Demat a/cs at 5-yr low as volatile markets keep investors away

The number of dematerialised (demat) accounts added in 2011 was the lowest in the past five years as dearth of good quality primary issuances and a volatile equities market kept retail investors away.

According to data sourced from depositories National Securities Depository (NSDL) and Central Depository Services India (CDSL), about 18.06 lakh new demat accounts were added last year?20% lower than the number of accounts added in 2010 and nearly 58% lower than that added during 2008, when the markets touched a lifetime high.

?Market volatility has dented retail sentiments,? said Prasanth Prabhakaran, president ? retail broking, IIFL. ?There has been too much of instability; the market moves up 100 points one day and falls 200 points the next day. This sort of volatility obviously doesn?t inspire confidence in retail investors.?

The total number of active demat accounts at the end of calendar year 2011 stood at 196.9 lakh. Domestic brokerages have been trying hard to woo retail investors since the past two years but haven?t succeeded in rekindling their enthusiasm. For instance, last year all major brokerages launched an ?equity SIP? product, something similar to systematic investment plans used for mutual fund investments, to encourage staggered investments into equities.

Despite the recent uptrend in January, market participants believe it may take a while for investor confidence to return. ?We are waiting for the markets to stabilise before we launch any new product aimed at retail investors. But it is hard to predict when that will happen,? said Prabhakaran.

A dull primary market has also kept retail investors away. ?The number of demat accounts saw an unprecedented rise before the initial public offerings of Reliance Power in 2008 and Coal India in 2010. However, big ticket issuances have been conspicuous by their absence in 2011,? said AK Prabhakar, senior VP – equity research, Anand Rathi.

In all, 37 companies tapped the capital market in 2011, of which 27 firms were trading below the issue price at the end of the year. Twenty-four firms came up with issuances of below R100 crore. The government’s disinvestment programme did not go as planned as the follow-on public offerings of ONGC, BHEL and SAIL were postponed owing to uncertain market conditions.

Indian companies raised just R5,966 crore in 2011 by way of IPOs compared with R37,534 crore raised in 2010, R19,544 crore (2009), R16,904 crore (2008) and R34,179 crore (2007), according to Prime Database.