already over, Khemka added.

Many individuals had opened demat accounts to apply for large IPOs such as Life Insurance Corp. of India and Paytm (One 97 communications Ltd). The new IPO rate has also slowed, and the same is impacting demat account opening, analysts said.

Demat account openings may remain weak in the near term, said Deepak Jasani, head of research at HDFC Securities Ltd. New account opening depends on two factors, said Jasani. First is the number of people who have an adequate investible surplus. It’s likely that most such people already had opened accounts and therefore, new account opening is slowing down. As the economy gathers pace, the number of such people will also rise and drive up account opening.

The second is that there should be visibility on returns that will attract people to markets, and the market volatility has possibly discouraged many. Since the markets have corrected significantly with the Sensex and Nifty down 4-5% year-to-date in 2022, and broader markets lower more sharply, people are not seeing ways to make easy money and hence staying away from markets.

Experts are also of the view that due to the pandemic outbreak and lockdowns, many people, especially youngsters, got interested in stock markets, boosting account openings. Sandip Raichura, CEO of retail broking and distribution at Prabhudas Lilladher pointed out that brokerages were running many campaigns earlier, leading to this spike in account openings. The much-awaited LIC IPO is also out of the way and hence, fewer accounts are being opened now.

However, Raichura believes that on a long-term basis, demat account opening trends would remain strong, since India remains an under-invested country. “Over time, we expect the numbers to remain equally strong as more and more people enter the equity markets directly and indirectly through mutual funds and demat account openings may continue to remain healthy although maybe not as much as earlier," he said. Khemka too feels that over time, as equity penetration increases further, demat account openings will increase.

Meanwhile, for now, rising interest rates also may lead investors towards other investment options in case stock market returns don’t recover.