Synopsis

On

“A STUDY OF INVESTMENT DECISION OF SALARIED

INDIVIDUALS IN INDIAN STOCK MARKETS”

Submitted
To
Maharishi University of Information Techonology,
Lucknow

Submitted
By

Harvinder Singh

2015
A STUDY ON INDIVIDUALS INVESTORS BEHAVIOR IN
STOCK MARKETS OF INDIA

ABSTRACT

The investor plays a very important role in the stock market because of their big

share of savings in the country. The Regulators of the stock market never can ignore

the behavior of individual investor. This study aims to understand the behavior of

individual investor in stock market, specifically their attitude and perception with

respect to the stock market. A survey is conducted to collect data relating to the

above subject. Respondents were classified into different categories like income,

profession, education status, sex and age. Primary data is collected from a sample

of 150 investors of Mysore City, Karnataka, India. The study also attempts to find the

factors affecting the investment behavior of individual investors such as their

awareness level, duration of investment etc.

Keywords: Investors Behavior, Stock Market, Attitude, Perception, Awareness Level

Introduction

A stock market is a place in which long term capital is raised by industry and

commerce, the government andlocal authorities and it is regarded as capital market.

The money derives from private investors, insurance companies, pension funds and

banks and is usually arranged by issuing houses and merchant banks. Stock

exchanges are also part of the capital market which provides a market for the shares

and loan that represent the capital once it has been raised. Stock market is a place

where the securities can be sold and purchased at an agreed price. Indian stock

market is the oldest stock market incorporated in 1875. The name of the first share

trading association in India was Native Share and Stock Broker Association which

later came to be known as Bombay Stock Exchange.

The BSE India SENSEX is India’s first stock market index and is tracked worldwide.

It is having an index of 30 stocks representing 12 major sectors. Bombay stock

exchange is a stock exchange in Asia with a rich heritage, new spanning three

centuries in its 133 years of life. BSE is the first stock exchange in the country which

obtained permanent recognition (in1956) from the Govt. of India under the Securities

Contracts (Regulation) Act 1956. BSE prominent role in the development of the

Indian Capital Market is being widely recognized. It changed from the open outcry

system to an outline screen based order driven trading system in 1995. BSE is now

a corporatized under the provisions of the Companies Act 1995. The National Stock

Exchange of India (NSE) is also one of the largest and most advanced stock
exchanges in the world. NSE is the largest exchange in Stock futures and the

seventh largest futures exchange in the world. Its trading facility can be accessed

across the country, through over50000 trading terminals. The central order book with

a tight bid-ask spread provides a highly liquid market for the investors. In 1996, NSE

launched S&P CNX Nifty which is diversified index of 50 stocks from 25 different

economy sectors. NSE started trading stock on the internet from the year 2000.

SEBI is the regulatory authority of Indian stock market. The main functions of SEBI

are to provide protection to investors and safeguard their rights, to regulate brokers

and sub brokers, to prohibit the unfair practices in stock market etc.

Investment has different meaning in the context of finance and economics. Finance

investment is putting money into something with the expectation of gain that upon

thorough analysis has a high degree of security for the principle amount, as well as

security of return, within an expected period of time. Putting money into something

with an expectation of gain without making thorough analysis is speculation or

gambling. Thus, Financial Investment involves decision making process in order to

ensure security of both the principle amount and the return on investment (ROI)

within an expected period of time. In economics investment refers to the creation of

capital or goods capable of producing other goods or services.

The term investment refers to the commitment of funds at present in anticipate of

some positive rate of return in future course of time. There are three types of
investors namely conservative investors, moderate and aggressive investors. There

are also different avenues available to invest for investor’s namely corporate

securities, equity shares, preference share, debentures/ bonds/ ADRs/ GDRs,

mutual funds, etc. The investor can get education about their investment from

financial institution, financial markets, media etc. This paper tries to study investment

behavior of individual investor in stock market of India.

