India's financial landscape witnesses a surge with over 60 million new demat accounts added between Jan 2023 and Aug 2024, driven by rising per capita income. Zerodha leads, with substantial profits and customer holdings. The stock market boom attracts retail investors, diversifying across regions. NSDL dominates in assets under custody, reflecting a shift towards market-linked investments. Mutual funds remain resilient despite direct equity challenges, emphasizing professional management and diversification benefits for investors.
In a remarkable surge showcasing India's evolving financial landscape, over 60 million new demat accounts were added between January 2023 and August 2024. This growth is underpinned by the increasing per capita income, propelling more individuals to embrace market-linked investment opportunities. Amid this wave, the significance of professional management, diversification, and tax efficiency provided by mutual funds should not be overlooked.
The optimism reverberated across the industry, notably illustrated by Zerodha founder Nithin Kamath's jubilant tweet following a 62% increase in net profit for FY24 compared to the previous year. Kamath proudly shared, "INR4,700 crore of profits. Our net worth exceeds 40% of customer funds, positioning us among the safest brokers not just in India but globally." Highlighting another astonishing fact, he revealed that Zerodha customers collectively hold over INR5.66 lakh crore, with unrealized gains exceeding INR1 lakh crore.
The trend extends beyond Zerodha, as India witnesses a substantial uptick in retail investors seeking a slice of the equity market pie. With the stock market surging by 30% annually over the last three years, a plethora of demat accounts have been swiftly opened.
As of August 31, 2024, the total number of demat accounts in India stood at 171 million, with 133.4 million under CDSL and 37.6 million under NSDL. A decade ago, the combined demat accounts with these depositories were a mere 23.3 million, indicating an impressive addition of almost 150 million accounts in the past decade.
The growth isn't confined to Zerodha alone. The brokerage sector has witnessed a rapid expansion in clientele, fueled by the soaring stock markets. Firms have introduced user-friendly apps that gamify the trading experience, attracting users of all ages, from young adults to seniors, eager to partake in the market's dynamism.
Navneet Munot, Managing Director and CEO of HDFC Mutual Fund, attributes this momentum to a confluence of market vigor, escalating risk appetite among investors, and the role of technology in streamlining account operations, subsequently reducing costs.
The geographic investor landscape has also undergone a transformation. Previously dominated by Maharashtra and Gujarat, the investor base has diversified. In September 2024, Uttar Pradesh and Bihar emerged as significant contributors, with Uttar Pradesh boasting 21.4 million investors, a 47% increase from the previous year, and Bihar with 7.8 million investors, marking a 48% rise. The top 10 states now collectively account for 70% of the nation's investors.
While CDSL leads in the number of accounts, NSDL dominates in assets under custody (AUC). As of August 2024, NSDL's AUC stands at a substantial USD5.9 trillion, surpassing CDSL's USD928 billion. Despite managing 78% of India's demat accounts, NSDL commands 86% of the AUC value.
The surge in demat accounts can be attributed to the cost-effectiveness of operating demat and broking accounts. Transaction charges are minimal, further incentivizing participation in the market. Additionally, brokers like Zerodha offer zero brokerage for equity-delivery investments on NSE and BSE, making investing more accessible.
The increasing number of demat accounts for IPO participation and SIP accounts underscores investors' growing appetite for risk and the financialization of savings in India. This shift, facilitated by digitalization, reflects a broader trend towards market-linked investments.
In 2024, 56 IPOs collectively raised INR65,000 crore, a substantial increase from the preceding year, showcasing heightened market activity and investor interest.
While the surge in direct equity investments poses a potential challenge to mutual funds, industry experts like Ajit Menon and Suresh Soni emphasize the enduring appeal of mutual funds, accentuating the benefits of professional management, diversification, and tax efficiency they offer. The mutual fund sector continues to witness robust growth, with the total number of mutual fund folios surpassing 200 million in August 2024.
As India's financial landscape evolves, investors have a plethora of options to align with their preferences and risk tolerance. Both direct investing and mutual funds present unique opportunities, with trust and experience serving as cornerstones for sustained growth in the sector.
Sandeep Bagla, CEO of TRUST MF, underscores the advantages of professional management and diversification offered by mutual funds, mitigating risks associated with direct trading. As investors increasingly recognize the efficiency and stability provided by mutual funds, the sector is poised for continued growth, underpinned by India's promising economic trajectory.
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