Some analysts have advised new investors to exercise caution and carefully assess investment choices, particularly with regard to potentially overvalued small-cap stocks.
With local stock markets providing attractive returns, many new investors have been eagerly opening demat accounts. In June, the number of newly opened demat accounts reached its highest point in 13 months, according to data from the Central Depository Service and National Securities Depository. Over 2.36 million demat accounts were opened during that month, surpassing the previous month’s addition of 2.1 million and the previous year’s addition of 2.3 million. The total number of demat accounts now stands at more than 120.51 million, reflecting a 2 percent increase from the previous month and a significant 24.41 percent increase from the previous year.
In the June quarter of FY24, the equity markets have shown an impressive recovery. The Nifty50 index has surpassed the milestone of 19,500 points for the first time. Both the Sensex and Nifty have experienced a growth of over 14.2 percent and 15 percent respectively since 28 March. Additionally, the BSE Midcap and SmallCap indexes have seen even higher increases, with gains of over 24 percent and 27 percent respectively. In the year 2023 so far, both the Sensex and Nifty have gained nearly 8 percent each, while the BSE Midcap and SmallCap indexes have climbed nearly 15 percent each.
According to Hemang Jani, an independent market analyst, this surge in the market hasn’t been limited to the Nifty50 alone. The broader markets, including mid-cap and small-cap stocks, have also performed strongly. Various factors like trading volumes, order flow, and the addition of new clients have gained significant momentum during this period. This positive trend indicates growing confidence and increased investor participation in the market. As long as the market remains resilient, it is expected that this trend will continue.
In June, the combined average daily turnover (ADTV) of both the BSE and NSE cash segments reached a one-year high, totaling Rs 67,491 crore. This represents a 42 percent increase compared to the previous year. Additionally, the ADTV for the derivative market reached a fresh high of Rs 259 lakh crore.
According to Arvinder Singh Nanda, Senior Vice President of Master Capital Services, the increased activity in initial public offerings (IPOs) on both the main board and SME board is driving the opening of demat accounts. Other important factors contributing to the rise in trading activity include millennials gaining knowledge about investing, an increase in disposable income, and a rise in savings.
The IPO market experienced a significant surge in activity during June, with five mainboard share sales receiving substantial subscriptions and raising a total of Rs 2,588 crore. Analysts predict that more IPOs are on the horizon, indicating a continued trend of heightened IPO activity.
It is worth noting that the SME segment also saw a surge in share sales, with 17 issues opening in June alone. Since the beginning of 2023, a total of 73 SME issues have been launched, raising approximately Rs 1,804 crore.
However, some analysts are expressing caution. While the increase in new demat account openings indicates growing investor interest, it is important to exercise caution and carefully evaluate investment choices, especially regarding potentially overvalued small-cap stocks. Both new and experienced investors should approach the market with prudence and consider the potential risks associated with excessive enthusiasm, they added.
“There is a downside to this retail enthusiasm. New investors often chase lower-quality small-cap stocks, which can gradually become overinflated. We are seeing signs of this happening now. Experienced investors usually interpret this as a warning sign,” said VK Vijaykumar, Chief Investment Strategist at Geojit Financial Services.