Download - “Analysis of investor perception, apprehension and decision making in Indian stock markets”
“Analysis of investor perception, apprehension
and decision making in Indian stock markets”
Final Project Report
Submitted to Punjab Technical University in partial fulfillment of the requirements for the degree of
MASTER OF BUSINESS ADMINISTRATION
By
ACHINT GUPTA
616221021
GIAN JYOTI INSTITUTE OF MANAGEMENT AND TECHNOLOGY
MOHALI
2008
“Analysis of investor perception, apprehension
and decision making in Indian stock markets”
Final Project Report
Submitted to Punjab Technical University in partial fulfillment of the requirements for the degree of
MASTER OF BUSINESS ADMINISTRATION
By
ACHINT GUPTA
616221021
GIAN JYOTI INSTITUTE OF MANAGEMENT AND TECHNOLOGY
MOHALI
2008
3
PREFACE
“It is generally agreed that casinos should, in the public interest, be inaccessible and
expensive. And perhaps the same is true of Stock Exchanges,” So wrote a British economist,
John Maynard Keynes, in 1935. Keynes’s jibe is not entirely misplaced; more than a few
punters approach the stock markets in the same spirit as the race track or the roulette wheel.
Yet for all their shortcomings, as Keynes himself acknowledged, stock markets offer one
singular advantage: they are the best way to bring people with money to invest together with
people who can put that investment to productive use.
ACKNOWLEDGEMENT
4
This humble endeavor bears the imprint of many persons who were in one way or the other
helpful in the completion of my project. I would like to take this opportunity to present my
vote of thanks to my guides who acted as lighting pillars to enlighten my way through out
this project. This project would not have been possible without the kind assistance and
guidance of many people who indeed were helpful, cooperative and kind during the entire
course of my project.
My special thanks are due towards Mr. Raminder Bir Singh (Personal Banker, HDFC
BANK, Sohana) for his sincere advice and wholehearted cooperation that guided me to the
completion of this project.
The acknowledgment would not be complete without expressing my indebtedness to the
Hon’ble Chairman Sh J.S Bedi and revered and learned faculty guide Professor Dr. Manjeet
Kalra who guided me in this project and was the constant source of reference for me and
showed full interest at each and every step of my project.
DECLARATION
5
I declare that the project entitled “Analysis of investor perception, apprehension and
decision making in Indian Stock Markets” is a record of independent research work
carried out by me during the academic year 2007-08 under the able guidance of my project
guide Professor Dr. Manjeet Kalra of Gian Jyoti Institute of Management and Technology,
Mohali .
Place: Mohali Achint
Gupta
Date: 2008
6
EXECUTIVE SUMMARY
The learning process of classroom is incomplete without any practical field research. It is the
reason that even professional programmes have a compulsory research part in its curriculum
to fill the gap between classroom theory and practical field experience. This report portrays
the research period spent by me, in partial fulfillment of the requirements for the M.B.A.
degree. This report contains the insight into Indian stock markets.
The report contains the introduction of the Stock Markets and the study about the investors
and traders in these. It also contains the methods and techniques adopted by me while doing
this research project under the head ‘Research Methodology’. A structured questionnaire was
designed and it consisted of close ended and rating scale. Respondents were asked to tick one
option in multiple choice questions and were asked to rate certain given parameters on rating
scale. Data is presented with the help of self-explanatory charts. Interpretations have been
made together. And the most crucial, the ‘Findings’ section bears my personal comments.
This report is a written account of what I learnt and experienced during training and I have
tried to complete this report with as much perfection as possible to make it more meaningful
and purposeful.
7
CONTENTS
CHAPTER NO.
PARTICULARS PAGE NO.
CHAPTER 1 INTRODUCTION TO EQUITIES AND INDIAN
CAPITAL MARKETS
1 - 27
CHAPTER 2 REVIEW OF LITERATURE
CHAPTER 3 OBJECTIVES OF THE STUDY 36
CHAPTER 4 RESEARCH METHODOLOGY 37 - 40
CHAPTER 5 OBSERVATIONS AND ANALYSIS
5.1 INTERPRETATIONS5.2 SWOT ANALYSIS
41 - 62
CHAPTER 6 FINDINGS AND DISCUSSIONS 63 - 65
CHAPTER 8 LIMITATIONS 69 - 70
BIBLIOGRAPHY
ANNEXURE
8
LIST OF TABLES
Table No. Title Page No.Table 1.1 List of various stock exchanges in India 7
Table 5.1 Distribution of respondents according to their nature 41
Table 5.2 Distribution of respondents who were investors according to their tenure of investment
42
Table 5.3 Distribution of respondents who were traders according to their type of trading
43
Table 5.4 Z-test calculations 44
Table 5.5 Awareness level of respondents about Anand Rathi and its products and services
46
Table 5.6 Distribution of respondents according to the number of demat accounts
46
Table 5.7 Distribution of respondents according to their preference of dealing in two major stock exchange of India
47
Table 5.8 Distribution of respondents on the basis of their frequency of trading
48
Table 5.9 Distribution of respondents according to their preferred mode of trading
49
Table 5.10 Distribution of respondents according to their preference of trading with margin funding
49
Table 5.11 Distribution of respondents according to the exposure they desire
50
Table 5.12 Mean score and importance attached 51
Table 5.13 Chi-square test to test the hypothesis 54
Table 5.14 Chi-square test to test the hypothesis about most sought investment instrument
55
Table 5.15 Importance of factors for choosing a brokerage house 59
Table 5.16 Distribution of respondents according to the returns they expect from share market
60
9
CHAPTER 1
INTRODUCTION TO EQUITIES
1.1 ORIGIN OF EQUITIES
Equity, quite simply, means ownership. Equities, therefore, are shares that represent part
ownership of a business enterprise. The idea of share ownership goes back to medieval times.
It became widespread during the Renaissance, when groups of merchants joined to finance
trading expeditions and early bankers took part ownership of businesses to ensure repayment
of loans. These early shareholder-owned enterprises, however, were usually temporary
ventures established for a limited purpose, such as financing a single voyage by a ship, and
were dissolved once their purpose was accomplished.
The first shareholder-owned business may have been the Dutch East India Company, which
was founded by Dutch merchants in 1602 and issued negotiable share certificates that were
readily traded in Amsterdam until the company failed almost two centuries later. By the late
17th century, traders in London coffee houses earned their living dealing in the shares of
joint-stock companies. But it was not until the industrial revolution made it necessary to raise
large amounts of capital to build factories and canals that share trading become widespread.
1
1.2 THE INDIAN CAPITAL MARKET - AN OVERVIEW
The function of the financial market is to facilitate the transfer of funds from surplus sectors
(lenders) to deficit sectors (borrowers). Normally, households have investable funds or
savings, which they lend to borrowers in the corporate and public sectors whose requirement
of funds far exceeds their savings. A financial market consists of investors or buyers of
securities, borrowers or sellers of securities, intermediaries and regulatory bodies. Financial
market does not refer to a physical location. Formal trading rules, relationships and
communication networks for originating and trading financial securities link the participants
in the market.
1.2.1 ORGANIZED MONEY MARKET:
Indian financial system consists of money market and capital market. The money market has
two components - the organized and the unorganized. The organized market is dominated by
commercial banks. The other major participants are the Reserve Bank of India, Life
Insurance Corporation, General Insurance Corporation, Unit Trust of India, Securities
Trading Corporation of India Ltd. and Discount and Finance House of India, other primary
dealers, commercial banks and mutual funds. The core of the money market is the inter-bank
call money market whereby short-term money borrowing/lending is effected to manage
temporary liquidity mismatches. The Reserve Bank of India occupies a strategic position of
managing market liquidity through open market operations of government securities, access
to its accommodation, cost (interest rates), availability of credit and other monetary
2
management tools. Normally, monetary assets of short-term nature, generally less than one
year, are dealt in this market.