Literature Review

A conceptual method of investor behavior, Milan lovnic, UzayKaymak and Jaaps

Prank (May 2008). This paper has presented a descriptive model of individual

investor behavior. It is being concluded that investment process is driven by

cognitive and affective process and interplay contributes to rational behavior. Under

the above model investor is seen as learning, adopting and evolving entity that

perceives environment, processes information, acts and updates its states. Finally

investor behavior is influenced by social interactions.

Impacting factors on individuals investors behavior towards commodities market in

India, Elankumaran and A AAnanth. A study on behavioral finance has been done

presuming information structure and characteristics of capital market. Participants

influence their own decisions and also on market outcomes. The above studies have

been conducted by using survey method. The questionnaire with 5 Point Likert Scale

designed with 15 components for measuring behavior and respondents were

selected from Trichy District and the total number respondents were 525. The

influence of resulting factor analysis and descriptive statistics has concluded that

multiple factors have greater influence on behavior of commodity market investors in

India. The main factor was information asymmetry, objective knowledge, high sector

and low risk.

AStudy on Investors preferences towards various investment avenues in capital

market with special reference to derivatives, Dr. K Ravichandran. The research study

was intended to find preference level of investors on various capital market

instruments and type of risk considered by investors. The sample was collected from

100 investors in derivative markets from Chennai from a structured questionnaire.

Descriptive research type is used and convenience sampling method was adopted to

gather data. Various parametric and non-parametric techniques have been used for

analyzing data. The findings reveal that friends and relatives followed by brokers who

pull the investors into capital market. Respondents preferred short term investments.

It has been suggested by the author to develop more number of products which it

can attract more number of investors

Sikidar and Singh (1996) carried out a survey with an objective to understand the

behavioral aspects of the investors of the north eastern region towards mutual funds

investment portfolio. The survey revealed that the salaried and self-employed formed

the major investors in mutual fund primarily due to tax concessions.

Kumar Singh (2006) analyze the investment pattern of people in Bangalore city and

Bhubaneswar analysis of the study was undertaken with the help of survey

conducted. It is concluded that in Bangalore investors are more aware about various

investment avenues and the risk associated with that. And in Bhubaneswar,

investors are more conservative in nature and they prefer to invest in those avenues

where risk is less like bank deposits, small savings, post office savings etc. Chandra

collected the data from survey to know the factors influencing Indian individual
investor behavior in stock market. Using univariate and multivariate analysis and

found five major factors that affect the investment behavior of individual investor in

stock market namely prudence, and precautions attitude, conservatism, under

confidence, informational asymmetry and financial addition . Finally he concluded

that these are the major psychological components seem to be influencing individual

investor’s trading behavior in Indian stock market.

AjmiJy.A. (2008) used a questionnaire to know determinants of risk tolerance of

individual investors and collected responses from 1500 respondents. He concluded

that the men are less risk averse than women, less educated investors are less likely

to take risk and age factor is also important in risk tolerance and also investors are

more risk tolerance than the less wealthy investors.

Tamimi, H. A. H. indentified the factors influencing the UAE investor Behavior. Using

questionnaire found six factors were most influencing factors on the UAE investor

behavior namely expected corporate earnings, get rich quick, stock marketability

past performance of the firm’s stock , government holdings and the creation of the

organized financial markets.

Objectives of the study

1. To study the investors behaviors in stock markets of India.

2. To study the factors affecting the different types of investors.

Research Methodology

The primary data were used for the study. Data have been collected through

questionnaire method and survey method. 150 responses have been collected from

the stock market investors of Mysore City.

Secondary data have also been used for the study. These data were collected from

newspapers, magazines and various research articles. Percentage method is used

for analyzing the gathered data.

Limitations of the study

1. The study is limited to 150 salaried individuals.

2. The study has been conducted to analyze some factors effecting investment

decisions of investors.

3. The survey is conducted in Lucknow.

Data Analysis

Table 1: Responses regarding Sex and Age respondents

Sex Response (%) Age Response (%)

Less than 20 0(0)
Male 99(65%)
20-30 42(28%)
Female 51(35%)
30-40 48(32%)
40-50 45(30%)
50 and Above 15(10%)

The above table shows that the 65 percent respondents are male and maximum

respondent’s falls between the ages of 30-40 years.

