The implementation of the strict Securities & Exchange Board of India (Sebi) know your client (KYC) norms for intermediaries has resulted in the growth in new demat accounts slowing down during the financial year (FY) 2006-07. Though the new accounts have grown on a year-on-year (Y-o-Y) basis, there has been a slowdown in the percentage of growth when compared to the previous financial years.According to the National Securities Depository Limited (NSDL), during FY07, the growth in the demat accounts was a mere 2.83% or 2.16 lakh accounts, with a total of 78.49 lakh accounts. As compared to this, FY06 witnessed a rise of 23.77% or 14.66 lakh accounts were added, with a total of 76.33 lakh accounts from the previous year’s (FY05) 61.66 lakh accounts.

A top official from rival Central Depositories Services (India) Limited (CDSL) said, “Earlier, it was not compulsory for investors to provide their permanent account numbers (PAN) while opening a new account. Ever since PAN has been made compulsory, and KYC has become more stringent following the unearthing of the IPO demat scam, a number of duplicate accounts have been closed down, as they did not have PAN cards. Moreover, earlier a single investor used to have multiple accounts. Such practices are now being checked and consolidation is being witnessed in case of such accounts.” The sluggish growth in demat accounts also had its impact on the total annual turnover of the stock exchanges (SEs). Analysts also attribute this trend mainly to a higher base effect. The annual turnover (combined of NSE and BSE, cash & derivatives) in FY07 grew by 21.62% or Rs 5.15 lakh crore to touch Rs 29.01 lakh crore. On the other hand, FY06 witnessed an increase of 46.20% in the annual turnover or Rs 7.53 lakh crore with a total turnover of Rs 23.85 lakh crore from the previous year’s total of Rs 16.31 lakh crore.

Rajen Shah, CIO, Angel Broking, said, “The growth in total turnover during FY07 is indicating a slowdown because of the higher base effect. Rise in stock prices, increased participation from retail investors and foreign institutional investors (FIIs) coupled with the reduction in contract size in the derivatives segment had contributed to an increased turnover in the bourses in FY06.” During FY07, the Sensex could gain only 1,792.14 points or 15.88% to close at 13,072.10 points on March 31, 2007 as compared to the Sensex gain of 4,787.14 points or 73.72 % during FY05-06.

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