1.2.2 UN-ORGANIZED MONEY MARKET:
Despite rapid expansion of the organized money market through a large network of banking
institutions that have extended their reach even to the rural areas, there is still an active
unorganized market. It consists of indigenous bankers and moneylenders. In the unorganized
market, there is no clear demarcation between short-term and long-term finance and even
between the purposes of finance. The unorganized sector continues to provide finance for
trade as well as personal consumption. The inability of the poor to meet the
"creditworthiness" requirements of the banking sector make them take recourse to the
institutions that still remain outside the regulatory framework of banking. But this market is
shrinking.
1.2.3 THE CAPITAL MARKETS:
It consists of primary and secondary markets. The primary market deals with the issue of new
instruments by the corporate sector such as equity shares, preference shares and debt
instruments. Central and State governments, various public sector industrial units (PSUs),
statutory and other authorities such as state electricity boards and port trusts also issue
bonds/debt instruments.
The primary market in which public issue of securities is made through a prospectus is a
retail market and there is no physical location. Offer for subscription to securities is made to
investing community. The secondary market or stock exchange is a market for trading and
3
settlement of securities that have already been issued. The investors holding securities sell
securities through registered brokers/sub-brokers of the stock exchange. Investors who are
desirous of buying securities purchase securities through registered brokers/sub-brokers of
the stock exchange. It may have a physical location like a stock exchange or a trading floor.
Since 1995, trading in securities is screen-based and Internet-based trading has also made an
appearance in India.
The secondary market consists of 23 stock exchanges including the National Stock
Exchange, Over-the-Counter Exchange of India (OTCEI) and Inter Connected Stock
Exchange of India Ltd. The secondary market provides a trading place for the securities
already issued, to be bought and sold. It also provides liquidity to the initial buyers in the
primary market to re-offer the securities to any interested buyer at any price, if mutually
accepted. An active secondary market actually promotes the growth of the primary market
and capital formation because investors in the primary market are assured of a continuous
market and they can liquidate their investments. The securities market moved from T+3
settlement period to T+2 rolling settlement with effect from April 1, 2003
1.2.4 Capital Market Participants:
There are several major players in the primary market. These include the merchant bankers,
mutual funds, financial institutions, foreign institutional investors (FIIs) and individual
investors. In the secondary market, there are the stock brokers (who are members of the stock
exchanges), the mutual funds, financial institutions, foreign institutional investors (FIIs), and
individual investors. Registrars and Transfer Agents, Custodians and Depositories are capital
4
market intermediaries that provide important infrastructure services for both primary and
secondary markets.
1.2.5 Market regulation:
It is important to ensure smooth working of capital market, as it is the arena where the
players in the economic growth of the country come together. Various laws have been passed
from time to time to meet this objective.
The financial market in India was highly segmented until the initiation of reforms in 1992-93
on account of a variety of regulations and administered prices including barriers to entry. The
reform process was initiated with the establishment of Securities and Exchange Board of
India (SEBI).
The legislative framework before SEBI came into being consisted of three major Acts
governing the capital markets:
1. The Capital Issues Control Act 1947, which restricted access to the securities market and
controlled the pricing of issues.
2. The Companies Act, 1956, which sets out the code of conduct for the corporate sector in
relation to issue, allotment and transfer of securities, and disclosures to be made in public
issues.
3. The Securities Contracts (Regulation) Act, 1956, which regulates transactions in securities
through control over stock exchanges. In addition, a number of other Acts, e.g., the Public
Debt Act, 1942, the Income Tax Act, 1961, the Banking Regulation Act, 1949, have
substantial bearing on the working of the securities market.
5
1.3 HISTORY OF STOCK EXCHANGE
The trading in securities in India was started in the early of 1973. The stock exchange
operating in the 19th century was those of Bombay set up in 1875 and Ahmedabad set up in
1894. These were organized as voluntary non-profit making associations of brokers to
regulate and protect their interests. Before the control on securities trading becomes a control
on securities trading became a central subject under the constitution in 1950. It was a state
subject and the Bombay securities contact (control) act, 1925 used to regulate trading in
securities. Under this act, Bombay stock exchange was securities in 1927 and Ahmedabad
stock exchange in 1927 and Ahmedabad stock exchange in 1937. During the war boom, a
number of stock exchanges were organized at Bombay, Ahmedabad and other centers but
they were not recognized. Soon after it became a central subject, central legislation was
proposed and a committee headed by Mr. A.D. GORWALA went into bill for securities
regulation. On the basis of securities regulation, Securities Contract (control) Act became law
in 1956. At present there are 23 recognized stock exchanges in India. Number of Investors is
increasing day by day.
The stock exchange is a double auction market. Quite distinct from the common market in
which only one seller and many buyers in a stock exchange a number of potential buyers and
potential sellers co-exist all competing both among themselves and with one another in
making bids, counter-bids, offers and counter-offers.
6
1.3.1 WHO BENEFITS FROM STOCK EXCHANGE?
INVESTORS: It provides them liquidity, marketability, safety etc. of Investment.
COMPANIES: It provides them access to market funds, higher rating and public
interests.
BROKERS: They receive commission in lieu of their services to investors.
ECONOMY AND COUNTRY: There is large of saving, better growth moves
industries, higher income.
Table 1.1 LIST OF VARIOUS STOCK EXCHANGES IN INDIA
S.
No.
Name of stock exchange Years of
establishment
Type of organization
1 Bombay Stock exchange 1875 Voluntary Non-profit
organization
2 Ahmedabad Stock exchange 1897 Voluntary Non-profit
organization
3 Calcutta Stock exchange 1908 Public limited company
4 M.P. Stock exchange, Indore 1930 Voluntary Non-profit
organization
5 Madras Stock exchange 1937 Co. limited by guarantee
7
6 Hyderabad Stock exchange 1943 Co. limited by guarantee
7 Delhi Stock exchange 1947 Public limited company
8 Bangalore Stock exchange 1957 Pvt. converted into public
ltd. co.
9 Cochin stock exchange 1978 Public limited company
10 U.P. Stock exchange, Kanpur 1982 Public limited company
11 Pune Stock exchange 1982 Co. limited by guarantee
12 Ludhiana Stock exchange 1983 Public limited company
13 Jaipur Stock exchange 1983 Public limited company
14 Guahati Stock exchange 1984 Public limited company
15 Kannaar Stock exchange 1985 Public limited company
16 Magadh Stock exchange 1986 Co. limited by guarantee
17 Bhuvneshwar Stock exchange 1989 Co. limited by guarantee
18 Saurashtra stock exchange,
Kutch.
