The financial year 2020-2021 was exceptional. The stock market saw unusual movements at the same time that the COVID-19 pandemic was ravaging it. This could be attributed to the extremely unusual circumstances. Many seasoned investors saw an opportunity for profit from the volatile movements of the stock market charts as the stock exchange fell in mid-2020 because of the lockdown. Young investors were right behind them. They saw an opportunity to capitalize on the deviant movement of stock market charts and sought other avenues to replace lost income.
The country soon noticed this trend and, thanks to social media personalities trying to capitalize on it, investors-to-be began flocking to stock markets. What did the result look like? The result? But is this just a temporary trend or was the trend already brewing for years and was only quickly accelerated and propelled to prominence in the economy? Let's look at the record number of Demat accounts opened in FY2021.
The Central Depository Services Ltd ( CDSL) had over 3 million Demat accounts registered to it in February 2021. If one looks at the CDSL's historical landmarks, it is clear that it took the depository just one year to increase its Demat account holdings from January 2020 to February 20,21. The second half of the year saw an unusually high increase in Demat account accounts openings. However, it is possible to say that Demat account account openings had been on a steady upward trend even before the pandemic. The CDSL is only one of two depositories. Therefore, it is possible to assume that NSDL has significant demat account numbers.
Individuals and investors started to see the potential for lucrative returns when the first pandemic hit. All they needed to start this journey was to open an online Demat account. They would be able to purchase and sell stocks at their leisure, invest their earnings to secure the future, generate additional income and pursue all their stock market goals. According to reports, a million Demat accounts were opened during December 2020. This was a trend that had been five months in the making. Between August 2020 and December 2020, 4,000,000 new accounts were opened at a rate that was one million per month. This is compared to the 4 million accounts that were added to financial years 2017-2018 in just 12 months. FY 2020-2021 only had four. Demat account openings also continued to rise, with 1.7 million accounts opened in January 2021.
Some argue that the rise in Demat accounts openings is a result of COVID-related unusual economic turbulence. The rapid digitization of the stock market, development of user-friendly apps and the proliferation of easy-to-access knowledge have all contributed to this. The entry of a number of depository participants DPs into the markets drove down prices, making it more affordable than ever to be a financial market participant. You can trade remotely from your phone, which is a great advantage. This means that everyone, whether they are employed or not in the stock exchange, can invest when they have the time.
New demat accounts are being opened as a result of a "do it yourself" attitude being taught to the nation's youth and new investors. These investors will open a demat account to achieve two goals. The first is to make returns and to invest their money in such a way that they get a multiplier of future returns. The second is to learn how the stock market works, how to interact with it, analyze trends and technical aspects of stocks, in order to decide which stocks to invest in. Investors will continue to take on this do-it-yourself attitude as they choose different investing goals and open a new demat account. This makes the growth in demat accounts more indicative of the future than a temporary response to the pandemic.
Covid impacted the financial years and saw some unusual economic movements. A unicorn boom led to an explosion in IPOs (and news that new IPOs were in the works still making headlines), many companies became prominent. One could argue that the pandemic drove investors to the stock exchange and allowed them to open Demat accounts online. However, this was facilitated by the stock markets increasing incentives and historically low rates for opening and maintaining Demat accounts.
The pandemic wasn't the only reason for the flurry of Demat account openings. It was a catalyst for a reaction that had been bubbling in the country for some while. Although it might seem like the amount of pie you get shrinks with the addition of new entrants to the market, it could be seen as the whole pie growing, which leaves more for all. It remains to be seen if the stock market is able to sustain this upward movement or if it will just amount to an abnormality on a long-term graph.