Table 2: Responses about the status of Annual Income, Education Level and

Occupation

No. of Level of No. of No. of

Income Occupation
Respondents Education Respondents Respondents
Less than 1 Govt.
Lakh 39 (26%) Metric 0 (0%) Employee 12 (8%)
Pvt.
1.01 - 3.00 42 (28%) 10+2 9 (6%) Employee 48 (32%)
3.01 - 5.00 69 (46%) Graduate 57 (38%) Business 54 (36%)
Post
0(0%) Graduate 39 26%) Pensioner 18 (12%)
Above 5 Lakh 45
Above P.G (30%) Housewife 12 (8%)
Students 6 (4%)
The table reveals that out of the 150 respondents, 26 percent respondents fall

under less than Rs. One lakh income range, 28 percent are those having income

between one and three lakhs, 46 percent earn between 3-5 lakh. As far as the

education and occupation levels are considered, it can be noted that 38 percent

respondents are graduate, 26 percent are post graduate and

30 percent have secured above post graduate education. 36 percent of the sample

respondents are businessman, 32 percent are private employees while the

remaining are employed in either govt. organization or they are pensions, housewife

and students.

Table 3: Duration of Investment

Duration of Investment Responses

(In years) (%)
Less than 1 year 15 (10%)
1- 2 54 (36%)
2- 5 66 (44%)
5 and Above 15 (10%)

From the total sample size 36 percent investors are prefer to invest between 1 to 2

years and 44 percent respondents preferred to invest between 2 to 5 years and 1o

percent investors prefer to invest more than five years.

Table 4: Responses regarding Annual Savings and Reasons for Investment

No. of No. of
Annual
Respondents Reasons of Investment Respondents
Savings
(%) (%)
Less than To meet family needs in
50000 54 (36%) future 60 (40%)
50001-100000 42 (28%) Emergency needs 21 (14%)
 More than 1
Lakh 54 (36%) Live a safe and secure life 51 (34%)
Capital Growth 18 (12%)

36 percent of the respondents save under Rs.50000, 28 percent save between Rs.

Fifty thousand to one lakh and 36 percent save more than one lakh. It is clear that

family needs and secured life play a major role in deciding the saving habits of the

respondents.

Table 5: Awareness about Investments

Awareness Responses (%)

Aware 120 (80%)

Not Aware 30 (20%)

It can be concluded that 80 percent of the respondents are aware of the different

investment options.

Table 6: Factors affecting Investment Behavior

Mutual
Factors Equity Funds Debentures Gold Others
Family members 18 17 0 40 0
Friends 16 8 0 6 0
Financial
Consultants 46 22 0 38 0
Others 19 0 0 5 8

It is evident from the table that family members influence the most in investment

decisions in case of Gold. In the case of Equity the financial consultants were

pronounced more. The influence of friends and others was found to be very less.

Table 7: Sources of Information

Sources of Mutual
Information Equity Funds Debentures Gold Others
Brokers 46 14 0 44 0
 Newspapers 59 30 0 46 0
Internet ads 17 22 0 17 0
Financial
Consultants 32 13 0 18 0
Others 34 0 0 22 0
From the above table it can be said that in case of equity, the major source of

information was the Newspapers, as per the gold was concerned Agents/ Brokers

and Newspapers/magazines played a major role and in case of mutual funds

Newspapers.

Table 8: Investment pattern affected by Market Movement

Options Responses (%)

Yes 111 (74%)

No 39 (26%)

It can be interpreted that majority of investor’s investment pattern will affect if any

change in the market. Market movement is very important factor for changing in

investment pattern.
Conclusion

The study reveals that the respondents assimilate the objectives of saving, the

factors influencing the saving and the sources of information for decision making.

The annual income and the annual saving are given importance of consideration by

the respondents, because the level of income decides the level of savings. The

investors are fully aware about the stock market and they feel that market

movements affect the investment pattern of investors in the stock market.

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