1989 Co. limited by guarantee
19 Vadora Stock exchange 1990 N.D.
8
20 Meerut Stock exchange 1991 N.D.
21 O.T.C.I.
(Over the counter exchange of
India), Mumbai
1993 Pure demutualized
22 National Stock exchange 1995 Pure demutualized
23 Coimbatore stock exchange 1996 N.D.
24 Sikkim Stock exchange 1997 N.D.
9
1.4 NATIONAL STOCK EXCHANGE
1.4.1 ORIGIN
The National Stock Exchange of India was promoted by leading financial institutions at the
behest of the Government of India, and was incorporated in November 1992 as a tax-paying
company. In April 1993, it was recognized as a stock exchange under the Securities
Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt
Market (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSE
commenced operations in November 1994 and Derivatives in June 2000. It was set up as a
first step in reforming the securities market through improved technology and introduction of
best practices in management. It started with the concept of an independent governing body
without any broker representation thus ensuring that the operators' interests were not allowed
to dominate the governance of the exchange. It is the largest stock exchange in India and the
third largest in the world in terms of volume of transactions. NSE is mutually-owned by a set
of leading financial institutions, banks, insurance companies and other financial
intermediaries in India but its ownership and management operate as separate entities. As of
2006, the NSE VSAT terminals, 2799 in total, cover more than 1500 cities across India. In
July 2007, the NSE had a total market capitalization of 42, 74,509 crore INR making it the
second-largest stock market in South Asia in terms of market-capitalization
Before the NSE was set up, trading on the stock exchanges in India used to take place
through open outcry without use of information technology for immediate matching or
recording of trades. This was time consuming and inefficient. The practice of physical
trading imposed limits on trading volumes and, hence, the speed with which new information
10
was incorporated into prices. To obviate this, the NSE introduced screen-based trading
system (SBTS) where a member can punch into the computer the quantities of shares and the
prices at which he wants to transact. The transaction is executed as soon as the quote
punched by a trading member finds a matching sale or buy quote from counterparty. SBTS
electronically matches the buyer and seller in an order-driven system or finds the customer
the best price available in a quote-driven system, and, hence, cuts down on time, cost and risk
of error, as well as on the chances of fraud. SBTS enables distant participants to trade with
each other, improving the liquidity of the markets. The high speed with which trades are
executed and the large number of participants who can trade simultaneously allows faster
incorporation of price sensitive information into prevailing prices. This increases the
informational efficiency of markets. With SBTS, it becomes possible for market participants
to see the full market, which helps to make the market more transparent, leading to increased
investor confidence. The NSE started nation-wide SBTS, which have provided a completely
transparent trading mechanism. Regional exchanges lost a lot of business to NSE, forcing
them to introduce SBTS. Today, India can boast that almost 100% trading take place through
electronic order matching.
Prior to the setting up of NSE, trading on stock exchanges in India took place without the use
of information technology for immediate matching or recording of trades. The practice of
physical trading imposed limits on trading volumes as well as the speed with which the new
information was incorporated into prices. The unscrupulous operators used this information
asymmetry to manipulate the market. The information asymmetry helped brokers to
perpetrate a manipulative practice known as "gala". Gala is a practice of extracting highest
price of the day for "buy" transaction irrespective of the actual price at which the purchase
11
was actually done and give lowest price of the day for "sell" transactions irrespective of the
price at which sale was made. The clients did not have any method of verifying the actual
price. The electronic and now fully online trading introduced by the NSE has made such
manipulation difficult. It has also improved liquidity and made the entire operation more
transparent and efficient.
1.4.2 INNOVATIONS
NSE has remained in the forefront of modernization of India's capital and financial markets,
and its pioneering efforts include:
1. Being the first national, anonymous, electronic limit order book (LOB) exchange to
trade securities in India. Since the success of the NSE, existent market and new
market structures have followed the "NSE" model.
2. Setting up the first clearing corporation "National Securities Clearing Corporation
Ltd." in India. NSCCL was a landmark in providing innovation on all spot equity
market (and later, derivatives market) trades in India.
3. Co-promoting and setting up of National Securities Depository Limited, first
depository in India.
4. Setting up of S&P CNX Nifty.
5. NSE pioneered commencement of Internet Trading in February 2000, which led to
the wide popularization of the NSE in the broker community.
6. Being the first exchange that, in 1996, proposed exchange traded derivatives,
particularly on an equity index, in India. After four years of policy and regulatory
debate and formulation, the NSE was permitted to start trading equity derivatives
three days after the BSE.
12
7. Being the first exchange to trade ETFs (exchange traded funds) in India.
8. NSE has also launched the NSE-CNBC-TV18 media centre in association with
CNBC-TV18, a leading business news channel in India.
1.4.3 MARKETS
Currently, NSE has the following major segments of the capital market. This include:
Equity
Futures and Options
Retail Debt Market
Wholesale Debt Market
1.4.5 NSE Group
National Securities Clearing Corporation Ltd. (NSCCL)
It is a wholly owned subsidiary, which was incorporated in August 1995 and commenced
clearing operations in April 1996. It was formed to build confidence in clearing and
settlement of securities, to promote and maintain the short and consistent settlement cycles,
to provide a counter-party risk guarantee and to operate a tight risk containment system.
NSE IT Ltd.
It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is
uniquely positioned to provide products, services and solutions for the securities industry.
NSE.IT primarily focus on in the area of trading, broker front-end and back-office, clearing
and settlement, web-based, insurance, etc. Along with this, it also provides consultancy and
implementation services in Data Warehousing, Business Continuity Plans, Site Maintenance
13
and Backups, Stratus Mainframe Facility Management, Real Time Market Analysis &
Financial News.
India Index Services & Products Ltd. (IISL)
It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and index
related services and products for the Indian Capital markets. It was set up in May 1998. IISL
has a consulting and licensing agreement with the Standard and Poor's (S&P), world's
leading provider of investable equity indices, for co-branding equity indices.
National Securities Depository Ltd. (NSDL)
NSE joined hands with IDBI and UTI to promote dematerialization of securities. This step
was taken to solve problems related to trading in physical securities. It commenced
operations in November 1996.
DotEx International Limited
DotEx was formed to provide a well structured inter trading platform for the members to
further offer online trading facilities to their customers. With this facility, the members can
serve a larger clientele with the use of automated risk management features and hence
increase the volume. The investors also get comprehensive and updated information through
it.
INDICES
NSE also set up as index services firm known as India Index Services & Products Limited
(IISL) and has launched several stock indices, including:
14
1. S&P CNX Nifty
2. CNX Nifty Junior
3. CNX 100 (= S&P CNX Nifty + CNX Nifty Junior)
4. S&P CNX 500 (= CNX 100 + 400 major players across 72 industries)
5. CNX Midcap (introduced on 18 July 2005 replacing CNX Midcap 200)
1.5 BOMBAY STOCK EXCHANGE
The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The
Native Share and Stock Brokers Association". It is located at Dalal Street, Mumbai. It is the
oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in
1878. It is a voluntary non-profit making Association of Persons (AOP) and is currently
engaged in the process of converting itself into demutualized and corporate entity. It has
evolved over the years into its present status as the premier Stock Exchange in the country. It
is the first Stock Exchange in the Country to have obtained permanent recognition in 1956
from the Govt. of India under the Securities Contracts (Regulation) Act, 1956. There are
around 4,800 Indian companies listed with the stock exchange, and has a significant trading
volume. As of May 2007, the equity market capitalization of the companies listed on the BSE
was about Rs. 40.7 trillion (US $ 999 billion). The BSE SENSEX (SENSITIVE INDEX),
also called the "BSE 30", is a widely used market index in India and Asia. As of 2005, it is
among the five biggest stock exchanges in the world in terms of transactions volume.
15
In the past and even now, it plays a pivotal role in the development of the country's capital
market. This is recognized worldwide and its index, SENSEX, is also tracked worldwide.
Earlier it was an Association of Persons (AOP), but now it is a demutualized and
corporatized entity incorporated under the provisions of the Companies Act, 1956, pursuant
to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities
and Exchange Board of India (SEBI).
The Exchange, while providing an efficient and transparent market for trading in securities,
debt and derivatives upholds the interests of the investors and ensures redressal of their
grievances whether against the companies or its own member-brokers. It also strives to
educate and enlighten the investors by conducting investor education programmes and
making available to them necessary informative inputs.
A Governing Board having 20 directors is the apex body, which decides the policies and
regulates the affairs of the Exchange. The Governing Board consists of 9 elected directors,
who are from the broking community (one third of them retire ever year by rotation), three
SEBI nominees, six public representatives and an Executive Director & Chief Executive
Officer and a Chief Operating Officer.
