Demat Account Growth Hits 21-Month Low Amid Market Volatility and Regulatory Changes

Stock Market Correction and SEBI Regulations Curb New Account Openings

The pace of new demat account additions in India has slowed to its lowest level in 21 months, reflecting growing market uncertainty, stock market correction, and the impact of regulatory changes by the Securities and Exchange Board of India (SEBI).

Data from NSDL and CDSL shows that 1.92 million new demat accounts were added in February 2025, marking the slowest growth since May 2023 and representing the second consecutive month of decline. This follows a downward trend from 2.83 million in January 2025 and 3.26 million in December 2024.

As of February 2025, the total number of demat accounts registered with depositories has reached 190.40 million, a marginal rise from 188.14 million in the previous month.

Stock Market Correction Weighs on Investor Sentiment

The decline in demat account openings coincided with a significant correction in Indian equity markets. Factors such as:

• Sustained selling by foreign investors
• Elevated valuations
• A slowing domestic economy
• Weak earnings growth
• The global tariff war under the Trump administration

…have collectively dampened market sentiment, leading to a decline in benchmark indices.

Year-to-date performance:

• Sensex and Nifty 50: Down 4.5% each
• BSE MidCap index: Declined 14%
• BSE SmallCap index: Dropped 17%

Stricter SEBI Regulations Curb Derivatives Market Activity

Experts attribute the slowdown in new demat account registrations to SEBI’s recent regulations aimed at curbing excessive speculation in the F&O (futures and options) market. The new restrictions have:

• Reduced opportunities in the options trading segment
• Dampened retail traders’ enthusiasm
• Discouraged new investors from entering the market

Market participants argue that SEBI’s stricter norms have significantly lowered derivative market activity, making trading less attractive for many retail investors who previously engaged in high-leverage trades.

Falling IPO Pipeline Adds to Slowdown

Another major factor contributing to the sluggish growth in demat account additions is the sharp decline in fresh Initial Public Offerings (IPOs). The slowdown in IPO activity has resulted in fewer retail investors opening new accounts to participate in primary market opportunities.

Market Volatility Drives Risk Aversion Among Investors

The ongoing market volatility has further compounded investor caution, leading to:

• Frequent stop-loss triggers, forcing investors to exit positions at losses
• Increased risk aversion, with many traders reluctant to enter new positions
• A general slowdown in retail investor participation

Analysts, however, see this as part of a natural market cycle rather than a structural downturn. While investor confidence remains subdued in the short term, the long-term outlook for market participation remains intact.

With regulatory changes, market corrections, and economic uncertainties shaping investor sentiment, the coming months will be crucial in determining whether demat account additions regain momentum.