A lot of demat accounts being opened from small towns and tier 2 & 3 cities: Nikhil Kamath, Zerodha
- Zerodha has the largest number of active accounts in India.
- A lot of new people in 25-35 age group have entered the market.
- Tier-1 cities lead in accounts, but number increasing for tier 2 & 3 cities
Can we say that the next generation investors are coming back? Where exactly are the demat accounts opening? Could you give us a sense of the income bracket here?
Majority of those who are opening accounts with us at Zerodha are in the 25-35 age group. We are seeing a lot of new people enter the market and if you had to take an average income bracket for this group, it is people who have been working for five to 10 years and in Rs 5-15 lakh a year salary bracket.
Could you broadly tell us the geography where these demat accounts are opening?
Tier one cities are leading as usual. Mumbai would be number one followed by Delhi, Bangalore, Hyderabad and Chennai but in the recent past, we are seeing a significant traction in tier two and tier three cities as well. We see a lot of businesses come in from small towns in Gujarat, Tamil Nadu or Karnataka.
Are these accounts being opened for a trading purpose or is there some sort of a long term trend? Do investors have conviction in the stock markets?
What has happened over the last five years is that stock markets have performed better than real estate or gold and stock markets offer a more liquid investment than any of these other asset classes, in the sense that you can enter and exit the investment at any point. As stock markets continue to outperform other asset classes, we can only see that more and more money will come into this diasporas.
The Indian markets over the last 10 years have given 12-13% compounded on the benchmark level and these returns in a liquid way are quite attractive to most investors who have come in to the markets, especially for the first time -- those in the 25-35-year age group.
How many new demat accounts do you see opening? What is the percentage of growth? Simultaneously, the number of active accounts has been reducing. Is there a trend there?
Zerodha has the largest number of active accounts in India. We have crossed the one million mark and we see on an average between 50,000 and 70,000 new accounts on the Zerodha platform. Most of these are first timers, people who are beginning and they want to have some kind of exposure to the stock market.
So, it is a different kind of population which is coming into the stock markets versus old experienced investors switching from one broker to another. In India, this space is so under penetrated, that less than 10% of our population has any kind of exposure to the financial markets. The room to grow is significant and there will be an inflection point at some point post which, people will become more financially aware and a lot more people will come into stock markets as a place to allocate some of their savings.
Should we start focussing on the total number of active demat accounts which are there because you may open up new demat accounts but if they are not active and if the old accounts are also not functioning, it is as good as dead!
The thing with investment is we recommend people to be as passive as possible. Even if you are an investor who comes in and invest and does not come back for the next year or two, your investment is still in place. Even though your account might not essentially be considered active, it is par for the course and even these kind of accounts add to the total overall exposure to financial markets that the Indian population might have. But the active accounts is definitely a better metric of gauge how much activity is happening.
Historically when we see uptick in demat accounts, it always coincides with the market peak. It is always said that when the retail guys start buying shares, that is bad news for institutional investors and for old timers and for the bulls! Is this different this time?
I do get the point that in the past, a large influx in demat accounts has coincided with significant downturns in the market. But the kind of investors coming into the market are different now. Previously we saw that people came in and used tools and leverage to make short-term bets on the market. But we feel that people who are coming in now are doing it with a longer-term view in mind and we see people allocating a part of their savings and they are investing hoping to earn 12%, 13%, 14%, 15% over the next five years or the next decade.
This kind of influx of new participants in the market is probably going to be a good thing and I do not think it will necessarily coincide with the peak in the markets right now.
Given that the small and midcap stocks have underperformed so terribly and we have seen investors get burnt, what are you sensing now? Do you feel perhaps SIPs are still the preferred bet for a retail investor?
Definitely. SIPs are a great way for a new investor to approach the market and it is always prudent to stay with the largest companies in India, maybe stick to the Nifty or the Sensex stocks versus attempt to invest in the small or midcap companies, because the larger companies are always regulated better and we have access to more information about what is happening in these companies.
The recent underperformance in smallcap and midcap companies was also preceded by a lot of outperformance in this sector. If you were to ask me personally, I would say stick to the largecap sector but even for the small and midcap sector, if money stays in there long enough, with India growing at the pace that it is, there will definitely be opportunities from that space.