The Executive Director as the Chief Executive Officer is responsible for the day-to-day
administration of the Exchange and he is assisted by the Chief Operating Officer and other
Heads of Departments.
The Exchange has inserted new Rule No.126 A in its Rules, Bye-laws & Regulations
pertaining to constitution of the Executive Committee of the Exchange. Accordingly, an
Executive Committee, consisting of three elected directors, three SEBI nominees or public
representatives, Executive Director & CEO and Chief Operating Officer has been
16
constituted. The Committee considers judicial & quasi matters in which the Governing Board
has powers as an Appellate Authority, matters regarding annulment of transactions,
admission, continuance and suspension of member-brokers, declaration of a member-broker
as defaulter, norms, procedures and other matters relating to arbitration, fees, deposits,
margins and other monies payable by the member brokers to the Exchange, etc.
1.5.1 BSE INDICES
The BSE SENSEX (also known as the BSE 30 index) is a value-weighted index composed of
thirty scrips, with the base April 1979 = 100. The set of companies which make up the index
has been changed only a few times in the last twenty years. These companies account for
around one-fifth of the market capitalization of the BSE.
Apart from BSE SENSEX, which is the most popular stock index in India, BSE uses other
stock indices as well which are:
1. BSE Sensex
2. BSE 100 Index
3. BSE 200 Index
4. BSE 500 Index
5. BSE MIDCAP Index
6. BSE SMLCAP Index
7. BSE TECH Index
8. BSE PSU Index
9. BSE AUTO Index
17
10. BSE BANKEX
11. BSE CG Index
12. BSE CD Index
13. BSE FMCG Index
14. BSE HC Index
15. BSE IT Index
16. BSE Metal Index
17. BSE Oil & Gas Index
1.5.2 BSE Vision
The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock
exchange by establishing global benchmarks."
1.5.3 BSE Management
Bombay Stock Exchange is managed professionally by Board of Directors. It comprises of
eminent professionals, representatives of Trading Members and the Managing Director. The
Board is an inclusive one and is shaped to benefit from the market intermediaries
participation.
The Board exercises complete control and formulates larger policy issues. The day-to-day
operations of BSE are managed by the Managing Director and its school of professionals as a
management team.
18
1.5.4 BSE NETWORK
The Exchange reaches physically to 417 cities and towns in the country. The framework of it
has been designed to safeguard market integrity and to operate with transparency. It provides
an efficient market for the trading in equity, debt instruments and derivatives. Its online
trading system, popularly known as BOLT, is a proprietory system and it is BS 7799-2-2002
certified. The BOLT network was expanded, nationwide, in 1997. The surveillance and
clearing & settlement functions of the Exchange are ISO 9001:2000 certified.
1.5.5 BSE's International Convention Hall
The Bombay Stock Exchange provides convention hall for listed companies and other
Institutions to hold their Annual/ordinary General Meetings, Listing ceremonies, Analyst and
any other important event.
It is centrally located at which can be easily reached from Churchgate or CST (VT) railway
stations. It has a capacity of around 700 to 900 persons with state-of-the-art infrastructure.
The hall has Projection Equipment, Web-cast facility and a Business Room with Facsimile,
Internet, Photocopier and telecom equipment.
19
1.6 CAPITAL MARKET INTERMEDIARIES
There are several institutions, which facilitate the smooth functioning of the securities
market. They enable the issuers of securities to interact with the investors in the primary as
well as the secondary arena.
MERCHANT BANKERS
Among the important financial intermediaries are the merchant bankers. The services of
merchant bankers have been identified in India with just issue management. It is quite
common to come across reference to merchant banking and financial services as though they
are distinct categories. The services provided by merchant banks depend on their inclination
and resources - technical and financial. Merchant bankers (Category 1) are mandated by
SEBI to manage public issues (as lead managers) and open offers in take-overs. These two
activities have major implications for the integrity of the market. They affect investors'
interest and, therefore, transparency has to be ensured. These are also areas where
compliance can be monitored and enforced.
Merchant banks are rendering diverse services and functions. These include organizing and
extending finance for investment in projects, assistance in financial management, acceptance
house business, raising Euro-dollar loans and issue of foreign currency bonds. Different
merchant bankers specialize in different services. However, since they are one of the major
intermediaries between the issuers and the investors, their activities are regulated by:
20
(1) SEBI (Merchant Bankers) Regulations, 1992.
(2) Guidelines of SEBI and Ministry of Finance.
(3) Companies Act, 1956.
(4) Securities Contracts (Regulation) Act, 1956.
Merchant banking activities, especially those covering issue and underwriting of shares and
debentures, are regulated by the Merchant Bankers Regulations of Securities and Exchange
Board of India (SEBI). SEBI has made the quality of manpower as one of the criteria for
renewal of merchant banking registration. These skills should not be concentrated in issue
management and underwriting alone. The criteria for authorization take into account several
parameters. These include: (a) professional qualification in finance, law or business
management, (b) infrastructure like adequate office space, equipment and manpower, (c)
employment of two persons who have the experience to conduct the business of merchant
bankers, (d) capital adequacy and (e) past track record, experience, general reputation and
fairness in all their transactions.
SEBI authorizes merchant bankers for an initial period of three years, if they have a
minimum net worth of Rs. 5 crore. An initial authorization fee, an annual fee and renewal fee
is collected by SEBI.
According to SEBI, all issues should be managed by at least one authorized merchant banker
functioning as the sole manager or lead manager. The lead manager should not agree to
manage any issue unless his responsibilities relating to the issue, mainly disclosures,
allotment and refund, are clearly defined. A statement specifying such responsibilities has to
21
be furnished to SEBI. SEBI prescribes the process of due diligence that a merchant banker
has to complete before a prospectus is cleared. It also insists on submission of all the
documents disclosing the details of account and the clearances obtained from the ROC and
other government agencies for tapping peoples' savings. The responsibilities of lead manager,
underwriting obligations, capital adequacy, due diligence certification, etc., are laid down in
detail by SEBI. The objective is to facilitate the investors to take an informed decision
regarding their investments and not expose them to unknown risks.
CREDIT RATING AGENCIES
The 1990s saw the emergence of a number of rating agencies in the Indian market. These
agencies appraise the performance of issuers of debt instruments like bonds or fixed deposits.
The rating of an instrument depends on parameters like business risk, market position,
operating efficiency, adequacy of cash flows, financial risk, financial flexibility, and
management and industry environment.
The objective and utility of this exercise is twofold. From the point of view of the issuer, by
assigning a particular grade to an instrument, the rating agencies enables the issuer to get the
best price. Since all financial markets are based on the principle of risk/reward, the less risky
the profile of the issuer of a debt security, the lower the price at which it can be issued. Thus,
for the issuer, a favourable rating can reduce the cost of borrowed capital.
From the viewpoint of the investor, the grade assigned by the rating agencies depends on the
capacity of the issuer to service the debt. It is based on the past performance as well as an
analysis of the expected cash flows of a company when viewed on the industry parameters as
well as company performance. Hence, the investor can judge for himself whether he wants to
22
place his savings in a "safe" instrument and get a lower return or he wants to take a risk and
get a higher return.
The 1990s saw an increase in activity in the primary debt market. Under the SEBI guidelines
all issuers of debt have to get the instruments rated. They also have to prominently display
the ratings in all that marketing literature and advertisements. The rating agencies have thus
become an important part of the institutional framework of the Indian securities market.
R& T AGENTS - REGISTRARS TO ISSUE
R&T Agents form an important link between the investors and issuers in the securities
market. A company, whose securities are issued and traded in the market, is known as the
Issuer. The R&T Agent is appointed by the Issuer to act on its behalf to service the investors
in respect of all corporate actions like sending out notices and other communications to the
investors as well as despatch of dividends and other non-cash benefits. R&T Agents perform
an equally important role in the depository system as well.
