Mumbai (Maharashtra) [India], December 31 : India's stock market landscape is witnessing rapid growth in demat accounts, but the penetration remains significantly lower compared to global standards, according to a report by Motilal Oswal.
The report highlights that demat account penetration in India stands at just 12 per cent, far behind the 62 per cent penetration in the United States.
It said "The demat account penetration in India is at 12 per cent vs. 62 per cent for the US. Discount brokers, through their digital offerings, are changing the paradigm, enabling rising awareness and adoption of equity in lower-tier towns and cities".
The number of demat accounts in India has reached approximately 179 million recently, nearly doubling from 90 million in FY22.
This surge has been driven largely by discount brokers leveraging digital platforms to increase awareness and adoption of equity investments, particularly in smaller towns and cities.
The growth in trading volumes has been exponential as per report with the average daily turnover (ADTO) across all segmentsEquity Futures & Options (F&O), Cash, and Commoditiesgrowing multifold over the past five years. Among these, the Options segment has been the primary growth driver.
However, regulatory measures introduced by SEBI to curb the options segment are expected to temporarily impact volumes before setting the stage for long-term growth.
In response to the new regulatory environment, the report mentioned that the discount brokers may need to adjust their pricing models to maintain profitability. Simultaneously, exchanges will need to focus on product innovation to counter any decline in trading volumes.
The report also noted that the widening of the primary market, with more listings and increased free float, will likely drive turnover velocity higher. This trend is expected to support volume growth for both exchanges and brokers.
Additionally, brokers are focusing on expanding their product offerings, such as loans, fixed income, mutual funds, and insurance, to enhance customer lifetime value and mitigate market cyclicality.
While equity exchanges in India enjoy premium valuations due to their duopoly status in equities and near-monopoly in commodities, brokers face higher cyclicality and are valued at lower multiples. The report noted that exchanges trade at forward multiples of 35-40x, while brokers trade at 15-18x.
As the financial ecosystem evolves, the collaboration between regulatory frameworks, brokers, and exchanges will play a critical role in shaping the future of India's capital markets.
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