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Indian investors opened a record 14.2 million new demat accounts in FY21, nearly three times the figure in the previous fiscal year, as the global pandemic and business disruptions opened up new investment opportunities.

In contrast, 4.9 million demat accounts were opened in FY20, with a three-year average of 4.3 million in the three fiscal years starting FY18, data from National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) showed.

In March 2021 alone, 1.9 million demat accounts were created, the highest monthly increase ever, indicating investors shifted their savings from traditional instruments such as gold, real estate and bank deposits to alternatives like stocks.

A dematerialized or demat account is opened by an investor with a depository participant to invest in securities such as stocks and bonds. The securities are held in digital format.

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As markets made a robust rally in FY21 after the crash following the national lockdown in March last year, appetite for stock trading grew. In FY21, the benchmark Sensex gained 68% while BSE500 climbed 77%.

“The covid-19 outbreak has been a major influx point for the discount brokerage industry on the whole and we witnessed record openings of demat accounts as an increasing number of millennials started moving towards dual or multiple income sources, and stock market seemed to be a great investment option," said Prakarsh Gagdani, chief executive of 5paisa.com, an online discount brokerage firm.

Policy changes like easier know-your-customer (KYC) norms, greater internet penetration and affordable devices and technology enabled easy access to services and increased the financialization of savings, analysts said.

A gradual decline in stock markets in recent weeks, with the Sensex down nearly 7% from its record high, is not expected to shake retail investors’ confidence, market experts told Mint.

“The markets are always cyclical in nature. Thanks to the huge amount of information available on the internet, new-age investors and traders who are entering the markets are well aware of market ups and downs, volatility. We strongly feel that new-age investors have a good understanding of the opportunities in the capital markets, especially over the long term, and will continue to leverage this financial instrument to grow and reach their financial goals," said Jaideep Arora, chief executive officer, Sharekhan by BNP Paribas.

“As for markets, the factors from last year were unique; however, we expect the growth this year to be moderate, but a critical time for investors to make the most of the volatilities we are seeing," Arora added.

Arora expects demat accounts to continue growing this year. Factors such as digitization, growing awareness about equities, diversification of saving and low-interest rate environment will push more people towards the capital markets, he said.

Younger investors as well as investors from tier-2 and tier-3 cities such as Nashik, Jaipur, Guntur, Patna, Kannur, Tiruvallur and Nainital began trading in FY21, said Arora.

“Ever since we have launched our online account programme, tier-2 and tier-3 cities have surprised us with the rate at which they are adapting to the digital journey," said Arora.

Even as the raging coronavirus pandemic has spread to smaller towns in the second wave, analysts believe trading will continue to attract more investors.

“Coronavirus has rather been a factor that has changed the approach of people towards investment. They are now looking at high returns investment options to have a cushioning amount that would support them at the time of crises or help them recover the money lost. At present, over 80% of the total consumer base of 5paisa comprises consumers from the tier-2 and tier-3 cities and we only see this increasing in the near future," Gagdani added.

Gagdani sees the momentum of rise in retail participation in stock markets to continue in the year ahead.

nasrin.s@livemint.com

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