STOCK BROKERS
Stockbrokers are the intermediaries who are allowed to trade in securities on the exchange of
which they are members. They buy and sell on their own behalf as well as on behalf of their
clients. Traditionally in India, individuals owned firms providing brokerage services or they
were partnership firms with unlimited liabilities. There were, therefore, restrictions on the
amount of funds they could raise by way of debt. With increasing volumes in trading as well
as in the number of small investors, lack of adequate capitalization of these firms exposed
investors to the risks of these firms going bust and the investors would have no recourse to
23
recovering their dues. With the legal changes being effected in the membership rules of stock
exchanges as well as in the capital gains structure for stock-broking firms, a number of
brokerage firms have converted themselves into corporate entities. In fact, NSE encouraged
the setting up of corporate broking members and has today has only 10% of its members who
are not corporate entities.
CUSTODIANS
In the earliest phase of capital market reforms, to get over the problems associated with
paper-based securities, large holding by institutions and banks were sought to be
immobilized. Immobilization of securities is done by storing or lodging the physical security
certificates with an organization that acts as a custodian - a securities depository. All
subsequent transactions in such immobilized securities take place through book entries. The
actual owners have the right to withdraw the physical securities from the custodial agent
whenever required by them. In the case of IPO, a jumbo certificate is issued in the name of
the beneficiary owners based on which the depository gives credit to the account of
beneficiary owners. The Stock Holding Corporation of India was set up to act as a custodian
for securities of a large number of banks and institutions who were mainly in the public
sector. Some of the banks and financial institutions also started providing "Custodial"
services to smaller investors for a fee. With the introduction of dematerialization of securities
there has been a shift in the role and business operations of Custodians. But they still remain
an important intermediary providing services to the investors who still hold securities in a
physical form.
24
MUTUAL FUNDS
Mutual funds are financial intermediaries, which collect the savings of small investors and
invest them in a diversified portfolio of securities to minimize risk and maximize returns for
their participants. Mutual funds have given a major fillip to the capital market - both primary
as well as secondary. The units of mutual funds, in turn, are also tradable securities. Their
price is determined by their net asset value (NAV) which is declared periodically. The
operations of the private mutual funds are regulated by SEBI with regard to their registration,
operations, administration and issue as well as trading.
There are various types of mutual funds, depending on whether they are open ended or close
ended and what their end use of funds is. An open-ended fund provides for easy liquidity and
is a perennial fund, as its very name suggests. A closed-ended fund has a stipulated maturity
period, generally five years. A growth fund has a higher percentage of its corpus invested in
equity than in fixed income securities, hence, the chances of capital appreciation (growth) are
higher. In Growth Funds, the dividend accrued, if any, is reinvested in the fund for the capital
appreciation of investments made by the investor. An Income fund on the other hand invests
a larger portion of its corpus in fixed income securities in order to pay out a portion of its
earnings to the investor at regular intervals. A balanced fund invests equally in fixed income
and equity in order to earn a minimum return to the investors. Some mutual funds are limited
to a particular industry; others invest exclusively in certain kinds of short-term instruments
like money market or Government securities. These are called money market funds or liquid
funds. To prevent processes like dividend stripping or to ensure that the funds are available to
the managers for a minimum period so that they can be deployed to at least cover the
administrative costs of the asset management company, mutual funds prescribe an entry load
25
or an exit load for the investors. If investors want to withdraw their investments earlier than
the stipulated period, an exit load is chargeable. To prevent profligacy, SEBI has prescribed
the maximum that can be charged to the investors by the fund managers.
DEPOSITORIES
The depositories are important intermediaries in the securities market that is scrip-less or
moving towards such a state. In India, the Depositories Act defines a depository to mean "a
company formed and registered under the Companies Act, 1956 and which has been granted
a certificate of registration under sub-section (IA) of section 12 of the Securities and
Exchange Board of India Act, 1992." The principal function of a depository is to
dematerialize securities and enable their transactions in book-entry form.
.
A depository established under the Depositories Act can provide any service connected with
recording of allotment of securities or transfer of ownership of securities in the record of a
depository. A depository cannot directly open accounts and provide services to clients. Any
person willing to avail of the services of the depository can do so by entering into an
agreement with the depository through any of its Depository Participants.
DEPOSITORY PARTICIPANTS
A Depository Participant (DP) is described as an agent of the depository. They are the
intermediaries between the depository and the investors. The relationship between the DPs
and the depository is governed by an agreement made between the two under the
Depositories Act. In a strictly legal sense, a DP is an entity who is registered as such with
SEBI under the provisions of the SEBI Act. As per the provisions of this Act, a DP can offer
26
depository related services only after obtaining a certificate of registration from SEBI. SEBI
(D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for stockbrokers,
R&T agents and non-banking finance companies (NBFC), for granting them a certificate of
registration to act as DPs. No minimum net worth criterion has been prescribed for other
categories of DPs. However, depositories can fix a higher net worth criterion for their DPs.
NSDL requires a minimum net worth of Rs. 100 lakh to be eligible to become a DP as
against Rs. 50 lakh prescribed by SEBI (D&P) Regulations.
27
CHAPTER 3
OBJECTIVE OF STUDY
Whenever a study is conducted, it is done on the basis of certain objectives in mind. A
successful completion of a project is based on the objectives of the study that could be stated
as under: -
28
1. To study the expectations and apprehensions of Investors and Traders and also their
way of working in Indian stock markets.
2. To study the time period for which investments are generally made by investors in the
stock markets.
3. To study how comfortable people investing in stock markets are.
4. To study the importance of various factors which according to investors and traders
affect the share prices.
5. To study the decision making criterions of those investing in stock markets.
6. To determine the most preferred investment avenues of those dealing in stock
markets.
CHAPTER 4
RESEARCH METHODOLOGY
Research Methodology is a systematic way to solve the research problem. It may be
understood as a science of studying how research is done scientifically.
The present study was undertaken for the Study of Indian Stock Markets. This chapter gives
us the Research Design, Sampling Plan, Method of Data Collection and Tools used for Data
Analysis & Interpretation.
29
The study was conducted by designing a questionnaire. Before going for the research I
conducted a Pilot Run with 25 respondents which threw light on few aspects which needed
improvement. This pilot run also gave me few new things which I took care off while doing
the research. Then I personally contacted 200 respondents to get the questionnaires filled.
UNIVERSE
The universe of the study included respondents of tri-city Chandigarh who are currently
dealing into stock markets.
SAMPLING PLAN
Sampling is an effective step in collection of primary data and has a great influence on the
quality of results. The sampling plan includes the population, sample size and sampling
design.
POPULATION
The study is aimed to include all those people who are currently dealing into stock markets.
SAMPLE SIZE
The sample was drawn from the population using convenience sampling technique. The
sample size for the research was kept at 200.
SAMPLING DESIGN
30
The selection of the respondents was done on the basis of convenience sampling as the
universe under the coverage area of the study was too large.
METHOD OF DATA COLLECTION
To observe and probe into the perceptions of the investors and traders present in Stock
Markets in India, I have prepared a questionnaire containing 14 questions. I personally
contacted 200 respondents to get the questionnaires filled. All possible efforts were made to
gather information in some rational way to remove biasness.
DATA ANALYSIS & INTERPRETATION:
For the purpose of analyzing, raw data was summarized into charts and the results have been
carried out. The questions, which have alternative choices, were analyzed by taking
percentages. Proper analysis of the data has been made to get proper results.
