Is CDSL stock likely to benefit from the LIC IPO?

We will first understand the LIC IPO story and why it makes sense to the CDSL story. The government has already hinted that the IPO of LIC would be closed before the end of March 2022. That is essential if the government has to meet or even get close to its ambitious divestment target of Rs.175,000 crore for FY22. Government has also indicated that a total of 1 crore demat accounts would be opened during the LIC IPO, which is icing on the cake.

In terms of cost structure, the CDSL demat accounts have a lower relative cost structure compared to NSDL. Hence the logical expectation is that out of the 1 crore fresh demat accounts that could be opened in the LIC IPO, CDSL would be able to corner a chunk of demat account openings to the tune of 65-70%. That is the reason, the CDSL stock price has moved up in anticipation of this surge in demat demand via the LIC IPO.

How do the demat sweepstakes look currently. As of Nov-21, out of 7.70 demat accounts in India, NSDL has 2.46 crore demat accounts while CDSL has 5.24 crore demat accounts. NSDL may have cornered the lion’s share of assets under custody at $3.92 trillion, but CDSL that scores on demat account number. CDSL demat accounts grew from 1.23 crore in Mar-17 to 2.12 crore in Mar-20.

For CDSL, it is the post Mar-20 journey that has been nothing short of spectacular. Between Mar-20 and Mar-21, demat accounts with CDSL grew to 3.34 crore and to 4.64 crore by Sep-21. As of Nov-21, the total number of demat accounts stand at a formidable 5.24 crore. Clearly, this momentum of growth and the lower demat cost structure of CDSL, is likely to ensure that it corners the chunk of the new demat accounts that LIC IPO will spur.