STATISTICAL TOOLS
Various statistical tools of analysis like frequency distribution, percentages, mean, Z-test and
Chi-square test have been used to meet the objectives of the study. The details of the
techniques used are as follows:
LIKERT SCALE
31
The response to the opinion statement was measured on a 3 point scale. The scale consisted
of the options of very important, important and not important. The weights assigned to these
scales are 2, 1 and 0.
MEAN SCORE
The options were given scores (Sn) according to their importance or intensity. The total
scores (T) were calculated by finding the summation of Sn x fn where fn is the frequency of
response for every option. The mean scores (M) are calculated by dividing the total score (T)
thus obtained by the number of respondents.
Z-TEST
The z-test was used to determine whether the investors and traders are comfortable in
investing in the stock markets or not. The test was applied as under:
Where:
Xp : Population Mean
Xs : Sample Mean
N : Sample Size
S.E. : Standard Error
For the z-test following null hypothesis was formulated.
H0 : The investors and traders are not comfortable while investing in stock markets.
32
CHAPTER 5
ANALYSIS AND INTERPRETATIONS
This chapter presents the analysis of the primary data collected from the respondents.
5.1 INTERPRETATIONS
33
5.1.1 NATURE OF INVESTMENT
A total of 200 respondents were studied. The split up of the respondents according to the
nature of their investment is as given in table 5.1
Table 5.1 Distribution of respondents according to their nature
NATURE NUMBER PERCENTAGE
Investor 70 35%
Trader 130 65%
35% of the respondents were investors and 65% were traders. Thus most of the respondents
covered during the course of survey were investors who invested their funds for certain
period of time.
5.1.2 TERM OF INVESTMENT BY INVESTORS
The investors were also asked to mark their choice for the term of their investments. The
sample size for this purpose remained at 70.
Table 5.2 Distribution of respondents who were investors according to their tenure of
investment
34
TERM NUMBER PERCENTAGE
Short Term 20 28.57
Medium Term 33 47.14
Long Term 17 24.29
The study showed that around 29% of the respondents were short term investors, around 47%
medium term investors and only 24% were long term investors. Thus, it can be concluded
that most investors in share markets are either short or medium term investors.
5.1.3 TYPE OF TRADING BY TRADERS
The traders were asked to mark their choice for the most preferred type of trading. The
sample size for this purpose was 130.
Table 5.3 Distribution of respondents who were traders according to their type of trading
TYPE OF TRADING NUMBER PERCENTAGE
Intraday 76 58.46
Cash/Delivery 23 17.70
Futures & Options 31 23.84
The study showed that around 58% of traders do intraday trading, 18% do cash or delivery
based trading and rest 24% trade in futures and options. Therefore, it can be clearly
35
concluded that intraday trading is the most preferred type of trading by traders, followed by
futures and options.
5.1.4 COMFORATABILITY LEVEL OF INVESTORS AND
TRADERS
In the present state of stock markets, it becomes really important to know whether the
investors and traders dealing in stock markets are comfortable investing in stocks or not.
An effort has been made in this project to know the comfortability level of those who are
currently dealing into stock markets. The respondents were asked to give their opinion
about their comfortability level on a 5 point likert scale. The points of scale being very
comfortable, somewhat comfortable, indifferent, somewhat uncomfortable and not at all
comfortable.
The weights attached to these waits were 5,4,3,2 and 1 respectively. Z-test has been used
to check the hypotheses, with null hypotheses being set as:
H0 : The investors are comfortable.
H1 : The investors are not comfortable
Table 5.4 Z-test calculations
N f Nf D D2 fD fD2
5 16 80 2 4 32 64
4 22 88 1 1 22 22
3 70 210 0 0 0 0
2 56 112 -1 1 -56 56
1 36 36 -2 4 -72 144
36
∑f = 200 ∑nf = 526 ∑D2 = 10 ∑fD= -74 ∑fD2 = 286
Mean = ∑nf/∑f
= 526/200
Sample mean = 2.63
Population mean = 2
(Assumed i.e. hypotheses)
Standard Deviation = 1.137
Standard Error = 0.08
Z calculated is found out by dividing the difference of sample mean and population
mean by the standard error.
Zc = 7.875
Zt = 1.96
Since Zc > Zt therefore H0 is rejected and H1 is accepted
This shows that the investors are not comfortable at this point of time while investing
funds in stock markets.
Thus it is clear from the Z-test that the investors are not comfortable while investing their
funds in stock markets. It signifies the investor’s lack of confidence in Indian capital
markets.
5.1.6 NUMBER OF DEMAT ACCOUNTS
The respondents also had to mark for the number of demat accounts they currently hold.
37
Table 5.6 Distribution of respondents according to the number of demat accounts
NUMBER OF DEMAT
ACCOUNTS
NUMBER PERCENTAGE
0 – 2 119 59.5
2 – 4 59 29.5
4 & Above 22 11
As it is evident from the table, 60% of the respondents only had one demat account whereas
29% had either 2 or 3 demat accounts and only 11% had 4 or more number of demat
accounts. Therefore, it is clear that most people deal through one demat account and less
people have multiple number of demat accounts.
5.1.7 PREFERENCE OF STOCK EXCHANGE
All the respondents had to mark their choice for the most preferred stock exchange. Results
have been shown below:
Table 5.7 Distribution of respondents according to their preference of dealing in two major
stock exchange of India
STOCK EXCHANGE NUMBER PERCENTAGE
NSE 124 62
BSE 76 38
38
62% of the respondents marked their preference for NSE and only 38% for BSE. This
clearly shows that NSE outperforms BSE by a big margin and is the most preferred choice of
people to trade in.
5.1.8 FREQUENCY OF TRADING
The respondents were asked to mark their choice as to their general frequency of trading.
Table 5.8 Distribution of respondents on the basis of their frequency of trading
FREQUENCY NUMBER PERCENTAGE
Daily 60 30
Once a week 37 18.5
Once a month 16 8
Depends 87 43.5
The study revealed that 30% of the respondents traded daily, 18.5% traded once a week, 8%
traded once a month and 43.5% traded depending upon the market availability and
availability of funds. Thus, most people trade in tandem to markets and availability of funds.
5.1.9 PREFERRED MODE OF TRADING
The respondents were asked to mark their most preferred mode of trading among the
following four choices:
39
1. Dial and trade
2. Online Trading
3. Software loaded at their PC’s
4. At Broker’s House
Table 5.9 Distribution of respondents according to their preferred mode of trading
MODE OF TRADING NUMBER PERCENTAGE
Dial and trade 86 43
Online trading 40 20
Software 22 11
Broker house 52 26
The above table shows that 43% of the respondents preferred dial and trade, 20% preferred
online trading, only 11% preferred trading by softwares loaded on their PCs and 26%
preferred to trade at the broker’s house. Thus, it can be concluded that dial and trade and
trading at broker’s place are the two most preferred mode of trading of respondents.
5.1.10 PREFERENCE OF TRADING WITH MARGING FUNDING
40
Margin funding is a facility provided by brokers at a charge of some rate of interest on the
amount funded. Respondents were asked to mark their general preference for it.
Table 5.10 Distribution of respondents according to their preference of trading with
margin funding
FACILITY NUMBER PERCENTAGE
Yes 44 22
No 116 58
Sometimes 40 20
22% of the respondents preferred to trade with the facility of margin funding, 58% did not
prefer trading with margin funding and 20% traded on margin funding depending upon the
market conditions. Thus, market conditions play a major role for preference of margin
funding by respondents.
5.1.11 EXPOSURE DESIRED
Exposure is the number of times an investor can trade over and above his available funds.
Respondents had to mark their choice for the exposure they desired in normal market
conditions.
Table 5.11 Distribution of respondents according to the exposure they desire
EXPOSURE NUMBER PERCENTAGE
0 – 2 Times 98 49
41
2 - 4 Times 68 34
4 - 6 Times 17 8.5
6 - 8 Times 10 5
8 & more Times 7 3.5
As evident from the table, 49% of respondents desired exposure of only one time, 34%
desired of two or three times, 8.5% desired of four or five times, only 5% desired of six or
seven times and only 3.5% desired for exposure of eight times or more. Thus, most of the
respondents do not want themselves to be exposed to more of risk.
5.1.12 FACTORS AFFECTING MARKET PRICES OF SHARES
Today’s capital markets are dependent on a number of factors. In this study an attempt
has been made to understand the various factors that an investor thinks is responsible for
changes in market prices of shares.
The respondents were given a set of factors and were asked to rate them on a 3 point
scale. The points on the scale were very important, important and not important. The
relative weights attached to these options were 2,1 and 0. Weighted means for each factor
were calculated. Inferences were drawn based on the following:
Table 5.12 Mean score and importance attached
MEAN IMPORTANCE
1.25 to 1.5 Fairly Important
Above 1.5 Very Important
42
Table 5.12.1 Factors considered responsible for changes in market prices of shares
SCORE 2 1 0
FACTORS Very imp. Important Not imp. Total score Mean score
Demand &
Supply
140 60 0 340 1.70
Companies
Business
Developments
126 52 22 304 1.52
Global
Markets
150 47 3 347 1.735
Indian
Economy
119 49 32 287 1.435
Interest 84 76 40 244 1.22
43
Rates
The factors having mean score ranging between 1.25 to 1.50 are considered to be fairly
important and factors having mean score more than 1.50 are very important from the
investor’s perspective.
As it is clear from the table, Indian economy fall under the category of fairly important
factors with mean score of 1.435. Thus, it may be noted that the economy plays a vital
role in development of capital markets.
Three factors with mean score greater than 1.5 are in the category of very important
factors. At the top is the global market factor. Its mean score is 1.735 which is on the
higher side. Demand and Supply is another important factor that affects capital markets
with mean score of 1.70 which is quite high. The third important factor that affects
market prices of shares is a companies own business development. Its mean score is 1.52.
It is evident from the table that interest rates falls under the category of unimportant
factors. Thus, most respondents are of the view that interest rates have a relatively less
bearing on share prices as compared to other factors.
5.1.13 FACTORS AFFECTING BUY OR SELL DECISION DURING
TRADING SESSION
There are a number of factors that influences the decision of investors to either buy or sell
shares during the trading session i.e. when the markets are operational. An effort has been
made to understand such factors.
44
Investors were asked to mark the most influential factor they thought which affects their
buying or selling decision during the trading session and the observed numbers (O) were
noted. Expected values (E) were set to be as equal i.e. all factors are equally responsible
for the investor’s decision.
Null hypotheses H0 : There is no significant difference between the factors and have
equal bearings on investor’s decision.
Chi-square was used to check the hypotheses. The observed and the expected values were
used and chi-square was calculated. Chi-square was applied as shown below:
Table 5.13 Chi-square test to test the hypothesis
Observed
Value (O)
Estimated
Value (E)
(O-E)2 (O-E)2 / E
Own
judgement
52 50 4 0.08
Companions at
trading centre
46 50 16 0.32
Research
Calls/Tips
43 50 49 0.98
Market News 59 50 81 1.62
Total 3
45
Table value at 95% confidence level (at degrees of freedom 3) = 7.81
As calculated value is less than table value therefore null hypothesis is accepted and alternate
hypothesis is rejected.
Thus, it can be concluded that an investor’s decision to buy or sell shares during the trading
session is influenced by a number of factors, the majority of them being own judgement,
companions at the trading centre, research calls/tips and market news and an investor’s
decision is influenced by each of them in some or the other way.
5.1.14 MOST SOUGHT INVESTMENT INSTRUMENTS
There are many investment instruments were an individual can invest his savings. Major
among those are in Stock markets, Fixed Deposits, Insurance and Mutual funds.
Respondents were asked to mark only that option from among the above mentioned 4
investment instruments in which they invest most part of their savings.
The observed values (O) were noted and Expected values (E) were set to be as equal i.e.
all investment instruments are equally invested in by all investors.
Null hypotheses H0 : There is no significant difference between different investment
instruments.
Chi-square was used to check the hypotheses. The observed and the expected values were
used and chi-square was calculated. Chi-square was applied as shown below:
Table 5.14 Chi-square test to test the hypothesis about most sought investment
instrument
46
Observed
Value (O)
Estimated
Value (E)
(O-E)2 (O-E)2 / E
Stock Markets 36 50 196 3.92
Fixed Deposits 92 50 1764 35.28
Insurance 33 50 289 5.78
Mutual Funds 39 50 121 2.42
Total 47.4
Table value at 95% confidence level (at degrees of freedom 3) = 7.81
As calculated value is greater than table value therefore null hypothesis is rejected and
alternate hypothesis is accepted.
So we can say that different investors invest in different investment instruments according to
their perceptions and pros and cons of different investment instruments.
46% of the respondents invested in fixed deposits which is quite high. The various factors
that could be attributed to this can be liquidity, high security of money and less but
guaranteed returns.
19.5% of respondents invested most part of their savings in mutual funds. The reason for this
can be liquidity, high returns, lower risk and tax advantages.
18% of the respondents invested mostly in stock markets, signifying thereby, their ability to
take higher risks, lust for higher returns and high amount of liquidity involved.
Only 16.5% respondents invested mostly in insurance products. The reason why people
invest less in insurance is its inability to provide good returns and liquidity to its investors.
Although, insurance has tax soaps attached to it, even then it’s the least preferred investment
avenue.
47
Therefore, from an investor’s point of view, the following factors are taken into account
while considering any investments:
1. Risk Involved in the investment
2. Liquidity of money
3. Tax advantages and
4. Returns
5.1.16 EXPECTED RATE OF RETURN
Respondents were asked to mark the rate of return they expected per annum out of their
funds invested in share markets.
Table 5.16 Distribution of respondents according to the returns they expect from share market
RETURN NUMBER PERCENTAGE
0 – 10% 24 12
10% - 20% 118 59
20% - 30% 28 14
30% & Above 30 15
The above table shows that just 12% of the respondents expect 0 – 10% returns, 59% expect
10 – 20% returns, 14% expect 20 – 30% returns and 15% expect 30% and above returns.
Thus, it can be concluded that most people dealing in share markets are optimistic in nature
and expect returns on a higher end.
48
5.2 SWOT ANALYSIS OF INDIAN STOCK MARKETS
Strengths
o World’s second fastest growing economy
o High Turnover with daily turnover averaging around 55,000 crores.
o Most sought Investment destination in Asia
o Large amount of Liquidity as flow of money has been continuous from
foreign sources.
o SEBI as a regulator efficacy
o Third largest Investor base in the World with more than 25 million
investors
o Macroeconomic Stability
o Technological Advanced
o One of the world’s lowest transaction cost based on screen based
transactions, paperless trading and a T+2 settlement cycle.
o P/E ratios of companies are moving in positive directions from last few
years.
o Level of inflation has also stayed at comfortable levels from quite some
time.
WEAKNESSES
o Higher interdependence on global markets like U.S. The recent example in
this regard is the sub prime loan mortgage defaults in USA which has
49
triggered panic in Indian stock markets, though; Indian companies are not
exposed to it.
o Higher volatility and lack of stability
o Speculative in nature
o Monetary and fiscal measures
OPPORTUNITIES
o Large amount of unutilized money with Public Sector Undertakings
(PSU’s).
o Pension Funds in the near future are to tap Indian stock markets.
o Large numbers of investors are still not exposed to stock markets, thus
large amount of savings still to reach stock markets.
THREATS
o Indian economy is getting overheated. Growth of around 10% is
unsustainable.
o Inflationary Trend.
o Tightening of liquidity norms by RBI.
o Chinese Economy.
CHAPTER 6
FINDINGS AND DISCUSSIONS
50
In a nation with population of more than 1.1 billion, only a handful of them invest in stock
markets. It is a place for all those who dream of a better, financially comfortable tomorrow as
stock markets are obviously the perfect place to invest-especially when stock markets can
make them considerably rich in a short span of time, provided they play their cards right.
Therefore, stock markets is all about taking right decision at the right time in the light of all
the information available and keeping a close watch on various factors affecting the stock
markets.
This study aimed at analyzing the behaviour and expectations of those dealing in stock
markets and finding such factors which they think are responsible for price fluctuations.
The study revealed that most of the people dealing in stock markets are investors as against
traders. This signifies that stock markets, despite of its risky nature is a good investment
avenue for investors who are generally looking for short to medium term investment. On the
other hand, people with trading nature that prefer investment for very short term mostly trade
in cash/delivery, followed very closely by intra day and futures and options.
The study also discovered that many people in stock markets are dealing through multiple
demat accounts which not only exaggerates the investor base, but provides a false picture of
Indian capital markets. Thus, it can be concluded that capital markets are still not among the
favoured investment destination for most and huge amount of savings are still unavailable to
capital markets. The study also found that dial and trade and trading at broker’s house are
undoubtedly the preferred mode of trading for most people but online trading is also catching
up fast. This can be taken as a potential market for depository participants to tap up. It was
51
also clear from the study that most people traded depending upon the market conditions and
availability of funds which clearly throws light on the behaviour of people dealing in stock
markets indicating that swing in the market and liquidity also plays its part in stock markets.
It was also found out in the study that most people preferred to trade in National Stock
Exchange (NSE) as compared to Bombay Stock Exchange (BSE). The most stated reason for
it was said to be availability of futures and options on NSE and lesser volatility of the NSE
index Nifty as compared to BSE’s Sensex.
It was also clear from the study that most of the people currently investing in stock markets
are quite comfortable investing in it. This is a clear indication of investor’s confidence in
Indian capital markets and a positive sign for India’s growth. It was much more evident when
many of them answered in positive for the facility of margin trading and indicated for higher
exposure they desired in the normal market.
One of the most important objectives of the study was to determine most important factors
responsible for price fluctuation according to people dealing in stock markets, analyze the
decision making criterion for investment and their expectations from markets.
Though, stock markets are driven by a number of factors, yet from among the major factors
given as choices, the study revealed that most people gave high amount of importance to
demand and supply factors, global markets and a company’s business developments. Indian
economy was also considered to be an important factor whereas interest rate factor was
considered to be unimportant by the most. The study found out that people depended upon a
number of factors such as own judgement, companions at the trading centre, research
52
calls/tips and market news to buy or sell shares during trading session and they were more or
less equally important. The study was also aimed at finding out the returns that people expect
out of their funds invested in stock markets and most of the answers ranged between 10%-
30% which is a sheer sign of optimism among investors.
The study also made it clear that most people still are not much risk takers when it comes to
investing most part of their savings. They prefer to invest in one of the safest investment
instrument called fixed deposits followed by mutual funds, stock markets and insurance.
Other objective of the study was to find out the most important factor that influences the
decision of the people in stock markets for the choice of a brokerage house and awareness
regarding Anand Rathi and its products and services.
The most important factors which emerged were the account opening and annual charges and
brokerage charged, clearly indicating that brokerage houses should keep such charges at the
minimum to attract maximum customers. The other factor which influenced the choice of
many was the service being provided by brokerage house. This should be taken as a potential
area to work upon by all brokerage houses. The awareness regarding Anand Rathi and its
products and services was found to be very low as compared to the group’s stature. The
company needs to seriously work on its strategies to have a presence in the market, the
suggestions for which have been given personally by me in the next chapter.
53
Though every care has been taken to make this report authentic in every sense, yet there were
a few uncomfortable factors, which might have their influence on the final report. Linking
factors can be stated as: -
Time Constraint
Due to lack of time it was not possible to deeply study every aspect of stock markets and
devote enough time for research work. But still sincere efforts were put to reach to the
reliable conclusion.
Data Collection Constraints
There were many problems regarding the collection of data which are as follows:
Primary Data Constraints
1. As the questionnaires were filled during the working hours, the respondents had little
time to devote for filling the questionnaires.
2. Some respondents didn’t have their serious attitude towards the questionnaire and
hence their responses may not reflect the real picture.
3. Some of the respondents were not candid enough to reveal all the required
information. They might have given inflated or wrong data.
4. The survey was conducted in the Chandigarh and its surrounding areas. Thus the
respondents belonged only to this region of country. This could have brought biasness
into the study.
55
5. However all the efforts were made to remove the biasness but it cannot be denied that
there is no possibility of individual biasness on the part of respondent.
Secondary Data Constraints
It was tried very harder to include the best of information from published and unpublished
sources available on internet, books and magazines but some of the data required for the
detailed study was not available freely.
56
BIBLIOGRAPHY
Books
Marc Levinson, Guide to Financial Markets
Naresh K. Malhotra , Marketing Research
Web Sites
www.surfindia.com
www.wikipedia.com
QUESTIONNAIRE
Dear Sir/Madam,This information provided by you will be utilized in completion of our MBA project.We will be thankful for the time & effort you will spend in filling the questionnaire.
o Name………………………………………………………………
o Address……………………………………………………………
o Phone number…………………………………………………….
o Profession………………………………………………………….
1. Are you a:Investor
Trader
If an investor, go to Q2 otherwise proceed to Q3.
2. What type of investor you are:
Short Term
Medium Term
Long Term
3. As a trader which type of trading you do the most:
Intra Day
Cash/Delivery
Futures and Options
4. How comfortable you are while investing in current phase of stock markets:
Very Comfortable
Somewhat Comfortable
Indifferent
Somewhat Uncomfortable
Not at all comfortable
5. To what extent you are aware about Anand Rathi and its products and services:
Detailed Knowledge
Not detailed knowledge
Heard about it
Not Heard
6. How many demat accounts do you have?
0 - 2
2 – 4
7. In which equity market you prefer to work the most and why(Please specify):
NSE BSE
…..........................................................................................................
8. How often do you trade in stock market?Daily
Once in a week
4 and above
Once in a month
Depends on the market conditions and availability of funds
9. What is your preferred mode of trading?
Dial and trade
Online trading
Software loaded at your PC
At the broker house
10. Do you prefer trading with the facility of margin funding?
Yes
No
Sometimes, when the market is in full swing
11. What is the exposure you desire in the normal market?
12. What importance does the following factors have in the change in market prices of
shares in the share market: (Tick the appropriate option)
Very Important Important Not Important
Demand & Supply
Companies Business Developments
Global Markets
Indian Economy
Interest Rates
8 and more times
0 -2 times 2 -4 times 4 - 6 times
6 - 8 times
13. Which is the major factor that lures you to buy or sell shares during the trading
session?
Own judgment
Companions at the trading centre
Research Calls/Tips
Market News
14. In which of the following investment instruments you invest most part of your savings:
(tick only one)
Stock Markets
Fixed Deposits
Insurance
Mutual Funds
15. What are the factors that influence your decision to choose a brokerage house:(Rank:1
for most important criterion and 4 for least important criterion)
Account Opening Charges & Annual Charges
Brokerage
Services (Margin Funding, research calls)
Location
16. What percentage of return you expect per annum from your funds invested in share
market?
0 - 10%